Monday, June 29, 2009

Madoff, the "little guy", and the SEC

Bernard Madoff has been sentenced to 150 years in prison for defrauding investors of at least $13 billion.

We all pretty much know the details of his crime by now, given the months-long media coverage devoted to Madoff's decades-long ponzi scheme (which many refer to as the biggest ponzi scheme in history). We won't rehash all the details here. Instead, let's focus on how this giant fraud against investors was uncovered.

Madoff confessed to his crime back in December when adverse market conditions led to a wave of redemption requests from investors. In spite of one whistleblower's attempts to shed light on Madoff's fraudulent scheme (essentially handing the agency an investigative case file), and repeated examinations into Madoff's business by the SEC and other regulatory agencies, the fraud was never revealed. That is, until Madoff was forced to reveal it.

So what does the SEC concern itself with if it's not actively pursuing cases against the largest, most sophisticated investment firms? According to Joe Nocera at the New York Times, it's usually building a case against smaller investors and brokers, including those who have done nothing illegal or unethical:

"Three months ago, in a courtroom in Bridgeport, Conn., a 72-year-old former
Morgan Stanley broker named Richard A. Kwak was cleared of any involvement in a small-time stock manipulation scheme.

The Boston office of the Securities and Exchange Commission began the investigation around 2001. Three years later, formal charges were brought against Mr. Kwak and seven others. By the time the case went to trial, in 2007, only three defendants were left; the others had settled with the S.E.C.


In that 2007 trial, Mr. Kwak and another defendant, Stephen J. Wilson, were cleared of one charge, with a hung jury on the remaining charges. (The third defendant, who foolishly acted as his own lawyer, was found liable and fined $10,000.)

The S.E.C. retried Mr. Wilson in 2008. He was cleared. Finally, in March 2009, the S.E.C. retried Mr. Kwak, with the same result. The jury took less than four hours to exonerate him.

Mr. Kwak’s life is now in tatters. He is around $1 million in debt and suffers from emotional problems. He has struggled to stay out of bankruptcy. Although he is still a broker — he certainly can’t afford to retire — he long ago lost his job with Morgan Stanley, where he had spent several decades without so much as a hint of impropriety. Needless to say, his business is a small fraction of what it once was.

“It pretty well wiped me out,” he said a few days ago. He is extremely bitter. The same is true of Mr. Wilson, who is also deeply in debt and struggling to reclaim his life."

An isolated incident, you say? Have a look at this post from Tim Knight's blog (Hat tip: Howard Lindzon) along with this story from one similarly affected investor in the comments section (Hat tip: Bear Mountain Bull).

I suppose this is what they mean when they say that Wall Street's regulators are "looking out for the little guy"?

Related articles and posts:

1. Chasing small fry, SEC let Madoff get away - NY Times.

2. The Outrageous SEC - Slope of Hope.

3. The SEC makes Wall Street more fraudulent - Mises.org.

Friday, June 26, 2009

Lie to me, please

Have you ever noticed how pervasive lying has become in our culture?

Whether it's mass media advertising, political speech, or a sign announcing a new home development or "office park", we seem to be bombarded daily with insincere, vacuous messages or outright lies which try to re-frame our perceptions of reality.

Charles Eisenstein has written a very interesting article on this topic entitled, "The Ubiquitous Matrix of Lies"
(hat tip: Chris Nelder). Here's an excerpt from that piece:

"Increasingly, words don't mean anything. In politics, campaigning candidates make statements that flatly contradict their actions and policies, and no one seems to object or even care. It is not the routine dissembling of political figures that is striking, but rather our near-complete indifference to it. We are as well almost completely inured to the vacuity of advertising copy, the words of which increasingly mean nothing at all to the reader.

Does anyone really believe that GE "brings good things to life?" Or that a housing development I passed today - "Walnut Crossing" - actually has any walnut trees or crossings? From brand names to PR slogans to political code-words, the language of the media that inundates modern life consists almost wholly of subtle lies, misdirection, and manipulation.

We live in a ubiquitous matrix of lies, a sea of mendacity so pervasive that it is nearly invisible. Because we are lied to all the time, in ways so subtle they are beneath conscious notice, even the most direct lies are losing their power to shock us."

When was the last time you felt you were being lied to, implicitly or explicitly? Has it become harder to keep track of all the misleading messages and signals that we encounter in our daily lives? Please read "Matrix of Lies" and share your experience with us.

Related articles and posts:

1. George Orwell: "Politics and the English Language" - Mt. Holyoke.

2. Defining Bullshit - Timothy Noah for Slate.

Thursday, June 25, 2009

Eric King interviews Rick Rule

Eric King serves up another great interview for us at King World News Broadcast, this time with investor Rick Rule, of Global Resource Investments.

It's been a while since we've heard from Rick here at Finance Trends, but as long-time readers and Rick Rule fans will know, his views on everything, from investing in the natural resource markets to free-market economics and libertarian philosophy, are always insightful and often fascinating.

Enjoy the interview with Rick Rule, and check out more of King's interviews with guests such as Marc Faber, Barry Ritholtz, and Jim Grant at the King World Broadcast page (Hat tip: Controlled Greed).

Related articles and posts:

1. Rick Rule: The Golden Rule - Finance Trends.

2. Three rules for buying resource stocks - Finance Trends.

Tuesday, June 23, 2009

Fading dollar reserve status brings opportunity?

The US dollar's status as the world's reserve currency seems to be quickly fading, as our creditors become intensely worried about the nation's finances and move to diversify out of their huge dollar holdings.

Puru Saxena (hat tip to Bear Mountain Bull) notes that the profligate spending and propping up of failing industries (banking, in particular) with debt-financed bailouts is by no means limited to the US. In fact, it's become a global phenomenon as governments spend trillions of dollars, effectively implementing a worldwide transfer of wealth from savers to debtors.

"...After decades of excess credit and over-consumption, the developed world is finally being forced to deal with private-sector deleveraging. However, the governments seem to have other plans and they’ve decided to fight these deflationary forces tooth and nail. Their solution – even more credit and even more consumption!

Rather than accept a painful adjustment period, policymakers are desperately trying to revive the party. And in the process, they are making the situation much worse. All over the world, governments are spending trillions of dollars in order to clean up the mess. Unfortunately, the stark reality is that these governments have no money. So, in most instances, these glorious state-sponsored spending programs are being financed by borrowing and money-printing.

Most people seem to forget that these fiscal spending programs aren’t creating any real wealth and are simply transferring wealth from the savers to the debtors. Essentially, governments are taking money from the solvent and re-distributing these funds amongst the insolvent!

Needless to say, by bailing out the incompetent and buying their toxic assets, the governments are cleaning up the private-sector balance sheets but at a huge cost. In the process of saving a few ‘too big to fail’ corporations and their bond holders, policymakers are greatly increasing the risk of sovereign defaults. In a nutshell, policymakers are erroneously transferring private-sector risk to the state... "

Saxena goes on to say that he expects sovereign (national) bankruptcies to follow, and that the reckless money printing and stream of bailouts ensure the die is cast for (over the medium-term) "massive inflation".

Now where is the possible opportunity in this scenario?

Against this backdrop, Tony Allison (also writing for FSO) suggests that America should take advantage of this small window of opportunity and "build a productive infrastructure before the currency is destroyed":


"...The clock is ticking on the U.S. dollar, and there is no time to waste. If we are as determined to destroy our currency as it appears, let’s at least build a productive infrastructure while we still can. We cannot afford to blow the stimulus money on political patronage and transfer payments. Those are the traditional political remedies to insure re-election. However, this time re-election may just mean taking the blame for a rapidly-declining empire.

Reserve currency status at risk

Time is critical and common sense is essential. If the U.S. loses its tremendous advantage of having the world’s reserve currency, we will not be able to simply print money and force the world to accept it to service our massive foreign debt. We will be forced to build up our savings and pay down our debts, which will greatly slow our growth rate. With an aging, inefficient infrastructure, this will make the process of revamping and restructuring our economy extremely difficult.

We need to rebuild the infrastructure of this country quickly (very difficult) and intelligently (even more difficult). Mindlessly dumping hundreds of billions into roads and bridges is not thinking strategically. We need a full-court press, all-out national effort to re-build intelligently and focus on areas with the most benefit..."

What do you think? Would an all out effort to spend money
(while the getting is good) developing infrastructure and alternative energy help America rebuild for the future? Or is it simply another (seemingly practical) debt-financed scheme to throw money at our problems?

Friday, June 19, 2009

"Know Thyself" - Richard Russell on identity

This essay, from Richard Russell of Dow Theory Letters, is probably one of the most important pieces of writing you'll ever find on this site.

Russell's recent piece on self identity is not only a must read for traders and investors, it's essential knowledge for the entire human race.

Without further ado, here's an excerpt from Russell's recently penned essay, "Identity: Know Thyself":  

"The following is what I think is wrong with the world. It’s a worldwide lack of IDENTITY on the part of the great majority of the earth’s population.   

There are three Levels of existence -

(1) the highest Level is who or what you are

The next lower Level is

(2) what you’re doing or what you have done.

(3) the lowest Level is what you own.

An example of Level (1) is Jesus, who changed the world based on who he was. An example of Level (2) is George Patton, one of the great generals of World War II, whose daring exploits amazed the world. As for Level (3), we have John Rockefeller who possessed fabulous wealth or today we have Bill Gates.

Most people on this earth have no identity, no “self.” As a result, they often pick an identity such as I’m a “Yankee fan” or I’m a “Texan” or I’m a “race-car driver” or I’m a “blood.” To lack an identity means you are mindless fodder in this world, and you’re open to join any group that fascinates you or that fits into your personal fantasy.

People long to have an identity – to belong to something which gives them an identity. People without an identity can be dangerous. When you have an identity you have a self – you are centered, and you can stand as a person with your own strong convictions."
 
Read the full piece at Joe Cobb's blog and pass this article on to anyone who'd appreciate it. 

Related posts

1. Marc Faber's advice to young people and the meaning of "success".

2. Jim Rogers interview: lessons on life and investing.

Thursday, June 18, 2009

Eric King interviews Jim Puplava

Eric King recently interviewed Jim Puplava (part 1 & part 2), of Puplava Securities and Financial Sense Online, for his King World News Broadcast program.

Those of you who regularly visit Financial Sense Online, or listen to its weekly Financial Sense Newshour broadcast, will need no introduction to Jim's work. Since its start in the late 1990s, Puplava (with help from much of his family) has built FSO into one of the best financial portals and macro news/interview programs around.

Fans of the FSN broadcast are used to hearing Jim conducting the guest interviews, so it's great to hear his thoughts on the markets and economy as an interviewee.

Be sure to listen to both segments
(part 1 & part 2) of this Jim Puplava interview, and see the King World News broadcast archive for more great discussions with guests such as Marc Faber and Barry Ritholtz.

Wednesday, June 17, 2009

Obama's plan could boost Fed's power

Dear leader Obama is speaking out today on another of his far-ranging plans to "save the world"; this time it's a proposal to reshape financial industry regulation and expand the powers of the Federal Reserve.

Bloomberg has the details:

"
President
Barack Obama said his plan to refashion supervision of the U.S. financial system is needed to fix lapses in oversight and excessive risk taking that helped push the economy into a prolonged recession.

The proposal, much of which will be subject to approval by Congress, sets out the biggest overhaul of market rules in more than seven decades, adding an additional layer of regulation for the biggest firms. It would create an agency for monitoring consumer financial products, make the Federal Reserve the overseer of companies deemed too big to fail, and bring hedge and private equity funds under federal scrutiny.


“This was a failure of the entire system,” Obama said at a White House event that included the leaders of the Treasury, the Fed and other regulatory agencies. “An absence of oversight engendered systematic, and systemic, abuse.”

The announcement marks the beginning of what promises to be a political battle that’s likely to alter the president’s plan. Obama, who has called the “sweeping overhaul” of regulations one of his top domestic priorities, said wants to sign legislation to enact it by the end of the year."

Note the grand legitimizing theme: we need this overhaul due to "a failure of the entire system" (read: managed capitalism) and a supposed "absence of oversight" in the financial sector.

However, as anyone who has studied the situation already knows, many of the huge disasters of this financial panic have occurred in the most regulated sectors of the economy, namely the "too big to fail" banks and insurance firms.

As hedge fund manager John Paulson pointed out in last fall's DC hearings on hedge funds and the financial crisis, it was the heavily regulated banks which contributed most to the building panic due to their overleverage and imprudent bets on mortgage-backed bonds.

Let's not forget the remarkable failure of OFHEO (now part of FHFA), the oversight committee tasked specifically to watch Freddie Mac and Fannie Mae, which somehow managed to sign off on Fannie and Freddie's accounting practices just before these "government-sponsored-enterprises" admitted to manipulating earnings in a huge accounting fraud scandal.

Actually, OFHEO released a lengthy report on accounting irregularities at Fannie Mae in 2004, but the warnings were largely ignored by the media and attacked by politicians friendly with the GSEs. Where was the saving grace of government regulation in this instance?

Obama's lecture on financial regulation also (conveniently) fails to recognize the enormous role that government had in fostering the conditions which built this crisis, namely the Fed's easy money policies (which gave rise to the housing bubble) and the expansion of a social engineering program designed to encourage homeownership, no matter what the eventual cost was to the individual or society.

We could go on and on in this fashion, but it's best to just cut to the chase and say what needs to be said. The government is seeking to expand its reach (and the Fed's) over the private economy, on the heels of a financial crisis it helped create.

For more on this, please listen to the Thomas Woods Meltdown interview and see the related articles below.

Related articles and posts:

1. Thomas Woods: Meltdown interview - Finance Trends.

2. The Bailout Reader - Mises.org.

3. The Myth of Systemic Collapse - Real Clear Markets.

4. Government intervention fuels the crisis - Finance Trends.

Monday, June 15, 2009

Doug Casey - "Deflation is a good thing"

I was participating in Stocktwits' MacroTwits discussion last night, when someone brought up the idea that inflationary policies by the Fed were a necessary "cure" for a looming deflation.

Although I've tuned out most of the mainstream discussion on "inflation vs. deflation" and related debates, I have heard and learned enough in the past to know that the fear of deflation is a widespread phenomenon in modern America (and probably throughout the developed world).

Considering the high amounts of debt carried at all levels of our society (personal, government, corporate), this fear is very understandable. Deflation, a decrease in the supply of money and credit, results in an increase in the value of money in circulation.

In a deflation, debtors must pay back loans to their creditors with money that is steadily increasing in purchasing power. The onus is on the debtor to pay back his loan with money that is more valuable than the principle he was originally lent.

Compare this scenario with one of an ongoing inflation, in which borrowers repay their loans with money whose value has steadily eroded over time. A fine deal for the borrower, but not so much for the lender.

Now that we know where our present sympathies lie, and why, let's take a look at Doug Casey's response to these persistent fears of deflation. Here is an excerpt from "Doug Casey: 'Deflation is actually a good thing'":

"
Q: Doug, according to a recent article called "The Greater of Two Evils," The Economist recently stated that inflation is preferable to deflation. What is your take on that?

Doug:
"...let me get into the article itself. The author points out that inflation is distant and containable while deflation is at hand and pernicious.

Look, in a free-market economy, without central banks and without fractional reserve banking, both inflation and deflation as chronic events are really not possible. In a completely free-market economy, money is just a medium of exchange and a store of value. It is not used as a political football where the supply is pumped up to make people feel that they are richer than they are. It is not created by fiat encouraging people to consume and live above their means. That’s why inflation feels good at first… it makes you feel richer than you really are.

Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money. Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. In other words, by saving, not borrowing. And during a deflation, when money becomes more valuable, everybody wants money. They want to save.

Whereas during an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don’t become wealthy by spending and consuming; you become wealthy by producing and saving.

Inflation encourages people to borrow, because they expect to pay the debt off with cheaper dollars. It encourages people to mortgage their future.

The basic economic fallacy in this is that a high level of consumption is good. Well, consumption is neither good or bad. The problem is the emphasis on consumption financed by debt -- which leads to the national bankruptcy we’re facing. It’s much healthier to have an emphasis on production, financed by savings..."

Be sure to read the full piece and pass it along to your friends and colleagues. If you'd like a more scholarly read on the Austrian economists' view of deflation, please refer to the articles in our footnotes below.

Related articles and posts:

1. The Imaginary Evils of Deflation - Christopher Mayer at Mises.org.

2. The Anatomy of Deflation - George Reisman at Mises.org

Friday, June 12, 2009

Paul Tudor Jones on trading macro

Here's something that's been making the rounds on Twitter lately - a 2008 Institutional Investor magazine interview with hedge fund Hall of Famer, Paul Tudor Jones.

For those who don't know, Jones has enjoyed an extremely successful career as a commodity trader and hedge fund manager. He is known for an employing a global "macro" style for much of his investing, taking positions in a variety of markets (commodities, equities, currencies, derivatives) as a means of expressing market bets on big-picture speculative themes.


Here's an excerpt from his II mag profile interview:

"What’s so special about macro hedge fund managers?

I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500.

When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years.

While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it".

And for those who'd like to read more in this vein, see II's interview with Louis Bacon, of Moore Capital, as well. You'll note the Bacon-Jones connection right from the opening paragraphs. Enjoy.

Thursday, June 11, 2009

Jim Grant on CNBC: get set for inflation




Jim Grant joined CNBC for an in-studio appearance Wednesday and left the network bubbleheads with a few things to think about.

Big topic of discussion: inflation and its appearance in the US following the recent raft of money creation by central banks, the Fed in particular.

Grant notes that many in the US believe that inflation will not flare up due to "excess capacity" in the economy. However, Jim points out that measures of "output gaps" in the economy are not a useful leading indicator of inflation, and he reminds the assembled crowd that inflation is simply a product of "too much money".

At some point, that money will begin to chase something, be it consumer goods, services, commodities, and those price rises will signal the arrival of inflation as measured by CPI.

Always good to hear some thoughts from James Grant, especially since his equally thoughtful contemporaries, Marc Faber and Jim Rogers, have been notably absent from CNBC America lately (probably due to their rather dour outlook on the US).

Hat tip to Todd Sullivan at Value Plays.

Related articles and posts:

1. James Grant on Bloomberg TV - Finance Trends.

2. Federal Reserve audit support surging - Huffington Post.

Wednesday, June 10, 2009

Peter Bernstein - FT.com interview

Noted author and economic historian, Peter Bernstein passed away last weekend at the age of 90.

Here is Bernstein speaking about the financial crisis with The Financial Times in 2008 for the video interview series, "View from the Markets". Part one, part two, and part three.

Related articles and posts:


1. Peter Bernstein, 'Capital Ideas' author, dies - Bloomberg.

2. Remembering Peter Bernstein - CFO.com.

Monday, June 08, 2009

Creating a new reserve currency

There is a growing buzz over the possibility that the IMF will create a new global reserve currency based on special-drawing rights (SDRs) to replace the US dollar.

Bloomberg reports on the proposed new reserve currency:

"The International Monetary Fund said it’s possible to take the “revolutionary” step of creating a new global reserve currency to replace the dollar over time.

The IMF’s so-called special drawing rights could be used as the basis for a new currency, First Deputy Managing Director John Lipsky told a panel discussing reserve currencies at the St. Petersburg International Economic Forum today...

...The SDRs would have to be delinked from other currencies and issued by an international organization with equivalent authority to a central bank in order to become liquid enough to be used as a reserve, he said.

As much as 70 percent of the world’s currency reserves are held in dollars, according to the IMF, leading to calls for nations to diversify their cashpiles to avoid excessive exposure to the U.S. economy as it quadruples its budget deficit in a bid to counter the worst recession since the Great Depression. "

We've heard the rumblings over this movement away from the dollar (and towards a new reserve currency) in recent weeks, especially in comments and actions from China.

In fact, this movement away from the dollar seems to be accelerating with recent currency swap agreements (see FT link) and bilateral trading deals that would allow China and its trading partners to settle some transactions in their own currencies, rather than dollars.

Note the Bloomberg piece's mention of the need to create an "international organization with equivalent authority to a central bank" in order to issue a new global reserve currency based on SDR. This is, as RGE's Rachel Ziemba points out, a plan for a global central bank. Stepping stones towards a global currency?

Related articles and posts:

1. Ron Paul: reserve currency should be based on gold - RonPaul.com

2. Introduction to SDRs - IBT Commodities.

Friday, June 05, 2009

F.A. Hayek at Stanford, 1970



F.A. Hayek speaks with students at Stanford about economics and liberty in this video called, "Inside the Hayek Equation". Hat tip to Mises.org.

Related articles and posts:

1. Friedrich A. Hayek biography - Econlib.org.

2. Online books and essays of F.A. Hayek - Mises.org.

3. Interview w/ F.A. Hayek, 1977 - Reason.

4. F.A. Hayek on "Meet the Press", 1975 - Mises.org

Thursday, June 04, 2009

Barron's interview with Niall Ferguson

For those who missed it, Niall Ferguson was the featured interview in the latest issue of Barron's magazine.

Ferguson shared his thoughts on the global economy and offered a historically reasoned view on whether or not we face another Great Depression-style downturn. Here are some excerpts from that interview:

"Barron's: Is the worst over for the global stock markets and the economy?

Ferguson: It may look that way, but appearances can be deceptive. The stock market has actually tracked almost perfectly its downward movements between 1929 and 1931. Now that doesn't mean that we are going to repeat the Great Depression. I don't think we will, because the policy responses have been different.

It would be excessively optimistic, however, to conclude from a relatively small set of green shoots in the economic data that we are all going to live happily ever after. It is certainly way too early to say the Obama administration is right that the economy is going to grow at 3% next year and 4% in 2011. I find that scenario as implausible as a rerun of the Great Depression...

When will the recovery come?

Nobody has the faintest idea what next year is going to look like. It isn't clear yet that this is just a common recession. This is probably more like a slight depression. We won't see a big V-shaped bounce. Much of the consumption growth in the decade up to 2007 was fueled by things like mortgage-equity withdrawal. That game is clearly over. Strip that out, and you are looking at an annual economic-growth rate in the U.S. closer to 1½% to 2% than 4%."

Check out the full interview (non-subscribers can look for the full piece next week) for more of Niall's thoughts on the economy, arguments over banking regulation and deregulation, gold, and investing the Rothschild way.

Related articles and posts:

1. Niall Ferguson: The Ascent of Money (PBS) - Finance Trends.

2. Niall Ferguson: Paul Krugman is wrong - Business Insider.

3. European nations "as bad as Argentina": Ferguson - Bloomberg.

Wednesday, June 03, 2009

Links: hedge funds, deficits, & monetization

Been spending a lot of time on Twitter (see our page) and catching up with some important reading lately. Here are some links that have piqued my interest in recent days:

1. Bernanke warns deficits threathen financial stability - Bloomberg.

2. Geithner says there is "no risk" of Fed monetizing US debt (despite that already occurring); Bernanke should quit propping up the debt market if he's concerned about deficits - Clusterstock.

3. Profile of hedge fund legend Julian Robertson, plus a look at Robertson's steepener swap play (short US Treasuries) - Market Folly.

Note: we also mentioned Robertson's "curve steepener" trade earlier this year in, "Seasoned investors search for values".

4. Hedge fund industry climbs its 'slope of enlightenment' - FT.com

5. What you can learn from "old man socks" - Financial Philosopher.

6. Rock n' rollers: Ardent Music is reissuing Big Star's studio albums & releasing a new Big Star box set. You can also listen to songs from Chris Bell's "I Am the Cosmos" at the Ardent site; heard it there for the first time yesterday and I am blown away.

Enjoy the links & join us tomorrow as we take a historical look (w/ help from a noted tour guide) at the state of the global economy.

Monday, June 01, 2009

What's the Baltic Dry Index telling us now?

Saw an interesting tweet from Maoxian over the weekend on the (extreme) inflationary signals that the Baltic Dry Index seems to be giving us.

Have a look at the chart in Maoxian's tweet. I wonder if any of us have ever seen such a devastating decline (-94% drop), followed by such an amazingly quick and robust (BDI is up 427% since its Dec. low) recovery move?

Regulars here at Finance Trends may recall our past discussions of the Baltic Dry Index and its increased use as a gauge of global economic activity. So what is the BDI be telling us now?

Our March 23rd post (previous BDI update) focused on the relationship between (then) recent moves in the price of copper vs. the Baltic Dry Index.

At that time, copper prices were steadily moving higher, despite analysts' claims that the move up was not supported by "real demand"; the move up was supposed to be driven more by a temporary restocking of strategic inventories by the Chinese. I wondered, at that time, if copper would soon run out of steam and follow the dip then underway in the BDI.

As it turns out, both copper and the Baltic Dry Index have continued to move higher since that time. Take a look at this updated chart (courtesy of InvestmentTools.com) below.

So what is the recent strength in Dr. Copper and the Baltic Dry Index telling us now?

Have, as Maoxian recently suggested, the central bankers let loose an inflationary tidal wave? Or are we also starting to see some pick up in base metals prices and dry bulk shipping activity as China's economy expands and the dollar declines?

Related articles and posts:

1. Copper jumps to 7 month high on dollar, China - Bloomberg.

2. Commodities on a record rebound - The Australian.

3. Dry bulk market smiling again - Helenic Shipping News.

4. Dr. Copper is in the news again - Finance Trends.

5. Commodity currencies: follow that ship! - Finance Trends.