Baltic Dry Index Screams STAGFLATION

This past week we saw the return of the “stagflation” trades. Gold had a great rally off the lows and Oil has moved up nicely off the floor. The Baltic Dry Index, seems to be suggesting a different tune. Let’s look closely at the index and it’s movement. From the chart above, you can see that it has rolled over and crossed its’ moving average and now seems to be pointed down. This indicator provides information on shipping rates. Usually when shipping rates are moving up, there’s demand. When they decline, there’s declining demand. I love this indicator.

Will this be a temporary correction in BDI, or will we re-test the lows ?

This is a curious phenomenon. Seemingly commodities are starting to taking off in price, gold and oil prices moving higher. You would expect that Baltic Dry Index would also be following; however, it appears that it’s not. That suggests that changes in the economy are PRICE driven and not DEMAND driven. If demand were truly starting to pick up in the economy, then shipping rates would be increasing, not declining.

Yes, we did see a bit of a pickup off the bottom in November and December of 2008. It’s interesting now though, with talk of inflation coming back, the index is rolling over. I read this as FED money creation is now driving price inflation. We could be moving into the next phase of this economic morass. STAGFLATION!

Now it will get really interesting - prices will be moving up - the FED will still have to inflate, as economic growth is still declining, this will put more upward pressure on prices. Eventually the FED will have to back off the expansion of the FED balance sheet and money supply, as the masses will be screaming to stop price inflation. I think I might go out this weekend and stock up on RICE, PASTA and Food. People will run to load up on things today, if they fear prices are going to rise dramatically. Get ready for GAS lines.

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