Not trusting some of the signals

In the short-term, markets look like they are about to play a little game which can be considered cruel.

‘Set-ups’ are suggesting rallies and lending to the June and July bottoms holding.

I’ll watch whether those lows still hold or make ‘lower lows’…..and in many assets/securities, I think they will hold.

The head fake may lie with many prices bouncing after having reverted to their long term mean but yet to register Oversold readings.

Keep in mind, that there is no rule saying both need to occur.

I think prices will jump a little, drag in a few more people and then spit them out again in the coming week or three followed up with another swoon.

Markets are cruel.

The price of the Baltic Dry Index and Aluminium are 2 examples, where they have mean reverted but yet to trade to weekly oversold levels and have bounced in the past day or two.

Experience and pattern recognition tells me to be patient for lower prices.

When your count is 3 balls and zero strikes, probability suggests you should ‘take a pitch’. You shouldn’t swing or chase a ball outside of your strike zone.

September 9, 2022
by Rob Zdravevski

Ships are cheap again

Shipping your dry, bulk goods around the world is cheap again.

Is the supply chain crisis fixed?

This index is telling us that the supply chains are easing and healing.It can also mean that demand is slowing and there are more empty ships looking for customers.

The latter can also forecast slower GDP growth.

In any case, shipping prices are considerably cheaper.It is time to lock in your shipping leasing rates.

The recent story began on February 8, 2020, when the stock market was trucking along well and the cost of shipping goods around the world was cheap.

The price of shipping was near multi-decade lows and trading at a 60% discount to its rolling 200 week moving average.
Back then, the Baltic Dry Index was trading at 425.
Within a month, the coronavirus pandemic sent the stock market into a rapid decline and various manufacturing, industrial and labour constraints or bottlenecks were creating a squeeze in global supply chains.

As a result, the cost of shipping dry, bulk goods (as measured by the Baltic Dry Index) had quadrupled by October 2020.

A further year on, the Baltic Dry Index was 13 times higher. It had risen from 425 in February 2020 to 5,650 in October 2021.

That is extraordinary…..the price of leasing a ship rose 13 fold within 21 months.

What is more interesting, although completely expected, was a swift and savage retracement of that parabolic price rise.

Today, the Baltic Dry Index (BDI) is trading at 1,415.The price of shipping has fallen 75% in under 4 months.

The BDI is now trading below its rolling 4 year price average and back to a reasonable price seen repeatedly over the past 10 years.

What’s next for the BDI?

I’ll correct a comment made is a December 27, 2021 post, where I stated $900 is a plausible target.

I now think 1,150 may be an extreme low in this downdraft, while 1,220 and 1,340 would satisfy an Oversold reading.In the context of the decline, all of this is quite negligible. 

I don’t have a read if the BDI bounces again from here as was seen in 2004, 2006 or 2009 but it does mean its much cheaper to lease a bunch of ships.

Companies should be able improve their margins with these lower shipping prices.

This is good for companies involved in transporting Grains, Iron Ore, Cement, Steel, Coal, Sugar, Salt and Fertilizer along with Automobiles and other finished products such as Building Materials.

Although, keep in mind that transportation is only part of chain.

My main interest are the companies who own and have the industrial capacity for they will be able to fill the output gap that I expect to persist.

January 22, 2022

by Rob Zdravevski

Shipping costs are adding to inflation

The Baltic Dry (shipping) Index has risen 10x over the past 15 months.

So the decision for businesses is that the cost of shipping is passed on into the finished product pricing or the bulk product isn’t transported (due to an aversion to higher shipping costs), resulting in scarcity.

Either way, prices rise…..and yet I’m told there isn’t any inflation.

August 22, 2021
by Rob Zdravevski

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