There tends to be strong correlation between the Baltic Dry Shipping Index and industrial commodities indices, such as the Journal of Commerce index, charts dating from the 1980s to 2003 show (charts that include recent dates distort the long-term charts, making it more difficult to clearly see the tight correlation).
The recent drop in the Baltic index, which has amounted to 13% thus far this year and 30% from the Nov. 13 peak, appears to imply a drop of as much as 10% in the JOC.
A drop in commodity prices would likely prove disruptive in the emerging markets, which have benefited from increases in commodity prices. Many investors have positions on the same side of the market in the emerging-market realm, owning the commodities, currencies, bonds and equities of countries benefiting from higher commodity prices. Any dislocation would probably be a good buying opportunity, given that the rise in commodity prices is a secular affair.
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Tony Crescenzi Blog Inventories a Bright Spot 1/15/2008 1:27 PM EST It seems that businesses have been managing the slowing in demand quite well.
Tony Crescenzi Blog Terrible Chain Store Data 1/15/2008 11:08 AM EST This could touch off a vicious cycle of cuts in output, a spike in jobless claims and a big drop in payrolls.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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