In the past the general belief is when the economy is doing well consumption will go up, stock market (Dow) will go up, manufacturing will go up, commodity price (CRB) will go up and shipping rate for transportation of dry bulk cargoes (BDI) will go up. The reverse is also believed to be true, when economy is no good, consumption will come down, Dow will drop, CRB and BDI will also drop.
Looking at the above chart of CRB-BDI-Dow, the three indices moved in tandem before October 2007 and also during the period from July 2008 to March 2009 when commodity prices collapsed.
The period between October 2007 and July 2008 the three indices did not move in tandem and starting from September 2010, three months ago, I noticed that the BDI is the first index that started to move in a different direction to Dow and CRB. This is not a good sign to me.
Is it possible that BDI is the only index that is telling the true on the state of world economy of high unemployment, low consumption and low industrial output? Whereas the commodity price is being supported by speculative buying by the hedge fund/pension fund as in 2008; as well as a lost of confidence in the US dollars (Buy Gold). As for Dow, is it being supported by all means by the big fishes to have an orderly retreat from the stock market? This is a big question only the insiders can answer.
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