Here’s a link for readers to see the price spike in the Baltic Exchange Dry Index, which reveals shipping cost details that are tied to commodities: https://tradingeconomics.com/commodity/baltic. The definitions and composition are available for readers.
Yes, we have a spike. To put that spike in perspective, I suggest using some of the alternative date ranges. In your review of the chart in the article linked above, please include “All” (dates). With this long history, you can see previous spikes, when they occurred, and how long it took to resolve them such that shipping costs reverted to some mean of pricing. You can also select either a logarithmic or an arithmetic scale, and we suggest looking at both.
Our conclusion is that this current spike is to be expected, as we are in an intense recovery period which follows the extraordinary COVID shock. But will it last and lead to a sustained upward trajectory for prices? We’re not convinced.
Baltic Dry is a high-frequency indicator and has value when we are thinking about whether inflation is transitory or sustained at an upward price level. We agree with others, though, in concluding that it should be used as one of many indicators.
For investors to bet only on this index is purely gambling. The debate about transitory inflation continues.
We continue with a barbell defense in bonds and with some cash reserve in US ETF accounts. Our quantitative strategies are defensive.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
