Inflate Until It Pops
This morning the U.S. Dollar Index is trading sharply lower by 0.37 cents to $80.46. As we have all learned by now when the U.S. Dollar Index declines most commodities will inflate and trade higher. Over the past ten years a weaker U.S. Index has been catalyst for the multi year rallies. If you look at the 2003 – 2007 stock market rally it was the declining U.S. Dollar Index that helped to inflate the stock markets around the world at that time.
The Federal Reserve Bank says that they are aiming for 2.0 percent inflation. Meanwhile, most leading commodity stocks such as Freeport McMoRan Copper & Gold Inc.(NYSE:FCX) is trading at a new 52 week high. The iPath Dow Jones UBS Copper Subindex Total Return ETN(NYSE:JJC) is trading just under it's all time high that was made last week at $59.63. The United States Gasoline Fund (NYSE:UGA) is trading at a new 52 week high this morning. Coffee, cotton, and other soft commodities remain at 52 week highs. Leading growth countries such as China, Brazil, and India, are complaining about inflation by having to raise interest rates yet the Federal reserve does not see inflation. There were food riots taking place in Algeria, and various other countries around the world over high food prices last week yet the Federal Reserve says there is no inflation. When is the Fed going to look at the real world and not at the reports that exclude food and energy? Perhaps never.
The major stock market indexes around the world have all rallied back sharply over the past 22 months when the stock market indexes made their March 2009 low. The rally higher across the globe comes as the Baltic Dry Index has been plummeting since June 2010. Here is the definition of the Baltic Dry Index according to Wikipedia. The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index tracks worldwide international shipping prices of various dry bulk cargoes. The index provides "an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a time-charter and voyage basis, the index covers Handymax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain". How can the stock markets inflate around the world without the Baltic Dry Index rising? In June, the Baltic dry Index was trading around 4250.00. Yesterday, the Baltic Dry Index traded as low as 1480.00. Something is wrong with this picture, however, the stock markets continue to inflate. Enjoy the rally it while it lasts. It won't last forever.