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Baltic and trade update

Both these measures of shipping costs for bulk commodities have strengthened meaningfully over the past two months. U.S. goods exports are up at a 34% annualized rate in the five months ended September. Spot industrial commodity prices are up 33% from their lows of late last year. Clearly, the wheels of global commerce are spinning back up. Skeptics continue to claim that this huge and pervasive rebound in activity and pricing is being driven by mindless Chinese stockpiling of commodities. I think it must go far beyond that. Everything I see is consistent with a global recovery in confidence, in demand, and in production.

Accommodative monetary policy undoubtedly is playing a role here, but for now I view it more as facilitating the recovery in confidence that is necessary to get things going. At the end of last year, the world's investors and businesses were frozen by the terror of counterpary risk, and the demand for money was almost overwhelming. This demand desperately needed to be satisfied by the world's central banks, and they have complied. Now that things are back on track, however, they should start to reverse their massive liquidity injections. The longer they wait, then the greater the risk that the upturn in demand that we are seeing will get blown out proportion by speculation.

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