testing

When trade goes up, there is more demand for shipping. Of course, if there is an over-supply, the rate can still fall even on more trade. Nevertheless, a simple look at shipping rate charts tell you this is a market that is not anywhere near the old equilibrium. This just reinforces the commodity story that the super-cycle is over and trade is not growing at rates any near what shipbuilders may have expected. Shipping rates seem to have flat-lined since the pre-Financial Crisis environment. However, the variation at these low rates is significant. Clearly, rates have fallen with oil prices. 100% gains and more than 50% declines over a six month or less period are not unusual for all ship sizes. It is not clear that rates will immediately rise with oil prices since some tankers have been used as expensive floating storage.  Shipping rates are sending a signal and it is not trade friendly.

Commodities are not like other asset classes. They will be affected by different factors from stocks and bonds. This is one of their key attributes. Commodities will offer unique diversification, but their uniqueness is also what will harm investors who think that they can just hold long-only exposure in order to receive consistent gains. Commodities cannot all be bundled together, energy markets are different from metals or agriculture. The commodity cycle is different from the business cycle and the cycle for each commodity is usually significantly different. The cycle for in-the-ground commodities is different form those that are mined or below-the-ground. The commodity cycle will generally last longer than a business cycle. Right now we are in the down portion of the cycle even though the overall global business is still positive albeit losing momentum. Commodity markets as accessed through futures will be subject to hedging pressure and short-term storage issues which are very...

There will be fads in asset management industry just like the fashion industry. Look back at the fashions in the 70's or 80's and you may just shake your head and ask, "What were you thinking wearing that?". The time has already come for investors to shake their heads about holding a commodity index and ask the same question. What were investors thinking? That said, the big dislocation between equities and commodities came after the Financial Crisis as evidenced by our graph between the S&P 500 and the Bloomberg commodity index. Commodities peaked in 2008 and tracked equities through the middle of 2011. Since mid-2011, equities and commodities have had a significant divergence. This was the post-QE2, beginning of the slowdown in China period. Commodities were a good trade when you were riding the wave of the up-cycle. The case for commodities ran through this long up cycle and seemed like a natural portfolio diversifier. Shortages and peak supply were the underlyi...