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Why Scott Grannis is wrong (again)

I realize that Scott Grannis is, kindly, a supreme optimist, but optimism shouldn't lead to a misrepresentation of data. It is unclear whether he is trying to convince us or himself in the latest article. Here is my two cents worth on what is wrong with the claims made in the article:

1. Distortion of the recovery in the Baltic Dry Index by using a logarithmic chart. This is the real BDI chart:

BDI chart

Sure, it is better to have the BDI turning up rather than down but why distort the data using a logarithmic scale ...unless he is not actually convinced himself.

2. " U.S. goods exports are up at a 34% annualized rate in the five months ended September..."

No chart this time, for good reason. Below is a chart of exports and container movement from the Port of LA. Container movement from long beach are similar.


a "34%" increase is upbeat, but the chart shows that the decline in the value of the dollar has done little to substantially boost exports and yoy they are well down.

3. "...and spot industrial commodity prices are up 33% from their lows of late last year."

It is well documented that industrial demand is weak for many commodities. Grannis fails to distinguish between industrial demand, i.e. the supply/demand balance, and demand for futures from speculators. Speculators are boosting commodity prices thanks to a weak dollar and near zero nominal rates and are doing so without any reference to the real world economic demand for these commodities.

4. "Skeptics continue to claim that this huge and pervasive rebound in activity and pricing is being driven by mindless Chinese stockpiling of commodities."

Firstly there isn't a huge pervasive rebound in industrial activity. What Grannis is observing is a rebound in speculative activity but he seems incapable of distinguishing between industrial demand and speculative demand. To measure industrial demand you need to look at how much of a commodity industry is buying and using.

China have large reserves of US dollars that are declining in value. They began accumulating stocks of copper when the price was near a 5 year low. The copper price has now almost doubled and Bloomberg reports China might become a seller of some of that stock. Mindless? Sounds pretty smart to me. The same can be said for other commodities that China has stockpiled. China also used its dollar reserves to purchase stakes in mining project at the bottom of the market. Again, this doesn't seem very mindless to me. China is a country in need to vast amounts of resources as it industrializes. Taking a long term view, why wouldn't they have been buying at the bottom of the market.