Baltic Dry Index

Baltic Dry Index fell under 400 for the first time last week, highlighting just how weak the global economy really is.

When the world was humming along at 5.9% GDP in 2007, the Index surged to over 1200. Last week, it hit an all-time low and what’s more important is why.

Hurricane Uncle Sam, the US dollar has been on a path of destruction. He’s been steam rolling emerging market debt, currencies, the high yield market and corporate earnings.

The highly unsustainable “Great Divergence” is doing more harm than good. With the rest of the world slowing at an alarming rate, it won’t be long before the rest of the world pulls the US into a recession, we’re likely already there.

We must remember, the U.S. crept into recession in December of 2007, most economists didn’t realize we were in one until the fall of 2008.

In the summer of 2008, it was Fed governor Richard Fisher making a case for a rate hike in the face of $145 oil. Incredible. Oil went from $80 to $145 while the U.S. was in recession, some on the Fed wanted to hike, not cut rates.

We were in recession all year 08, they didn’t cut rates, the fed funds rate until the fall.

The S&P 500 isn’t in a bear market, only the Russell 2000 is. However, this doesn’t mean stocks and commodities can’t have a bear market rally and the most oversold sector is clearly energy.

The majority of the street has been revising down their oil price targets and this fear has presented an excellent risk vs reward buying opportunity. Recently, Goldman called for $25 oil but has come out this week suggesting now is the time to “bet on energy”. - - Their trade is to buy the XLE (Energy Sector ETF) calls. Although we should point out, since the Implied Volatility is high, the calls are expensive.

The energy sector is showing extreme negative sentiment. Investors have become very concerned about oil going below $20. This type of behaviour typically coincides with short term bottoms.

@BearTrapsReport

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