Reflation Trade Buoys Shippers

I wrote yesterday that the dollar would pull back if the market rallied, which is happening. What I'm reminded of today is how enhanced a market play the shippers will likely be if this market turns sharply, particularly the dry-bulkers.

Eagle Bulk Shipping (NASDAQ: EGLE) is a good example, up 40+% on the day as I type. These things were being priced for bankruptcy in recent days; if the market starts to price them for recovery instead, watch out.

Now, there's still great risk in this group; many shipowners are in violations of the loan covenants and there's the chance more of them could see their charterers simply renege on contracts, as happened with Excel Maritime recently (NYSE: EXM). Still, for risk-tolerant traders who are turning bullish, this group offers some real chance to pop in any market rally.

Really, today's action looks a lot like the reflation trade is back on. Actually, that's a pretty reasonable expectation because if all these stimulus plans "work," they'll have to have a powerful inflationary impact in the near future. Think of the action earlier this decade, but on steroids.

And in that reflation trade, the only thing not participating today is gold. But it will. And, as I've written before, the IShares Silver Trust (NYSE: SLV) is interesting because I still think that metal is being given away.

Trust today's action as the start of a new surge higher? I still have my doubts (though I'm keeping the call by Doug Kass in mind, as well as the increasing bullishness from some of the great quants who write here in the Trader's Talk section).

However, trust the nature of today's action as a preview of what the next rally may look like? Now that I'll agree with.

**Disclaimer: the author's firm serves as portfolio consultant on a Shipping sector UIT, and it provides the index which underlies the Claymore/Delta Global Shipping ETF (NYSE: SEA).

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