Baltic Dry Index Has Fallen 43% Since June Signaling A Warning On The Global Economy

[MOP]

Where's the Economy Headed? Insiders Watch This Key Index

Published: Wednesday, 26 Aug 2009 | 2:09 PM ET Text Size By: Jeff Cox

The Baltic Dry Index, not exactly a phrase that rolls off an investor's tongue, is signaling plenty of caution these days about the global economy.

As a gauge of shipping activity along 20 of the world's busiest routes, the BDI is a leading economic indicator used by market insiders to gauge demand for goods.

But while it remains a somewhat arcane measure, the recent sharp drop in the index has drawn increased attention, despite the dramatic rise in US equity markets and the accompanying hopes for economic recovery.

"It's not the leading barometer that's going to make you move all your money. But with a host of other indicators, it's important, particularly when it comes to China," says Quincy Krosby, general market analyst with Prudential Financial. "That's where the linkage fits in."

It's been a rough summer for the index, which is not a measure of activity in the Baltics but rather an instrument that traces its name to 1744 and the Virginia and Baltick coffeehouse in London's financial district. The index is weighted toward activity in the Pacific.

The BDI has tumbled about 43 percent since peaking on June 3. That followed a stunning upturn off a low of 663 on Dec. 5, 2008 to the June 3 high of 4,291.

Since then, China's economy has struggled and its Shanghai stock index has dropped 16 percent since the beginning of August.

For some analysts, the shipping index's plunge is indicative that the slowdown in demand for shipping will mean more troubles for the US economy, despite its recent signs of growth that have led some to call the recession over. Thus, the increasing popularity of the BDI as a yardstick.

"The reason it's becoming more popular is it has been a very accurate indicator of recessions," says Tony Sagami, editor of Weiss Research's Asia Stock Alert newsletter.

Sagami sees the BDI drop as showing a fall in metals prices, which generally portends an economic slowdown; signal of a short-term correction in the Chinese markets; and a sign that the global economy remains in trouble.

"The US is headed for a Japanese-style recession," says Sagami, who recommends investors increase cash positions.

http://www.cnbc.com/id/32567374

A leading indicator? Looks like trouble could be ahead for the markets.

Edited August 26, 2009 by MOP

[1929crash]

This fits in with another thread a few days back about moored up and mothballed tankers and freighters in British waters.

[interestrateripoff]

Quick we'd better create some more debt.

Debt will save us all, embrace the debt, become one with the debt.

Praise be to debt.

[lowrentyieldmakessense(honest!)]

http://www.cnbc.com/id/32567374

A leading indicator.

did it lead the stockmarket last time?

edit

Edited August 26, 2009 by lowrentyieldmakessense(honest!)

[The Spaniard]

http://www.cnbc.com/id/32567374

A leading indicator.

We must keep a beady eye on it.

[MOP]

did it lead the stockmarket last time?

edit

edit: You found it before me!

Edited August 26, 2009 by MOP

[yellerkat]

Interesting divergence.

Can anyone think of a reason? *scratches head*

[Guillotine]

Interesting divergence.

Can anyone think of a reason? *scratches head*

It might be because of that old dress code, "Blue with green should not be seen"

[MOP]

So it looks like the BDI peaked just before the S&P peaked, then the BDI recovered just before the S&P recovered.

So now the BDI has collapsed again and theoretically the stock market should be on the verge of going down any day now (if past history is any guide)?

[Guillotine]

So it looks like the BDI peaked just before the S&P peaked, then the BDI recovered just before the S&P recovered.

So now the BDI has collapsed again and theoretically the stock market should be on the verge of going down any day now (if past history is any guide)?

Looks like a seasonal decline to me.....

[yellerkat]

AEP comments on the Baltic Dry a few minutes ago (we're a little ahead on this thread):

Can the soufflé really rise again?

2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday.

Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug from underneath the latest commodity bubble?

There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70pc in Europe, 68pc in the US, 65pc in Japan, and as low as 50pc in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment.

Soaring “confidence†indicators have decoupled from reality. The world economy is still prostrate. GDP has shrunk 4pc, 6pc, 8pc, even 12pc or more in a large group of countries. There it more or less sits, like a deflated soufflé.

[MOP]

AEP comments on the Baltic Dry a few minutes ago (we're a little ahead on this thread):

Can the soufflé really rise again?

I think we could be onto something then. The BDI started going down at exactly the same time last year, just before TSHTF.

Historically it usually rises in July:

But not this year or last year.

Edited August 27, 2009 by MOP

[lowrentyieldmakessense(honest!)]

I think we could be onto something then. The BDI started going down at exactly the same time last year, just before TSHTF.

Historically it usually rises in July:

But not this year or last year.

july

christmas shipments starting

[yellerkat]

More links (via Google news)

Market Oracle: Deluge Ahead or Smooth Sailing for the Stock Market?

And so it currently goes with CycleShares and the BDI. This index may be one of the best macro economic tools for assessing economic activity and the stock market. It generally leads the market, as seen in the early Spring of 2009, prior to the bottom in March. What concerns us now is the obvious divergence we’ve seen since June, with the BDI falling rapidly while stocks climb.

Is this 100% reliable- can you simply time the market based on its movement? Hell no! Just look at 2005, when it also fell off a cliff, but the market continued higher, scorching bears in its wake. Ultimately the BDI turned up as well, so if you had followed it, you would have gained more, yet missed out on a percentage of the market’s gains. Using this tool is just like any other-it must be used with confirming indicators to form a bigger picture- one that may cause you to miss some easy gains, but could also keep you out of harm’s way. Under the current circumstances, this divergence signals caution, including taking bullish positions of any duration. If it makes a higher high and stocks are still climbing, you could rethink your position assuming you use some other measures that confirm a bullish view.

CNBC: Where's the Economy Headed? Insiders Watch This Key Index

The index also is notoriously volatile.

"The Baltic Dry Index is very much a function of perceptions about China. There's this prevailing wisdom that China's going to level off here," says Michael Cohn, chief investment strategist at Atlantis Asset Management in New York. "It's worth watching, but I don't really think it's having that much effect here."

[Dave Spart]

Shocking stat.

The Baltic Dry Index, not exactly a phrase that rolls off an investor's tongue

I just think of it as keeping a "Beady Eye".

BDI? Geddit?

Oh, please yourselves.

[MOP]

july

christmas shipments starting

Or "not starting" in this case .

Edited August 26, 2009 by MOP

[D.C.]

july

christmas shipments starting

Exactly.

[Hip to be bear]

Interesting divergence.

Can anyone think of a reason? *scratches head*

Magic money doesn't fill ships witn cargo?????????????

If you're feeling queasy you stay away from boats????

[yellerkat]

To be bullish for a moment (bear with me); won't all the seasonal shipping have been long booked by now?

[SNACR]

To be bullish for a moment (bear with me); won't all the seasonal shipping have been long booked by now?

Baltic Dry ought to be much earlier on as it's raw materials like iron ore to feed factories. Need to look at the TEU volumes for container lines to see how much everyone's stocking up with for the festive period.

We've already taken in a lot of seasonal lines (are recycling quite a few of last years, which'll be an interesting trend to watch if everyone else has).

Edited August 26, 2009 by Soon Not a Chain Retailer

[yellerkat]

Baltic Dry ought to be much earlier on as it's raw materials like iron ore to feed factories. Need to look at the TEU volumes for container lines to see how much everyone's stocking up with for the festive period.

We've already taken in a lot of seasonal lines (are recycling quite a few of last years, which'll be an interesting trend to watch if everyone else has).

D'oh!

Sorry about brain fart.

Must've been that poor kiddie's coal for Xmas present.

You'd have to have a heart of stone not to laugh.

[lowrentyieldmakessense(honest!)]

Baltic Dry ought to be much earlier on as it's raw materials like iron ore to feed factories. Need to look at the TEU volumes for container lines to see how much everyone's stocking up with for the festive period.

We've already taken in a lot of seasonal lines (are recycling quite a few of last years, which'll be an interesting trend to watch if everyone else has).

seems a bit early

damages

pilferage

cash tied up in stock

Edited August 26, 2009 by lowrentyieldmakessense(honest!)

[R K]

Interesting divergence.

Can anyone think of a reason? *scratches head*

Duh - somebody (arf arf!) has been bidding up the key equity index components using free money?

Ditto WTIC. They'll unload sooner or later into some scare or other they know is coming but nobody else has seen yet...........

Edit: In fact, it must be even worse than it looks because of the capacity that has been taken out since last summer.

Edited August 26, 2009 by For no one

[SNACR]

seems a bit early

damages

pilferage

cash tied up in stock

No, its all got to be on the shelves before the end of next month. Unless it's directly sourced it'll all be on extended credit so intake can be tailored to available logistics. Have to have enough stock of every line for every branch otherwise they can't merchandise coherently.

We'll have additional waves and inevitable last minute airfreighting where we've fooked up forecasts.

[R K]

No, its all got to be on the shelves before the end of next month. Unless it's directly sourced it'll all be on extended credit so intake can be tailored to available logistics. Have to have enough stock of every line for every branch otherwise they can't merchandise coherently.

We'll have additional waves and inevitable last minute airfreighting where we've fooked up forecasts.

I wouldn't worry too much about that.