Wednesday, March 11, 2009

Keep An Eye on Baltic Dry Index, Not Your 401(k)

I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It's called the Baltic Dry Index.

Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what's happening to international trade -- the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.

~Economist Susan Lee on NPR's Marketplace, "Keep An Eye on Baltic Dry, Not 401(k)"

MP: The Baltic Dry Index has increased for the last 8 days in a row, to a 5-month high of 2298 yesterday, see chart above.

8 Comments:

At 3/11/2009 11:52 AM, Blogger bobble said...

well, its supply and demand, of course. you are assuming demand for cargo ships is increasing.

the alternate explanation is that supply of cargo ships is decreasing.

the BDI fell to a level where it was unprofitable to carry cargo. ships were then taken out of service, causing rates to float (pun intended) back to a profitable or breakeven level.

not sure which explanation is correct. maybe a bit of each . . .

 
At 3/11/2009 12:02 PM, Blogger misterjosh said...

You're kicking a dead horse boss!

 
At 3/11/2009 3:15 PM, Anonymous Anonymous said...

" ... ships were then taken out of service, causing rates to float ..."

Where's the evidence supporting this assertion?

 
At 3/11/2009 11:30 PM, Blogger bobble said...

anon3:15 "Where's the evidence [ships were then taken out of service]. . ."

FORBES: Private dry bulk shipping companies are anchoring their ships as spot rates for the largest Cape-size vessels plunge.

now, where's the evidence that demand for ships is increasing?

 
At 3/11/2009 11:30 PM, Anonymous Anonymous said...

It is often useful to look at expanded views of a graph, when you do in this case it is not clear what the recent movemnts in this index predict.

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm#bdi

 
At 3/12/2009 12:55 AM, Blogger OBloodyHell said...

> It is often useful to look at expanded views of a graph, when you do in this case it is not clear what the recent movemnts in this index predict.

Funny, actually looking at ALL of those charts, the exponential view is the only one which looks even *vaguely* in doubt as to the most recent overall sustained trend...

 
At 3/12/2009 3:00 AM, Blogger Wang Yuanhang said...

well, it's pretty much priced in even in nov/dec 08. the fwd curve at that moment for mar09 is already over 2500. if one invested in BDI back then, they didn't really made much money at all.

 
At 3/27/2009 11:49 AM, Anonymous Anonymous said...

Well, the unsaid assumption is the given the high fixed costs, ship owners may be willing to let the ships 'float' than be anchored. If this assumption is valid, there may be reason to believe that the supply has not reduced, and that the index is rising because of an increase in demand.

 

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