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Let’s Revisit the Baltic Dry Index

Posted by Larry Doyle on April 2, 2009 10:52 PM |

***Editor’s note: the Baltic Dry Index does not get much attention in the news. This piece has been bumped up from its initial publication at 9:01 a.m.

I have not looked at this shipping index in a while. Is the rally in equities forecasting a pickup in shipping and thus an increase in the Baltic Dry Index? The WSJ sheds light on this critically important index:

baltic-dry-indexOne number to watch today is the behavior of the Baltic Dry Index, a measure of the cost of shipping raw materials around the globe. It’s a volatile measure, but can be a useful signal of shifting trends in global demand. The index collapsed last year, starting in May, foreshadowing the worsening recession.

Some economists have pointed to it recently as a sign that the worst of the recession might be over. The index nearly tripled between the beginning of the year and March 10. But the green shoot is wilting. It’s been down for 16 straight trading sessions, by 31% in all. A drop today would make 17 straight, and could take wind out of the sails of the small recovery crowd on Wall Street. In all, the index is down 87% from its May 20 high.

I find it very interesting that the index is down 31% over the last few weeks, while the equity market is up 20+% in the same time frame. Granted the BDI had tripled during the first few months of 2009, but do not forget that it had declined close to 95% from last May. I view a tripling of the BDI in the same context as an analyst indicating Citigroup’s stock is up 150% from $1.00!! Congratulations!!

If global economic conditions were stabilizing without necessarily improving, I would think the BDI would also be stabilizing. The fact that it is declining at this juncture concerns me.

Many market analysts and political pundits effectively tell us in true Wizard of Oz fashion to “disregard that man behind the curtain.” In navigating the economic landscape, and trying to get to the Emerald City, let’s keep our eye on all the indices.


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