Baltic Dry Index Takes a Dip

By Andrew Bond | More Articles
November 10, 2010 | Comments (3)

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The bears have had a very tough couple of months while global markets have responded to better economic news and anticipation of the latest round of quantitative easing. The summer talk about a double-dip recession has slowly faded away, and most of the talking heads I see on television have become uber-bullish. This may be a sign that the market is overheated, but if the bears wanted a more objective measure, they can point to the recent decline in the Baltic Dry Index.

The global shipping index has now declined for nine straight days as of Tuesday, which has hit shipping prices by more than 10% during the slide. The Baltic Dry Index (BDI) is a survey of shippers like DryShips (Nasdaq: DRYS ) and Excel Maritime (NYSE: EXM ) that are involved in transporting commodities like metals, grains, cement, fertilizers, and fossil fuels by sea to determine the market price for shipping these goods.

Many look to the BDI as a key indicator of the economy, because the goods that are shipped are important components for manufacturing and production. As the global economy came to a halt in 2008 when the financial crisis spread, the BDI dropped 94% from May to December.

The current decline in the index may end up being just a small blip in the global recovery, but at least it should provide some fodder for wounded bears. Investors may want to keep an eye on the index as well as the action in dry bulk shipping stocks like Genco Shipping (NYSE: GNK ) and Diana Shipping (NYSE: DSX ) to see if this slide has legs.

Do you think this Baltic Dry Index decline could be pointing to a pullback in the equity markets? Let us know in the comments box below.

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Andrew Bond doesn't own shares in the companies listed. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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Report this Comment On November 11, 2010, at 3:35 PM, KanataMark wrote:

It's a Foolish market being dictated to by the same foolish media hype. The BDI is like "the tail wagging the dog", an over simplified, over rated trading tool given creditability by fools.
Report this Comment On November 11, 2010, at 7:34 PM, DDHv wrote:

The ECRI weekly leading index growth at http://www.businesscycle.com/resources has been pointing down for about a quarter. Also look at:
http://www.briefing.com/Investor/Public/Calendars/EconomicRe... and the weekly sentiment (Fridays, mostly) at: http://www.tradersnarrative.com/sentiment-overview-week-of-o....
The market may not be going down, but we're taking profits on the more risky stocks while prices are up, and moving into cash stashes with good dividends. BDI is less reliable, but we keep an eye on it anyway.
None of the leading indicators are completely reliable, but they are better than guessing. PS, QE2 is likely to disguise changes in real value to some extent.
Report this Comment On January 03, 2011, at 9:54 PM, zerolife wrote:

“In our last weekly report (December 21) we have highlighted the increasingly overbought position of the US market and the deteriorating technical internals. We had initial signs of distribution, which caused a confirmed Hindenburg Omen, we had a first bigger divergence in market breadth indicators and last but not least we had a huge shift in market sentiment towards contrarian territory. Two weeks ago the bullish consensus of the American Association of individual investors jumped to 63%, which is the highest reading since 2004!!!”
“Over the last few weeks the Baltic Dry index was very weak and with the current decline this index is testing its July 2010 low, which is consistent with the relative chart of China versus the world. Not a big surprise, we have generally a very high correlation of China to the Baltic Dry index and in consequence also to the S&P-500. However, with the current decline we have a huge divergence forming between the S&P-500 and the Baltic Dry index, so one has to be wrong here. Either we see very soon a stabilization and subsequent bounce in the Baltic Dry index or the S&P-500 is in danger of running into a correction very soon, which, besides the market sentiment at extremes, is just another indication, that equities could be quite vulnerable for a set back in early Q1.”
http://hedgeanalyst.com/2011/01/technical-alert-more-alarmin...

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