Anyone follow the Baltic Dry Index? It's an interesting index on the shipping of raw materials on cargo ships.
The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain." - http://en.wikipedia.org/wiki/Baltic_Dry_Index --- This index is one of the purest leading indicators of economic activity. It measures the demand to move raw materials and precursors to production. Consumer spending and other economic indicators are backward looking, meaning they examine what has already occurred. The BDI offers a real time glimpse at global raw material and infrastructure demand. This could also be gleaned from looking atcommodity prices, but there are substitution effects and futures contracts that make it difficult to interpret the impact of commodity price fluctuations. Additionally, nearly all commodities are seeing severe increases in prices in 2008 regardless of supply situations as investors seek to hedge their inflation exposure with hard assets. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it. [4] The BDI will show how much a company or country is willing to pay to import raw materials immediately. For example, if a Chinese company has contracted out coal prices for the next year from Rio Tinto (RTP), then the spot price of coal increasing after a mine accident will not impact that established contract. However, when this company is willing to pay more per ton to ship the coal than to actually purchase it, an investor can see that price growth is accelerating. - http://www.wikinvest.com/index/Baltic_Dry_Index_-_BDI_(BALDRY) Apparently, it is a very reliable indicator of coming stock market trends. The BDI is a good leading indicator for economic growth and production. After all, it doesn't deal with container ships carrying finished goods. It deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at TheStreet.com. People don't book freighters unless they have cargo to move. Because the supply of cargo ships is generally both tight and inelasticit takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in the Arizona desertmarginal increases in demand can push the index higher quickly. And significant increases in demand can push the index sharply higher. That's precisely what happened earlier this fall. As this chart shows, the Baltic Index doubled in September and Octoberan unprecedented jump. - http://www.slate.com/articles/business/moneybox/2003/10/the_shipping_news.html ... On 20 May 2008, the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986; though by 4 February 2009 it had recovered a little lost ground, back to 1,316. These low rates moved dangerously close to the combined operating costs of vessels, fuel, and crews. By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of credit meant the reduction of letters of credit, historically required to load cargoes for departure at ports. Debt load of future ship construction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards. This, combined with the collapsing price of raw commodities created a perfect storm for the world's marine commerce. During 2009, the index recovered as high as 4661, but then bottomed out at 1043 in February, 2011, after continued deliveries of new ships and flooding in Australia. Though rebounding to 2000 on 7 October, by 3 February 2012, the index made a new multi-decade low of 647 on a continued glut of dry bulk carriers and decreases in orders of iron and coal. - http://en.wikipedia.org/wiki/Baltic_Dry_Index It just tanked again. Usually, the stock market follows in a few months. 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