Jul

15

Baltic amberThis article rejects the Baltic Dry Index as a reliable forward indicator and says it has no predictive power with regard to the stock market. The author says to have done in-depth analysis of the BDIY during his time as shipping analyst at Citi.

Bottom line is that the index is influenced by so many factors other than demand that it is not the useful indicator it is often claimed to be in popular press.

As to why the index is currently falling, I'm not into shipping, but explanations I've read that make sense to me include:

1) Declining demand of China's steel sector. Steel is the biggest user of iron ore which accounts for a large part of in the index.

2) Rising supply of shipping capacity (meaning more actual ships).


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2 Comments so far

  1. Craig Bowles on July 15, 2010 6:41 am

    I’m not sure about the Baltic index but people seem to use it like the JoC Index. Industrial materials prices may not tell you the future but even knowing where you are is important. In the second half of the late 1990s, corporate profits were rising to new highs but the JoC index was weakening. Since they normally move together, it was odd. Later we found corporate profits had been a fraud and the peak was revised away. GDP was similarly revised after the coincident index had pointed out more fraud. Alternative data sources are becoming more important and at least market prices are harder to manipulate.

  2. Nick Sont on July 15, 2010 8:04 am

    Isn’t it funny though that when the BDI index is rising analysts and economists alike can find many reasons to justify why the rise in the index is bullish for stocks?

    You can squeeze numbers and statistics as hard as you can to give you the desired results.

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