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Is the Rise in the Baltic Dry Index a Fakeout?

February 10, 2009 RSS Feed Print

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With all the gloomy global economic news, some folks have been taking some comfort in the sharp rise in the Baltic Dry Index, a commonly followed metric of global growth. Superstrategist Ed Yardeni warns against doing so:

The Baltic Dry Index plunged from a record high of 11,793 on May 20 to 663 on December 5. That’s awfully close to zero, which is rock bottom for this index. Maybe that’s why it is up 174% since then to 1815, which is still 85% below the peak.

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I believe the reason for the collapse of the Baltic Dry Index in the first place was because everyone involved wanted to be paid up-front for their services. That includes product, shipping and whatever other charges were involved.
Everyone was afraid because of all the business failures. They believed there was a possibility that even before the transactions were completed, some of their clients would go out of business, and many over night! They would be stuck without payment.
Because of this, the long standing Letters-of-Credit were discontinued. Money was needed up-front, but I believe that may have been somewhat relaxed of late.
This back and forth can go on for a while. Human emotions is a very strange thing. Especially when it comes to money!

John K of NY 7:15AM February 16, 2009

The last poster is probably right - but then everything will go back down again - won't it?

Bruce Trainor 11:00PM February 15, 2009

James, in answer to your question - it could very well be!
Lots of irrational stuff in the press. An article today suggests that iron ore prices will rebound 2 fold due to the fact that the BDI has doubled. This wont happen because the price of spot iron ore did not retrace 93 pct like the bdi. As a trader of the BDI i expect the market to remain volatile and hover around the 2,000 mark for some time to come.
Cheers
Jason
www.virtualshipbroker.blogspot.com

The Virtual Shipbroker 7:30PM February 15, 2009

Is the Rise in the Baltic Dry Index a Fakeout?

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