Thursday, January 26, 2012

Baltic Dry Index Near All Time Low

The Baltic Dry Index (BDIY) now stands at 784 USD, basically at the lowest level it reached in November 2008 as you can see in the 5-year chart below.

This index tracks the price of shipping (by sea) and shows an oversupply of ships vs demand for shipping. I've seen some reports saying that this slump is due to the delivery of ships ordered during the boom in 2006/2007 to meet demand. There is indeed a long leadtime to manufacture large vessels. However, this indicator could still confirm the recession call by Hussmann and ECRI as well as a sharp correction for industrial commodities. I've also seen a 12-year chart that shows we are near all time lows.(Sorry I can't find it back).

Another metric for maritime traffic can be the Guggenheim Shipping ETF (SEA), composed of shipping companies. It has also been dropping sharply since February 2012 (-50% top to bottom), although it has stabilized during the last 4 months. The 2-year chart can be seen below.

Both the Baltic dry index and SEA ETF either indicate serious economic troubles ahead, or they have bottomed out and the SEA is a buying opportunity. I know where I stand at the moment...

I previously wrote about BDI in February 2011, as I was worried it would on industrial commodities. In retrospect, it would not have been a bad time to sell stocks and commodities.

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