Keep an eye on Baltic Dry, not 401(k)
A lot of people look at different indices as leading indicators for our economy. But commentator Susan Lee says to get the best long-view global picture, take a look at the index that tracks the price of shipping dry bulk -- the Baltic Dry.
Susan Lee (Susan Lee)
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TEXT OF COMMENTARY
Kai Ryssdal: Today's buying spree on Wall Street might make you wonder whether now is the time to dip your toe into those turbulent market waters. But how do you get your bearings in times like these? Commentator and economist Susan Lee has been drawn to the high seas.
SUSAN LEE: In a recession, the world is divided into two types. The worry-warts who obsessively check the value of their 401(k)'s and the optimists who start looking for the bottom. So, let's say you want to be the second type -- a forward-looking person. What do you do?
Well, a lot of people watch the leading indicators. These are 10 indices, put out by the Conference Board, which track variables like the S&P, consumer confidence and new building permits.
Fine. Except the leading indicators don't have a perfect track record. In the past, they've given off lots of false signals. For example, leading indicators often predict a recession when none happens. They falsely predicted five recessions since 1959. Even more problematic, the leading indicators track U.S. performance. Important? Yes, but not totally on the point for a global recession.
So I have something better. I suggest you watch an index that will tell you when the world economies are starting to perk up and when trade conditions are really starting to ease. It's called the Baltic Dry Index.
Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what's happening to international trade -- the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.
Back in 2005, when the world's economies were just fine and credit was abundant, the Baltic Dry looked like a powerhouse. But it peaked in May of 2008. And it's been heading almost straight down ever since -- losing about 90 percent of its value.
So forget about your 401(k) and start paying attention to the Baltic Dry. And here's the really nice thing about starting now: You missed the six-month, worry-wart part when it tanked in such a nauseating fashion. In fact, one could almost say, the Baltic Dry has nowhere to go but up.
Kai Ryssdal: Susan Lee is an economist living in New York City.
Comments
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From South Glastonbury, CT, 03/22/2009
Interesting indicator, but the correlation with the american stock markets is not that high.
Look at the following for the data and charts:
http://shipping.capitallink.com/ then click the Baltic Dry link
From Bhutan, DE, 03/13/2009
Hi.
I trade the BDI. I am a shipbroker and analyst. We need to be careful when we look at the BDI because it is also influenced by season factors and stockpiling. therefore while it is a good measure of economic health it needs to be seen in context.
For rutther information on the BDI see my websitre for explanations and daily updates
Yours
VS
www.virtualshipbroker@blogspot.com
From AZ, 03/11/2009
Folks,
Look Here.
http://www.dryships.com/pages/report.asp
also know as the BDI.
From Dayton, OH, 03/11/2009
Interesting analysis but I wonder how correlated this is with crude oil over 5 - 10 years? Both the cliff since May 08 and the recent upticks seem to track the oil market well from a quick glance at the chart. The BD might be another good LI to track, but I suspect it is not as pure an indicator as Ms. Lee suggests in her piece. Would like to know how it tracks to global GDP & oil over a 20+ year time horizon to see its true quantitative effectiveness as a LI ahead of GDP booms and busts.
From Oregon City, OR, 03/11/2009
BDIY doesn't work as a ticker symbol -- does anyone know what it is without going to bloomberg?
From North Monmouth, ME, 03/11/2009
The Baltic Dry Index can be found at http://www.bloomberg.com/apps/quote?ticker=bdiy&exch=IND&x=15&y=11
From Santa Monica, CA, 03/11/2009
I searched for the index with Google, the Wall Street Journal, and Barron's. Couldn't find it. Where is it published?
From Pasadena, CA, 03/10/2009
Where can I find the Baltic Dry chart or index? Would you like to tell me please? Thanks
From WA, 03/10/2009
Interesting but where can one find this index?
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