The Baltic Dry Index!

Jan 27 2012

Published by Ian R. Campbell at 8:49 am under Country Risk,Economic Commentary see Legal Disclaimer.

The Baltic Dry Index!

The Baltic Dry Index tracks the cost of shipping major raw materials, and arguably is an important early measure of Global Trade. A recent article shows a chart of that index for the year 2011, and says that the index is down by approximately 40% in December from November and is down approximately 54% in Q4 2011. The author blames the European sovereign debt issues as the underlying consideration.

I am not sure the reason for the recent Index decline is just an escalation of the sovereign debt issues in Europe – in fact such a conclusion intuitively seems itself to be simplistic to me. I don’t profess to be able to pinpoint specific reasons for the Q4 2011 drop in the Index, but think those reasons have to number more than one. I was also not satisfied that to look only at 2011 in isolation as a basis for a conclusion as to whether this Index drop was an abnormality, or simply a repetitive fourth-quarter drop. Subsequent to finding and commenting on that first article, I found a second article that attributes these recent drops in the index to a normal seasonal drop in Chinese manufacturing which in turn the article attributes to Chinese New Year celebrations. I don’t find that explanation compelling either.

Accordingly, I found (on Bloomberg) the one-year and five-year Baltic Dry Index charts.

One Year Chart

Five Year Chart

I cannot easily do a one-year regression analysis trend line for either chart, but think such a trend line:

for the one-year chart would in any event not be conclusive of much of anything; and,
over the past 5 years almost certainly is continuously downward.

This is something that strikes me as consistent with my view that all the talk over the past 2 years or more of technical economic recovery in most developed countries is just that – technical economic recovery and not important real economic recovery. It is then not surprising to me that in the last 2 weeks there has been talk in both the UK and Spain of double-dip recession in 2012. It will be interesting to see whether those concerns will extend to other countries in the next few months. It strikes me that if that happens it will be an indicator that the Baltic Dry Index is indeed the important early measure of economic activity that many seem to think it is.

The first article referenced in this commentary is titled ‘The Most Alarming Chart I’ve Seen All Week’. It was published January 20 in the Wall St. Daily Blog (no association as best I can tell with the Wall Street Journal) – reading time 3 minutes.

The second article that speaks to Chinese Manufacturing is titled ‘Baltic Dry Index – sell-off overdone?’. That article is was published on January 23 on the InvestmentPostcards Blog – reading time 3 minutes.

Country Risk Issue!

A January 23 article reports that in 2012 “the citizens of 59 countries – one third of the world’s countries – will have gone to the polls to choose national, state and local leaders”. Interestingly, the article also says that in 1945 there were only 12 democracies in the world, and there are now …..continue reading.

Commentary reading time 2 minutes. Referenced article(s) reading time 4 minutes.

2012 Recession Expectation!

John Mauldin is a U.S. newsletter writer whose commentaries I read and reference from time to time in these e-mails. I generally agree with a good part of what Mauldin says. This may, of course, bias my views as to the efficacy of his opinions.

In an article last Thursday, he referenced the ‘Quarterly Review and Outlook’ generated by …..continue reading.

Commentary reading time 2 minutes, thinking time much longer. Referenced article(s) reading time 5 minutes.

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