baltic dry index

Zerohedge highlighted the Baltic Dry Index “crashes to new 29-year low” late on Feb.4. Tony Sagami (Mauldin Economics) sent out emails to paying subscribers the next day, adding the likely consequence to hit us all:

Baltic Dry Index Plunges to All-Time Low: Stock Market Soon to Follow

The Baltic Dry Index (BDI) tracks the demand for moving those raw materials across the oceans and is one of the most important leading indicators of the global economy.

That’s because raw materials are the building blocks for the world economy: coal for power; iron ore for steel; and copper for everything electronic.

Sagami then blames the Fed’s ZIRPs and QEs as well as all other central bankers of the world, concluding with:

The stock market can’t ignore the rapidly deteriorating economic fundamentals forever, and the world’s central bankers are about to run out of bullets, so don’t let these manic sessions discourage you from what will soon lead to an even more painful fall.

The “Rational Bear”, as he calls himself, is probably half-hibernating because most awake people know that the Baltic Dry Index has become useless for investors other than those investing in the dry bulk shipping industry. In effect, the massive growth in demand for commodities during the early 2000’s from emerging countries, mainly China, led to an 85% increase in dry-bulk shipping capacity since 2008 and continuing to this day.

The dry-bulk market has been sunk by a perfect storm as an armada of new ships, ordered after the financial crisis, have hit the seas just as Chinese economic growth has slowed and commodity prices have taken another lurch lower. (FT)

The size of the world’s fleet of dry-bulk ships far exceeds demand for the vessels which carry commodities like iron ore and coal, with over capacity estimated at around 20% above demand over the past few years. Many ships ordered at a time of booming global trade before the 2008 financial crisis have come into service as economic growth has spluttered in the years since. (WSJ)

BTW, as many as 750 new dry bulk ships were ordered in 2013…

A little more research might have made Tyler Durden hedge his comments (not his style, really, as per the blog’s name) or changed the slant of our rational bear:

The HARPEX Shipping Index is the container ship index of the ship brokers Harper Petersen & Co. It tracks the weekly container shipping rate changes in the time charter market for eight classes of all-container ships.

HARPEX is regarded as a Current-Activity Indicator, because it measures and charts the changes in freight rates for container ships that typically carry a wide variety of finished goods from a multitude of sellers. These are factory output goods headed for retail markets, at the other end of the supply chain from the raw materials of the BDI.

Here’s the Harpex as of Jan. 31, 2015:

As to the the usefulness of reacting to “one of the most important leading indicators of the global economy”, whatever that might be, Sagami could get out of hibernation and read GMO’s Ben Inker. He would find these two charts in his recent article Ditch the Good, Buy the Bad and the Ugly:

It is one thing to be rational, but one must also be well informed, thorough and forthright. That said, with a name such as the Rational Bear, why should we expect anything positive from him?