Jeffery Rothfeder makes the case in favor of the Baltic Dry Index as an economic indicator here:(http://www.newyorker.com/business/currency/the-surprising-relevance-of-the-baltic-dry-index)…
Here is some background:
“The index best showed its foresight in 2008, however, when it lost more than twenty-five per cent of its value between May and July. It turns out the dip was capturing the tightening of international credit, as financial-services firms, hampered by bad mortgage investments, struggled to maintain liquidity; in that environment, only the most well-heeled commodity buyers and shipping agents could get loans to bring in their goods. The dip in the B.D.I. presaged IndyMac’s bankruptcy, the first major bank failure of the global financial recession.
Soon after, though, the Baltic Dry Index began to lose its lustre as a predictive tool. The primary reason was a shipbuilding spree in China, intended to support the country’s position as the world’s largest consumer of commodities, most of which were needed to feed uncontrolled construction and industrial expansion. Between 2010 and 2013, China doubled its shipyard capacity, producing so many boats that the world’s fleet of cargo vessels doubled in number. With so much new supply inserted into a slow recovery from the global recession, the average charter rate for the largest cargo carriers has fallen to less than three thousand dollars per day, from around twenty-five thousand dollars a couple of years ago, and as high as two hundred and fifty thousand dollars in 2008. This has weighed directly on the B.D.I., which last hit two thousand for an extended period of time in 2010. Economists have had difficulty recalibrating the B.D.I. to reflect the vessel imbalance, because, among other things, China’s lack of transparency hinders efforts to count how many boats have been built, how many are in drydock, and how many are in so-called zombie fleets, desperately patrolling the waters for business at any price. The chain of uncertainty so puzzled B.D.I. followers that their confidence in the index’s predictive abilities waned.”
The bottom line:
“The story is this: growth in global trade is stalled, and is slipping to levels unseen since the end of the Second World War.”
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