Our most precise and revealing economic indicator--is crashing

[CoffeeCat]

Anyone else follow the Baltic Dry Index (BDI)? I just noticed that it's sinking like a stone. The downward decline is alarming. Yet we hear nothing from the MSM about this. Also, We are flirting with the catastrophic, rock-bottom BDI levels that happened during the 2008 crash when the economy nearly came to a standstill.

The BDI is important as an economic indicator because this is a number that can't be spun or distorted. The government can't fiddle with the numbers and explain away bad numbers.

The daily BDI number is what it is. Period.

What is the BDI? The Baltic Dry Index is a number that is released every day. This number is the daily price that shipbrokers charge to move raw materials and commodities on large cargo ships. Twenty six different shipping routes are involved in figuring what the daily BDI is.

So, if demand for raw inputs (coal, grain, plastics, iron ore, steel)--is low--these ships sail more empty and the price for hauling raw materials FALLS (BDI decrease). Conversely, if demand for raw inputs is high--these ships can charge more (BDI increase).

The BDI is and excellent indicator of global demand and supply for finished goods and products (basically the demand for everything on store shelves!) because the BDI measures the demand for the raw inputs that are needed to manufacture and produce those finished goods.

Here's a link to the BDI chart. The blue line on the second chart pretty much says it all. It's not just declining--it's in free fall. This is huge news and it's not being reported.

http://investmenttools.com/futures/bdi_baltic_dry_index.htm

[rfranklin]

1. Do you think this is an indication of an imminent crash in U.S. stock market or economy?

I keep thinking that we're treading water.

[CoffeeCat]

3. Just some guesses...

I'm not an economist--but it appears that the global demand for a vast range of products--is
severely falling. Because 70 percent of the U.S. economy is consumer spending--this does
not bode well, at all.

The free fall is alarming. As are the low levels around which the BDI is hovering.

It appears that people are not spending and buying goods. They can't hide the effect of this
forever. They try to hide bad news--with fudged unemployment numbers, etc.

As far as the stock market---maybe someone else can provide better clarity on that one. I
watch a lot of CNBC and I am astounded at the disconnect between how average folks
are doing and the stock-market numbers. I don't understand it. I feel like I've gone
down the rabbit hole, when I understand that real unemployment sits at about 20 percent (close
to Depression-era levels) but the stock market is going gangbusters.

I feel as if the people could be suffering as much as they were in the Great Depression--but
the stock market could manage to hum along. I wonder sometimes if the banksters and
corrupt Wall Streeters--together with the government--have figured out a way to prop up the
stock market without us! I'd love to hear others' thoughts on that, as it's a great
question and one that causes me to constantly scratch my head.

As far as the US economy as a whole--if consumer demand decreases to 2008-like levels--there
really is no hiding the outcomes of that. They can spin the reality and try to hide it--as they
did post-2008. You just can't hide stores closing, people out of work, empty retail space and
lower demand for just about everything.

The effect remains to be seen--but with these low BDI levels--the truth about consumer spending and purchasing seems to be surfacing.

[TeeYiYi]

4. This article is helpful...

www.ft.com/cms/s/0/3db4545a-3c63-11e1-8d38-00144feabdc0.html#axzz1jMgpxUMi

This article from Financial Times helps to explain what's going on...

To sum it up, it seems that new ship deliveries, bad weather and the beginning of the Chinese New Year are coinciding to create a perfect storm of negative impact on the shipping industry.

TYY

[just1voice]

7. 70% of the "markets" are traded by big banks, they have corrupted it

On TV or investment media they always say "investors think this" or "investors did that" which is a load of crap, there are few investors remaining. The few remaining "investors" took 90 billion out of stocks and bonds in 2010 and 110 billion out in 2011, 40 billion in 1 week, the worst since the financial meltdown in 2008. Which brings up the major point that everyone forgets: the entire fraudulent predatory capitalism system of finance completely collapsed in 2008 and is indeed just being propped up now as it is doomed to fail due to it's own inherent corruption.

I watched CNBC the other day, they are "hucksters" like the people who cold call you saying "have you heard how great this latest stock is, you don't want to miss it". The MSM is now completely worthless, it's been taken over by a few large corporations whom are only interested in selling their failed products.

Another thing most people overlook is China, their stock market has lost almost 50% of it's value and they have a slave labor population of over 200 million depressed workers. That's a recipe for economic disaster even though greedy U.S. consumers think China is some slave labor heaven for producing whatever cheap crap they want to buy.

The best and only way to look at the U.S. markets now is to view them as organized crime run by a few big crime families. They follow no laws and are not held accountable for their actions. The U.S. stock markets now completely function on bribes, lies, market manipulation, insider trading, propaganda, political corruption and unbridled greed. View it as that and a person will have no problem understanding why things happen the way they do.

[BlueToTheBone]

8. I tried to buy container space on train across the country

and because of the Chinese New Year, prices are much higher.

[LiberalEsto]

11. People definitely aren't buying

unless they're wealthy.

I went into our local Kmart yesterday.
They had rack after rack of winter coats and jackets on clearance, but nobody was buying them, or even looking.
All kinds of Christmas stuff, including candy marked 50% off, was sitting around unsold.
Holiday fragrance sets were unsold despite markdowns.
Winter gloves, scarves and hats, piles of them, marked down.
I've never seen so much unsold inventory there.

There were very few shoppers in the store. I only went there because I needed a specific small item.

The folks who normally shop at Kmart are hanging on to their old winter jackets and not spending a dime they don't have to. They probably don't have dimes to spare.

[riderinthestorm]

12. I believe we have two economies now. One for the elites and one for the rest of us

I don't know about you but we shop at thrift shops and goodwill (we rarely buy new). We barter. We grow our own food and sell what we can't eat ourselves - for cash. We now offer a discount to clients who pay in cash. These are just some of the real changes we've instituted to transform the way we do business.

We're doing okay.

But we're not really doing a whole lot that would be reflected in economic numbers. I presume there's a whole under-layer of others like me and mine. We've taken the last 4 - 5 years and changed how we operate. We haven't been in the stock market since 2008 and honestly, I'm sure I'll never get back in. I can get a much greater return on my money by buying young horses off the track and re-training them for re-sale, again all cash. Or finally fixing up the storage space above my viewing room and making it a working student apartment. My whole mind-set has changed and none of the traditional economic markers are going to account for it, ever again.

I have a 24 year old whose out there struggling on her own as well. She's been 'scarred" by this downturn. She's doing a whole hell of a lot of the same things we're doing: scouring thrift shops to buy anything, bartering, working on the side for cash. She was raised as a fairly typical western Chicago suburban kid. And now she's operating on a whole different economic plane.

I think there's a new sub layer of economic activity happening out there.

[eridani]

19. Propping up the stock market is no problem

The 1% own most of the stocks.

[SlimJimmy]

2. If I am reading this correctly, the index dropped in 2008, climbed back for about a year, then

has slowly returned to 2008 levels. That tells me that if there was a recovery in progress, it has just come to a halt and we are back to about where we started.

[MilesColtrane]

5. Volatility in the BDI is not unusual.

Marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..."

http://en.wikipedia.org/wiki/Baltic_Dry_Index

Without knowing about any change in shipping capacity (new ships being constructed), you can't really say unequivocally that this drop is driven solely by slackening demand.

Also, note that while this drop since November is significant (-48%) it is nowhere near the collapse of 2008. (-93%)

[Warpy]

6. I have a feeling this is more reflective of European austerity

than it is anything else.

European austerity is threatening to crash the economy there and it could easily spread here even if we are lucky enough to escape that last ditch looting exercise the rich like to call shared sacrifice (that they have no intention of sharing).

[cthulu2016]

9. Is this adjusted for fuel costs?

[cthulu2016]

10. I looked at a 5-year price chart and the recent move is almost invisible

http://www.bloomberg.com/apps/quote?ticker=BDIY:IND

hit 5-year button on chart.

Compare current move to innumerable moves in the last few years.

(I think long-term prospectd for the global economy are awful. Just not seeing this.)

[fasttense]

13. Your chart is for 1 day, 1 month and 1 year. No 5-year chart was available.

The 1 month drop is noticable. The 1 year drop is just a few points away from it lowest.

I find that if you look at 10 years, there is a drop every time there is a economic down turn.

The drop recently is interesting because it started out so low already.

[Telly Savalas]

15. On the left there's links for "snapshot", "chart", "browse all indexes"

Click on "chart" and it takes you to a chart with a 5 year option.

Depending on how you look at it, there are about 6-8 dips in the last five years bigger than the recent one. Given the volatility in this, I wouldn't ascribe any meaning to short term changes in this index.

[DCBob]

14. This is a worldwide index.. probably more an indication of the slowdowns in Europe and China.

Of course since we are major part of the global economy these downturns affect us too. But it might also be interpreted as a good sign that we are importing less.

[JCMach1]

16. Most of Europe is in recession at the moment...

[DCBob]

17. And that is no doubt impacting the BDI..

China is also in a a bit of slowdown.. although they still import/export huge amounts.

[JNelson6563]

18. Doesn't that just gauge import/export?

While I agree with you completely that this number is important and virtually unknown/unmentioned, there are some things it may indicate you don't mention.

Supposedly manufacturing is up in the US, continuing a slow but steady climb up. Also American automakers are reporting increases in sales and contributing thousands of jobs to the economy (here in my poor, battered Michigan!). So it seems to me that at least on some counts the BDI going down isn't all bad news.

I do think that since the BDI is global it isn't looked at much. Financial news is so often American-centric with occasional glances at various individual economies. Very little in the way of bigger picture stuff in the more mainstream financial news sources, really. Just IMO, of course.

Julie

[Sheepshank]

20. Just what I was thinking

I haven't taken the time to read all about BDI's, but I wonder if the index should be used along side of domestic market fluctuations to get a full picture.

[opihimoimoi]

21. Don't Worry...Be Happy....all will be well soon

&feature=related

[lunatica]

22. The way I see the Stock Market

Is that it does really well in certain things if bad things happen in the world. If war breaks out then the demand for weapons, ammunition, and military equipment goes up and it's good to invest in that stock. If a devastating earthquake, or flood or hurricane comes along and destroys cities and counties then heavy machinery is needed the demand goes up making it a good investment. Droughts cause food prices to go up which means astute Wall Street investors make a killing on investing in food producers.

Of course, it's much more complex than that but that's how I envision the Stock Market. And sometimes investors will manipulate the markets, such as speculating on oil prices for no other reason than it will make them rich. Or buying up silver or gold to make it go up in value then selling it when the price is high.

That's why it's futile to use the Stock Market as some indicator of a good economy. It's only an indicator of the investing class and their wealth or lack thereof. It really isn't a legitimate indicator of anything other than that. Yet it affects us profoundly whether we're aware of it or not. For example, the outrageously high gas prices right now have nothing to do with the availability of oil and have everything to do with investors making a profit.

[Quantess]

23. Interesting.

Thanks for calling attention to it.