A Look at the Baltic Dry Index

Everyone is talking about the Baltic Dry Index these days so I figured I might as well chime in. On Wednesday, I actually wrote about the sharp decline in the BDI for my daily report at GFT Forex but since then, the sell-off has worsened.

What is the Baltic Dry Index?

The Baltic Exchange’s Dry Freight Index was once termed, the “Best Economic Indicator You’ve Never Heard Of” by Daniel Gross. This index is closely by all Wall Street Insiders because it is a good indicator of economic growth and production. In a nutshell, the BDI reflects how much it costs to ship raw materials (like coal, iron ore, cement and soft commodities like grains and sugar) by sea. The level of this index is also impacted by fuel costs, fleet numbers and seasonality but if the index rises, it means that demand is generally strong causing other ports to be congested.

Back in August 2007, I looked at the Baltic Dry Index to determine whether commodity prices should continue to rise. Interestingly enough, a full year later, the sharp decline in the BDI illustrates the recessionary conditions that consumers are feeling globally. It also suggests that we could see further losses in oil prices.

Here is a chart 23 year chart of the BDI (white line) against oil prices (orange line). The strong correlation between the two indexes should be clear:

Baltic Dry Index

Photo: Bloomberg

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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