Tides Rising under the Baltic Dry Index ($BDI)

February 3, 2009 5:11 pm

We are covering this during TDI Podcast 88. I thought we would provide an advanced look into why we were buying Excel Maritime (EXM). The shippers have been moving sideways since we sold the position for a quick ~50% profit. Recently,m we bnought it back for clients. (See TDI Managed Growth Strategy Virtual Tour)

Here is the commentary that you will hear on TDI Podcast 88:

Evaluating the impact of infrastructure spending by President Elect Barack Obama and other nations is not easily accomplished. We could take a look at the performance or demand for commodities prices, infrastructure development stocks or even stocks that provide products such as steel, cement and machinery. The problem with those indicators is controlling the idiosyncratic or specific risks inherent with one specific company or commodity. The answer to our question may lie within the Baltic Dry Exchange.

The Baltic Dry Exchange is an exchange similar to the Chicago Mercantile Exchange, Chicago Board of Trade or New York Mercantile Exchange that maintains a market place of shipping routes for dry bulk cargo. The Baltic Dry Index is a price weighted measurement for the general cost of shipping or receiving raw goods. This index will give us foresight into increased demand and possible indications of infrastructure spending affecting the global marketplace. The exchange is made up of member companies that ship or intend to receive cargo, and unlike stocks, it is completely removed of speculative players. Economists believe this is the purest leading indicator as the demand for raw goods generally precedes the demand for finished goods. When companies begin demanding shipments of these raw goods then the Baltic Dry Index will trend higher due to an increase in vessels for shipment.

The index peaked around May 30th of 2008 at just over 11,400 and is now trading in the low 800s. This extreme shift in demand that began after May 30th was a good indication of where the market was headed. A decrease in the demand for raw goods from China’s build out and exports from the United States’ weak dollar came to a halt. If this index begins to trend higher then this would be a good sign of economic recovery.


Interactive Chart of the Baltic Dry Index

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