Wednesday, October 22, 2008

Baltic Dry Index - Indicators for Bear Market ?

You want to see what a real bear market looks like? Take a peek at the Baltic Dry Index.

The BDI, which measures the rates shipping companies charge to move bulk commodities by sea, has fallen 89% since May as the air rushed out of the speculative commodity bubble.

The index, which today hit its lowest level since September 2002, is a key indicator of demand — and prices — for such basic commodities as iron ore, coal, grains and soybeans.

So a falling BDI would seem like good news. We’d all like cheaper steel in our cars and less expensive cereal in our bowls every morning. The rub is that the Baltic Index’s free fall is an indicator of dramatically slowing demand for commodities around the globe, particularly in China, where steel output is dropping fast.

In a recent report cited by Dow Jones, Barclays Capital blamed the index’s tumble on a “darkening” global economic outlook, noting that “the collapse of the BDI is undoubtedly significant and reflects a slowing in commodity demand.”

In other words, in future things might be cheaper, but the economy may crumble around us — especially since a falloff in overseas economies could further weaken demand for U.S. exports, which had been one of the few bright spots for U.S. businesses until they hit a slowdown last month.

The decline in commodity demand has also been a major pain for investors in global bulk shipping companies. At the moments we can't feel the heat yet because what we can see now is just the beginning but what would happen in the next six months to one year from now on ? The picture will be a different story............

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