Guest Post: Baltic Dry Index Signals Renewed Market Decline

Tyler Durden's picture

Submitted by Brandon Smith from Alt Market

Baltic Dry Index Signals Renewed Market Collapse

Much has been said about the Baltic Dry Index over the course of the last four years, especially in light of the credit crisis and the effects it has had on the frequency of global shipping.  Importing and exporting has never been quite the same since 2008, and this change is made most obvious through one of the few statistical measures left in the world that is not subject to direct manipulation by international corporate interests; the BDI.  Today, the BDI is on the verge of making headlines once again, being that is plummeting like a wingless 747 into the swampy mire of what I believe will soon be historical lows. 

The problem with the BDI is that it is little understood and often dismissed by less thoughtful economic analysts as a “volatile index” that is too “sensitive” to be used as a realistic indicator of future trends.  What these analysts consistently seem to ignore is that regardless of their narrow opinion, the BDI has been proven to lead economic derision in the market movements of the past.  That is to say, the BDI has been volatile exactly BECAUSE markets have been volatile and unstable, and is a far more accurate thermometer than those that most mainstream economists currently rely on.  If only they would look back at the numbers further than one year ago, they might see their own folly more clearly.

Introduced in 1985, the Baltic Dry Index first and foremost is a measure of the global shipping rates of dry bulk goods, mostly consisting of vital raw materials used in the creation of other products.  However, it is also a measure of demand for said materials in comparison to previous months and years.  This is where we get into the predictive nature of the BDI…

In late 1986, for instance, the BDI fell to its lowest level on record, then, began a slow crawl towards moderate recovery, just before the Black Monday crash of 1987. 

Coincidence?  Not a chance.  From 2001 to 2002, a similar sharp collapse in the BDI preceded a progressive drop in the Dow of around 4000 points, ending in a highly suspect (Fed engineered) illegitimate recovery.  In 2008, the index fell to near record lows once again just before the derivatives and credit crisis hit stocks full force.  To imply that the BDI is not a useful measure of future economic trends seems like an astonishingly ignorant proposition when one examines its very predictable behavior just before major financial downturns. 

This is not to suggest that the BDI can be used as a way to play the stock market from day to day, or often even month to month.  MSM analysts rarely look further than the next quarter when considering any financial issue, and that is why they don’t understand the BDI.  If an index cannot be used by daytraders to make a quick buck in a short afternoon, then why bother with it at all, right?  The BDI is not an accurate measure of the daily market gamble.  It is, though, an accurate measure of where markets are headed in the long run and under extreme circumstances.

Over the course of the past month, the BDI has fallen around 65% from above 1600 to 726.  Mainstream economists argue that the BDI’s fall in 2008 was a much higher percentage, and thus, a 65% drop is nothing to worry about.  They fail to mention that shipping rates never recovered from the 2008 collapse, and have hovered in a sickly manner near lows reached during the initial credit bubble burst.  By their logic, if the BDI was at 2, and fell to 1, this 50% drop should be shrugged off as inconsequential because it is not a substantial percentage of decline when compared to that which occurred in 2008, even though the index is standing at rock bottom.  Yes, the useful idiots strike again… 

Looking at the rate and the speed of decline this past month, it’s hard to argue that the current 65% drop is meaningless:

Another subversive argument against the BDI is the suggestion that it is not the demand for raw materials that is in decline, but the number of shipping vessels out of use that is growing.  A smart person might suggest that these two problems are mutually connected.  An MSM pundit would not. 

In 2008, many ships were left to wallow in port without cargo, but this was due in large part to two circumstances.  First, demand had fallen so much that too many ships were left to carry too little raw materials.  Second, credit markets had sunk so intensely that many ships could not find trade financing necessary to take on cargo.  In either case, the BDI still falls, and in either case, it still signals economic danger.  The only way that the BDI could signal a major decline in shipping demand artificially or inaccurately is if a considerable number of ships under construction were suddenly released onto the market while there is no demand for them.  There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand.

What is the bottom line?  The stark decline in the BDI today should be taken very seriously.  Most similar declines have occurred right before or in tandem with economic instability and stock market upheaval.  All the average person need do is look around themselves, and they will find a European Union in the midst of detrimental credit downgrades and on the verge of dissolving.  They will find the U.S. on the brink of yet another national debt battle and hostage to a private Federal Reserve which has announced the possibility of a third QE stimulus package which will likely be the last before foreign creditors begin dumping our treasuries and our currency in protest.  They will find BRIC and ASEAN nations moving quietly into multiple bilateral trade agreements which cut out the use of the dollar as a world reserve completely.  Is it any wonder that the Baltic Dry Index is in such steep deterioration?

Along with this decline in global demand is tied another trend which many traditional deflationists and Keynesians find bewildering; inflation in commodities.  Ultimately, the BDI is valuable because it shows an extreme faltering in the demand for typical industrial materials and bulk items, which allows us to contrast the increase in the prices of necessities.  Global demand is waning, yet prices are holding at considerably high levels or are rising (a blatant sign of monetary devaluation).  Indeed, the most practical conclusion would be that the monster of stagflation has been brought to life through the dark alchemy of criminal debt creation and uncontrolled fiat stimulus.  Without the BDI, such disaster would be much more difficult to foresee, and far more shocking when its full weight finally falls upon us.  It must be watched with care and vigilance...

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SheepDog-One's picture

Surely Bernank will just print some shipping in 15 microseconds.

The Monkey's picture

Treasuries smoking everything again this morning.

Tyler - you've been wrong about USTs buddy. Rally may have another 40 - 90 bps to go on the 30 year. Then they will sit close to the lows for a long, long time.

Will be many years before you see 5% again on the 30 year UST.

squale's picture

"The Monkey".. how do I contact you directly?

akak's picture

He can be found at the Great Ape House at the Chicago Zoo, along with a number of other jabbering, poo-flinging monkeys.

The Monkey's picture

You can't, but I'll gladly share my opinions here on ZeroHedge. Groupthink doesn't bode well for anyone. This is a great blog, I just happen to be on the other side of the inflation and precious metals argument. Otherwise, I'm as anti-Federal Reserve / bailout regime as the next guy.

I can see some folks take issue with that given all my downvotes.

akak's picture

Let's just say that your post above sounded more than a little .... Robotic.

The Monkey's picture

Hey, I love ZeroHedge, but no one is perfect. Gold has been trucking along okay, maybe I will totally miss the boat as it soars to $10k.

jaffa's picture

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SheepDog-One's picture

The only game in town now is to scratch and claw at that .25% interest rate, from here on out.

TruthInSunshine's picture

The Bernank's y shaped recovery is on track.

y's bottom is far deeper than L's - and in fact, is a black hole (with a false signal of  recovery to lull suckers into their slaughter).

*Some who are confuzled by The Bernank have thus far only been able to envision what appears to be a perplexing Z or X shaped recovery. They are prone to such exploits because they naively believe The Bernank is well-intentioned and trying to put a floor under the quicksand that the middle class have encountered, when in fact, The Bernank poured that quicksand in order to sacrifice the middle class (and what was a 2/3rd's consumer consumption economic model) on behalf of the Money Masters.

Astraea's picture

Does anyone actually believe,still, anything that any of these liars, chets and thieves say?    Has 9t not been obvious for years and years that they say whatever they like, often saying the exact opposite of what they say at the begining of a sentence to what they say at the end.     They actually do that - all the time.     I do not understand why anyone takes any notice of any of them      They treat us all like complete dimwits - and I suppose a lot of us behave like dimwits.    The whole of the US Congress sits and pretends to listen and take in what this liar or that liar says about "The Economy" but they obviously do not even hear what is said because they do not notice it is literallly gobblygook or that the man says different things, contradicting himself.     No wonder he always has athat supercilious look on his lying face.    

Have they no shame?   NONE?


Oh regional Indian's picture

Somehow 'Weak Bottom Line" and Shipping have a very ominous ring to them together. It signalled demand destruction in 08, it probably signals end of globalization as we know it now.

Plus, you cannot have all manners of merchant traffic snarling up key WAR LANES at a time like this, eh?

There are games to be played, bombs to be dropped. Even the oceans are just is not big enough for the Big Boys Vs. Rest of the world.

So I'll ask again....

Anyone reading this brave enough, courageous enough, open-minded enough, sharp enough to actually try and DO something about this Oily grip around our collective throats?




Killing the OIL Paradigm >>> watershed-day-may-this-pour-through-a-million-pairs-of-eyes/

Freegolder's picture

Hello Oh Regional Indian.

Here is the first paragraph from your post on your blog:

'Today, with the New MOON in Aquarius, begins the Year of the Water Dragon. Astrologically, the North Node, also called the Head of the Dragon, represents the area in our charts where we can exercise the most amount of free will. This means that 2012 is a year that our conscious choices rather than fate, will determine outcomes.'

Just thought I'd share that with ZH readers to save them the time of visiting your blog. Or should that be visi-ting?

However, perhaps you could start a daily horoscope update here on ZH instead? You know, take a well known figure (the Bernank perhaps?), find out his birth day, and give him a free horoscope reading?

All mumbo-jumbo of course, but you do seem to have fun doing it.


Oh regional Indian's picture

You can go Fondle your Freegold now Freegold.

All the way to kingdom Come.


blindfaith's picture



Humm...before you discount mumbo-jumbo, you might consider that 9 or 10 astrologers said over a year before the "Arab Spring" it was going to happen in 2011.

One man's mumbo-jumbo is anothers religion.

Being critical of something you have never investigated is a sign of modern thinking...congratulations.

slewie the pi-rat's picture

how do you know he never "investigated" "astrology"?

L0L!!!  oroe-like thought patterns, here, sherlock! 

or has everyone who considers it mumbo-jumbo never "investigated" it?

oreo's astrology is one thing

his spamming is another

even a fan of this "regional" turd might recognize he is shitting on zeroHedge constantly with his trademark spamming and compulsive string-jumping to get his daily quota of "clicks"

constant, unmitigated troll-like behavior is indicative of what, BiCheZ? 



people can spam here.  they just goto the bottom of the page and run their "ads" there or make a relevant reply as opposed to thousands of string-jumping "reply"s

we handle disrespectful trolls and true asswipes here, all the time

oreo is a cream-puff, really;  i would advise him to listen to slewie;  slewie can handle this toy-boy oreo, too.  he knows it, i know it, and the readership knows it.  so he needs to stop the trolling and do his spamming in conformity w/ the other fuk-bots and "columnists" on these strings.  we all know this.  wtf's the matter with this pathetic loser?

JPM Hater001's picture

Watch the Scole Experiments and you may start doubting you know anything.

Sometimes the things we need to wake up from are much deeper than you think.

Just havent figured out how I explain that next one to my wife.  Accepting the collapse was hard enough for her to take.

StychoKiller's picture

How do you wake someone up that's pretending to be asleep?

Theosebes Goodfellow's picture

Uhm..., I use dynamite. Works every time. Makes 'em jump like hell.

blindfaith's picture



By the way Freegolder..."represents the area in our charts where we can exercise the most amount of free will. This means that 2012 is a year that our conscious choices rather than fate, will determine outcomes.'...

this, by odd considence happens to be the same thing the Myan's calandar also predicts...not that the world is going to end as so many uninfomed seem to have bought hook, line, and sinker...and koolade.

VanillAnalyst's picture

Well, on the upside, if the BDI drops are actually due to a decline in the number of ships used, we should be able to easily transition into Kevin Costner's post-apocalyptic Waterworld, as more vessels are available for the smokers. Bernanke can be that guy sitting in the little dingy in the oil tank.


Long cigarettes, boose, and ammunition.

Global Hunter's picture

thumbs up for a waterworld reference, I'd give you a second if you've watched the whole thing (if I could).

YC2's picture

Supply has crept upward for years, esp due to the long lead time on ships commissioned during the price spike, though there are no recent dramatic increases.  The price of shipping is in a bear market due largely to this massive oversupply, and its going to trend down more aggressively to negative changes in demand in general.  IE the bid side is thin.  It is this supply driven bear market that makes taking price drops and attributing them to demand makes some sense, but really it ignores what is by far the overall driver of market direction in shipping currently.

dubbleoj's picture

You are correct.

Supply has not only crept upward, it has leapt upward in the last few years. Just last year alone 60 super container ships (with capacity over 14,000TEU) were odered. This year new deliveries will increase supply by 12%. Delivered TEU capacity will be 766,000ish, with only 120,000TEU being scrapped.  And this is just container vessels, total deadweight tonnage in all shipping is going through the roof. This will continue for the next two years as stupid owners keep buying stupid ships and dont scrap enough. Shipping companies have been waging a market-share war, lowering the hell out of prices to kill off the small guys, while the huge companies have been living off their cash reserves. Its been working. 

Sure consumer demand is down, shipping portfolios are being offloaded by tons of banks making it hard to secure financing, whatever, all valid. I firmly believe in the BDI's value as an economic indicator, but to say that supply currently has no effect and is not creating an imbalance means you have no idea what is going on in the shipping industry itself.  Micro does affect macro.

Remember that WTI/Brent spread that was bigger than Bernanke's asshole last year? Most people assume it was due to the glut at Cushing combined with slack demand in the US, pushing prices DOWN. Whats going on now? Enbridge bought that pipeline from Conoco and started reversing its flow back to the Gulf, which (coupled with other political nonsense/market manipulation) has cut the spread by more than half. 

Vague economic assessments without clear insight into the actual actors in an industry leads to misinformation. 

blindfaith's picture



The trash and garbage pile floating in the Pacific Ocean is now about 1/2 the size of the USA.

In a few more years we won't need no stinking boats, we'll drive the stuff back and forth.  Or Burlington Northern will build a floating railroad to Asia and make Flaglers railroad look like a sideyard idea.

And, besides, in a few years we will be heading to the moon and everyone knows boats can't fly.

fuu's picture

Someone didn't watch Starblazers as a kid.

LongBalls's picture

Who needs ships anyway. Half that cheap crap is floating for free on the Pacific. It should arrive in a few weeks.

AC_Doctor's picture

This can't be blamed on the Chinese New Year.  Maybe we can just load up 50 cargo ships with rubber dog shit from China and ship it to Wal-Mart for a little weekend boostie...

GetZeeGold's picture won't even contain any poison.



akak's picture

Melamine --- it's not just for breakfast anymore!

Plastic rice: it's what's for dinner.

Lead-coated pacifiers: when you positively, absolutely need to poison your child overnight.


Ni hao ma?

Dr. No's picture

"Your this close Mavrick to flying a cargo plane full of rubber dog shit out of Hong Kong!"

GeneMarchbanks's picture

'It must be watched with care and vigilance...'

Waterfall. How much longer will the Chinese New Year excuse hold?

SheepDog-One's picture

Ancient Chinese shipee rubber dogshit to Americans of Walmart on Chinee New Year.

JPM Hater001's picture

Good bye blue sky...good bye...

creviceCaress's picture

Did you ever wonder why we had to run for shelter when the
promise of a brave new world unfurled beneath a chemtrail sky?


..that blue sky?

JPM Hater001's picture

The exact same one.

My wife loves me.  She got me front row tickets to Roger Waters Performing The Wall in St Paul in June.

Best brithday present ever...

juggalo1's picture

This pisses me off so much.  Container lines are coming with price increases because they are losing money.  So F$%^ing what?  Demand is flat to down, supply is going up, means prices go down.  Suck it up.  Until a few of you bastards go bankrupt, no GRI for you!

francis_sawyer's picture

Well as it CLEARLY demonstrates in the photo... The BDI is low because the ships seem to have the nasty habit of keeling over and dumping the containers off the port side...

MFL8240's picture

From your clown!  State of the Union, 


Although unemployment in the country remains high at 8.5 per cent, the president said the economy was recovering from the two-year recession.


Where sir clown?

paloma's picture

BDI reflects rates and not tonmiles or cargo activity. Rates are collapsing due to oversupply of ships. Classic cycle. 


SheepDog-One's picture

Sudden 'oversupply' of ships just in the last 2 weeks caused it? 

_ConanTheLibertarian_'s picture

Yeah, amazing huh. There should have been a giant tsunami because of all the new ships thrown in the water...

Watson's picture

I did read somewhere that newly built ships are mostly delivered in January.

Doesn't explain the earlier falls however (unless the total amount of deliveries are known in advance).

Non Passaran's picture

Of course, see Freegolder's post in reply to OrI: the free will is at its lowest just before the moon enters whatever, so shipbuilders simply have NO CHOICE but to deliver ships in January.

chindit13's picture

You know it's bad when new bulk carriers are being christened with a bottle of Boone's Farm Apple Wine instead of Dom Perignon.

LFMayor's picture

I find your taste in vinyards apt and delightful, but a man who knows how to tie a real gutter drunk on partakes only of Cisco Red.

Check out Bumwine or Ghettowine dot com for a laugh sometime.  They held "judgings" and have testimonials, too.  Reminds me of some of the 7-11 supplied drunks I went on in the Navy.