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Baltic Dry Index [BDI] year to date - a flashing signal?Barry Downs From the 815 level registered on November 4, 2008, the BDI moved sideways until the end of January 2009 when it broke through 1000 and rallied until June 3 reaching a high of 4291. The index has subequently plunged 49% to 2163 in three months. The earlier rally in the BDI appears to have been a pickup in business largely because of China's appetite for iron ore but that represents only a small part of international trade and the Chinese influence was quickly nullified by the overall shrinking global economy. Currently 12% of the world's bulk carriers are sitting idle and it's thought that within two years 25% of the fleet will be idle. The cost of chartering a bulk carrier was $300,000 last summer and is now only $10,000. Ship builders are completing orders placed in 2006 and 2007 and by 2011 no new bulk carriers will be under construction. Conclusion: While global stocks markets have galloped upward since the BDI turned down in June, we believe the BDI will be proven a better forecaster of future economic activity and longer term stock market direction than the current jubilant equity market rally. Around the world, equity markets are being distorted by the trillions of dollars of paper money being thrown into economies with the hopes of jump starting economic activity. Aside from very short term fleeting influences to the BDI, which can skew the direction for awhile, the real read on future global economic activity shows up better than 90% of the time and based on our analysis, the BDI is flashing that the world economy is far from out of the woods. We see the current divergence in stock market direction, vis a vis the BDI, as an opportunity to get out of equities before the next shoe drops. This is most likely the last exit before toll. As for stock market proceeds, we are advising consulting clients to acquire the ultimate default proof asset class, gold.  Barry Downs Ronald Gilchrist Messrs. Downs and Gilchrist are consultants in domestic and international money and have spent a combined total of 84 years in the study and application of monetary economics and investment analysis. As money managers they discovered the foreign exchange market, as an asset class, many years ago and have positioned their clients to take full advantage of that expanding market 321gold Ltd |
