has turned my friends

http://investmenttools.com/futures/bdi_ ... _index.htm

international trade has begun . the worst is over (for now) .

True, but it is still languishing at 2001/02 levels and may be little more than a deadcat bounce. Given the totally uneconomic prices that were being quoted for most bulk shipping some rise was probably to be expected. Another shipping indicator that is of some relevance is containers shipped through LA. It is giving quite a different reading...

http://www.lloydslist.com/ll/news/viewA ... 07&src=rss

Sorry for being a killjoy

So where is this rally coming from ? The Baltic dry index doesnt look too healthy at the moment ? Why have resources rallied so hard ?

Hey Muhaha,

I think my earlier comment in Feb might have a flaw in it. The more I have been reading about shipping of late, the more I have realised that the Baltic Dry index may become much less of a useful proxy for assessing commercial activity than it use to be. Basically over the next 2 years some ridiculous figure of new shipping tonnage is going to be added to global capacity - when I mean ridiculous I mean something like 20%, huge amts. This is likely to keep the Baltic rates depressed even as other economic activity picks up. Something to be aware of I suppose. As for the movements in commodity prices, I could only suggest look at the quanity of "qualitiative easing" that is going on. That is merely my take on it, the could be equally valid drivers else where, China, recovery, etc, etc.

The dangers of extrapolating a correlation

DiscoStu is right I think. World trade dropped last year, and at one stage it was down 40%. Hard numbers. fell off a cliff. But this was a short term cardiac arrest. And 'stimulus' to the system, a shock even, was applied. Of course the BDI would have plummeted, but the short term correlation may not have any more relavance other than as another bit of evidence to back up the other observations. Definitely BDI doesn't lead or indicatye total economc activity, especially over the longer run.

According to the article below the Baltic Dry Index is behaving as a leading indicator of the stock market. It leads the stock market by 1 to 3 months.

Baltic Dry Index Continues Leading the Stock Market
Published September 7th, 2009
http://www.tradersnarrative.com/baltic- ... -2943.html

What the Baltic Dry Index is telling us now is for the longs to be cautious. However, the article also suggests that you don't trade just based on one indicator like the Baltic Dry Index.

Good Investing,

Beng

Commodities boom ? maybe , maybe not ?

Faber reckons that we should not take into account BDI at the moment as there is a glut of ships from the last boom.

aha, the confusion between causation and correlation

someone got the good idea back in 2007/08 there was a linkage, the rest of the 'chattering mob' used the short term correlation as a positive reinforcement/ an affirmation of things (that were, to be frank, pretty confusing, at the time) and that it 'predicted the market" (the holy grail) and thus it was the tool used to enhance reputations for that short window (why if you didn't know about the BDI let alone use it to navigate the treacherous market shoals, you were nobody or, worse, a nobody.)

anyhow, what does the graph tell us? that speculators ran it up and a few early birds made money, but ultimately it was another bubble.

Oh yes, the Stats101 from years ago. Q: What is the most accurate point of an extrapolation? A: That which is closest to the data set.

Off topic but in the medical field it was a similar "coincidence means correlation" view which resulted in the argument about vaccinations and autism.

For an interesting exercise google Dunning-Kruger effect - and always keep it to the front of your mind.

There is extreme weakness in the Baltic Dry Index, which declined by 44% in 2011 and is bouncing along the bottom. Some commentators and others are perplexed. Noticeably, demand is weak in China, particularly for iron ore (in December Chinese imports from Japan and Taiwan fell by 16% and 6% year-on-year respectively) and the global economy is slowing down.

However, the global economy is in far better shape (superficially) than it was at the depth of the slump in late 2008. Global exports are at an all time high and yet the Baltic Dry Index is close to a record low. Perhaps, the BDI slump is not due to weak demand but due to continuous oversupply as ship-owners are now forced to take delivery of the ships they ordered during the 2006-2008 boom - as per muhaha's comment of (just over) a year ago, and noting the index is worse off than then?