BDI or Baltic dry index is a valuable indicator of sea freights around the globe. Read our new article on the Baltic Dry new drop down here.
The two last autumn decades used be significant in terms of freight traffic growth. The economic crises did not influence the indicator much. For example, though this index has shown noticeable reduction in the first half of 2008 and in overall volume of the same year, the second half of autumn 2008 still indicated the maximum annual value of the goods transported. There still was growth for that period of time.
2010 to 2014 – showed the same pattern. However, 2015 reveals notedly different results. This year, the local maximum occurred in the beginning of August and then the BDI has started to decline.
BDI New Historical Minimum
The minimum was established on the 20th of November at 498 points. At this point of human history, it is BDI’s historical minimum. It was higher during the crisis of 2008. And was even higher in 1986 – it’s first marked decline.
Following Baltic Dry behavior, in 2005 up to 2008, we can notice a classic market bubble formation. However, as it often is with freights, the bubble in the freights market only means bubble in another market. You could see that in 2008 – when a bubble burst in the real economy. Thus, Baltic Dry index only reflected the state of the real economy of that time.
Some Stock Market Basic Insights
The behavior of the index is influenced by many factors, including seasonality, fuel prices, ports availability, channels capacity, geopolitics (of course). The most important factor is the global demand for goods and supply vessels. A simplified interpretation is the lower the demand and the higher the bid are, the lower is the index. Just the case we observe at the moment: vessel proposal is higher and the world trade is declining.
Some would argue that it is a normal process for bubble to form and burst – that is part of global and local economy. However, since 2008 the global debt has grown significantly as well as unsecured currency volume.
In the summer, the world’s leading stock indices began to decline. In August, the second wave of crisis has started. At the moment, the situation on the stock market has been temporarily rectified. However, the economic state continues its fall. The gap between the situation on the stock market and the real economy is such that we can face another market crash practically any time. And it may come very soon.
What Does BDI Indicate Today?
This week the Baltic Dry index increased slightly to 598 points (bdiy:ind). We’ll see if that is a technical rebound or not. The economic situation does not show any signs of improvement. Anyway, the index has dropped by 28% since the beginning of the year.
Thus, usual recommendation from Grand Upheaval is not to buy bonds.