What the Baltic Dry Index have to say about the future?

PART ONE
Chirag Shah

What is Baltic Dry Index (BDI)?

Being one of its kind, and considered as one of the leading economic or now I should say global economic indicator (after successfully signaling the financial turmoil of 2008 in May. Kindly see the below chart), BDI is an index that measures the cost of shipping raw materials such as iron ore, coal, grains, etc. Also called BALDRY, the data for this is compiled by London based Baltic Exchange; number is issued on daily basis by averaging the shipment quotes received from around 22 different shipping routes from international shipping brokers. Any economys GDP mainly depends on production. If GDP of any economy is rising, it generally means production is rising in the economy implying demand for raw materials is rising. Since the Baltic Dry Index considers the supply of raw materials, it gives an future insight whether in the near future production activity would be on an uptrend or whether another disaster awaits? Hence, as an analyst this indicator needs to be in your daily watchlist.

Start of the panic

BALDRY reached an all time intraday high of 11793 on May 20, 2008. But, within a period of six months it dropped more than 90% to 663 on December 5, 2008. September 2008 marked the start of the biggest global crisis since the great depression of 1929 (officially the start of the depression phase by seeing the default of the 160 years old Lehman Brothers - For information I would like to state here that RBI had appointed Lehman Brothers as one of the primary dealers in early November, 2007 only). Many of the economists considered this crisis bigger than that of 1929.

Sensex was hovering at 17230.18 on May 20, 2008 and at 8965.2 on December 5, 2008. As we were fundamentally strong we didnt had such a panic situation which US and the Euro Area countries faced. The main reason for the drop in our markets was due to the FIIs massive net outflow of more than USD 13 billion in 2008.

Source: http://www.anirudhsethireport.com/bse-sensex-nifty-trend-down/

In the part two we would be comparing the BDI with other indexes to analyse what the future holds. Happy Learning!!!
About me:

My name is Chirag Shah. I am currently working in NSDL (National Securities Depository Limited). I have completed MS (Finance) after my graduation (B.M.S. specializing in Finance). I like to read economic editorials the most. I stress on continuous learning. For finance queries and help, write to me at cas_7979@yahoo.co.in