This is a follow up of an earlier article from a few months ago on the relationship of the Baltic Dry Index and the stock market. I wanted to revisit the thesis because it seems I’m wrong and I don’t miss an opportunity to point out my errors in the hope that I can at least learn something from them.
My original article presented the Baltic Dry Index as a leading indicator for the stock market. There is some logical rational for that since the BDI tracks international trade and that tracks economic activity which eventually is translated into profits and eventually changes in stock prices. While he disagreed with this thesis, Albert Edwards of Societe Generale mentioned my article and chart in one of his research notes - making my month.
In September 2009 the chart comparing the relationship between the Baltic Dry Index and the S&P 500 suggested that the stock market was in peril. Thanks to 20/20 hindsight, we know that the market plodded along quite nicely. Since then the S&P 500 has gained about +15%.
Here’s an updated chart of the BDI and the S&P 500 showing how the stock market has gone on to make new highs while the BDI is still mired in a sideways malaise:
As Daniel Pfaendler commented, there seems to be a more direct relationship between the Baltic Dry Index and the Thomson Reuters/Jefferies CRB Index:
For those interested in doing further tweaking, I would suggest comparing the chart of the Baltic Dry Index with a Chinese stock market index like the Shanghai Composite. If nothing else, the limp commodities and shipping rates charts hint that deflation continues to have the upper hand in the epic economic struggle of the era.
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