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The Baltic Dry Index is a leading economic indicator which can trace its lineage back to the Virginia and Baltick Coffeehouse in London in 1744, where insurers, shippers, brokers, and clients would gather to haggle over rates. It is released daily by the Baltic Exchange and is an amalgamation of three separate sub-indices, of different ship sizes: Capesize, Supramax and Panamax.
The financial crisis and the collapse of international trade caused the Baltic Dry Index to fall harder than it has ever and to reach levels which were perilously close to its all time low reached in 1986 (554 points). The Capesize market was especially hard hit, with rates falling 99% from their highs reached in June 2008.
However, while stock market sentiment is still pretty bad, recently the BDI has mounted a surprising recovery. One that is even more impressive when you consider the Chinese holidays:
Even just eye-balling the two charts, you can tell that the Baltic Dry Index leads the S&P 500 Index:
In the previous bear market, the Baltic Dry Index started to recover very early, at the start of 2002. And by the beginning of 2003, it was well on its way, hitting new 52 week highs, well before the S&P 500 Index hit similarly new highs.
Right now, the S&P 500 Index continues to be weak but the Baltic Dry Index has made higher highs and seems to be powering ahead, having risen 65% from its low.
Will the Baltic Dry Index lead us out of this bear market also?
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