The Baltic Dry Index Has Exploded Higher And The Silence From The Bears Is Deafening

Earlier this year when the Baltic Dry Index (BDI), a measure of shipping rates for dry bulk commodities, was plummeting, many were to quick to point out that this 'signaled' an end to the global recovery, even though the Baltic Dry Index is lousy, if not completely useless, as a leading indicator for the global economy.

Yet now the index has rebounded extremely hard over the span of just two weeks... and the silence from the bears who earlier touted the BDI as 'evidence' is deafening:

So what's going on? Let's step back to July 27th, which you'll note is the first date shown on the chart above.

Iron ore forwards have had an extremely strong week, according to data from the Iron Ore & Steel Derivatives Association. August 2010 forwards have had the largest gains, indicating expectations of a near-term rebound:

Despite concerns about Chinese demand growth, higher stockpiles of steel, a global growth slow-down, and Chinese plans to consolidate its steel industry into fewer players, iron ore and steel are rallying.

Where there's demand for steel, there's demand for many other commodities as well. There's also demand for ships. This, combined with a stabilized Baltic Dry Index and today's overall stock market rally, means it's a sea of green for dry bulk stocks today.

August & September could get interesting for the commodities space.

The bullishness shown in the derivatives market has proven correct, and China has begun increasing its imports of iron ore once again. In addition, an Indian iron ore export ban has forced Asian ore consumers to source ore from Brazil and Australia.

Thing is, just as the plummeting Baltic Dry Index was a lousy indicator for the economy, the rising one is as well. So far it just shows that China is consuming more iron ore again, even though a sudden China crisis could suddenly and completely change this situation. The BDI has also been bolstered by a regulatory change in India.
The point here isn't to say that the rising BDI is a leading indicator of good times to come, it says very little in either direction on this matter, it's to remind investors that next time the BDI plummets, completely disregard the economic prognosticators, many of whom are highly paid individuals sitting in large research firms, who choose to selectively highlight the BDI only when it fits their view.

Source: http://www.businessinsider.com/baltic-dry-index-23-august-2010