Chiming in On the Baltic Dry Index

Everyone is talking about the Baltic Dry Index these days so I figured I might as well chime in. On Wednesday, I actually wrote about the sharp decline in the BDI for my daily report at GFT Forex but since then, the sell-off has worsened.

What is the Baltic Dry Index?

The Baltic Exchange’s Dry Freight Index was once termed, the “Best Economic Indicator You’ve Never Heard Of” by Daniel Gross. This index is closely by all Wall Street Insiders because it is a good indicator of economic growth and production. In a nutshell, the BDI reflects how much it costs to ship raw materials (like coal, iron ore, cement and soft commodities like grains and sugar) by sea. The level of this index is also impacted by fuel costs, fleet numbers and seasonality but if the index rises, it means that demand is generally strong causing other ports to be congested.

Back in August 2007, I looked at the Baltic Dry Index to determine whether commodity prices should continue to rise. Interestingly enough, a full year later, the sharp decline in the BDI illustrates the recessionary conditions that consumers are feeling globally. It also suggests that we could see further losses in oil prices.

Here is a chart 23 year chart of the BDI (white line) against oil prices (orange line). The strong correlation between the two indexes should be clear:

Source: Bloomberg

Source: Bloomberg

Continue reading

Canadian, Australian, New Zealand Dollars: Where Are they Headed Next?

Gold and Oil prices are plunging, triggering a 400 pip slide in the Canadian dollar from Friday’s high, a 300 pip drop in the Austrailian dollar and a 200 pip decline in the New Zealand dollar.

Could the commodity currencies fall further? Yes.

According to the Baltic Dry Index charts below, commodity prices will continue to fall. For those of you who do not know what the Baltic Dry Index is, it was once termed the “Best Economic Indicator You’ve Never Head Of” by Daniel Gross. This index is closely followed by all Wall Street Insiders because it is a good indicator of economic growth and production. In a nutshell, the BDI reflects how much it costs to ship raw materials (like coal, iron ore, cement and soft commodities like grains and sugar) by sea. The level of this index is also impacted by fuel costs, fleet numbers and seasonality but if the index rises, it means that demand is generally strong causing other ports to be congested.

The following charts show that the BDI is declining and could continue to decline. According to the log charts of gold and oil, the decline should steepen not only for commodity prices but also for the Australian, New Zealand and Canadian dollars. This dovetails well into my belief that carry trades will continue to suffer.

BDIgold

bdioil
Continue reading

In the Financial Papers: Today’s Top Forex News 02.22.08

kathysmallHere is the “In the Financial Papers Radio Broadcast” (Length: 08:05 minutes). The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
– Euro-US Economies are Re-coupling
– Why the European Central Bank must cut rates
– Canadian Retail Sales Miss Expectations
– Gold nears $1,000 as stagflation fears grow
– Housing Market Momentum is Bad
– US earnings Could See V Shaped Recover
– Goldman, U.S. Brokers’ Earnings May Miss Estimates by 40%, Bernstein Says
Continue reading

In the Financial Papers: Today’s Top Forex News 01.18.08

Here is the “In the Financial Papers Radio Broadcast” (Length: 08:40 minutes), all the news related to the foreign exchange market. The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
– Markets Rise Ahead of Plans for Stimulus Package
– US Leading Indicators Fall more than Forecast
– Consumer Confidence Rebounds
– More Layoffs?! Sprint Plans to Cut 4000, Lehman 1300, GM Tens of Thousands
– Trichet Snubs Productivity Gains
Continue reading

In the Financial Papers: Today’s Top Forex News 01.15.08

Here is the “In the Financial Papers Radio Broadcast” (Length: 07:48 minutes), all the news relating to the foreign exchange market. The player should load automatically. Please let me know if you like it. Contact Kathy

In the Financial Papers:

 

Podcast Covers:
– Dollar Continues to Slide as US Retail Sales and PPI Growth Turn Negative
– Merrill Lynch Receives $6B Capital Infusion
– Citigroup Reports Record Loss, Gets $14.5B Infusion
– German ZEW survey hits new low
– Gold’s Rally Above $900 Represents Falling Demand for US dollars
Continue reading