Don't bet the Farm on the Baltic Dry Index

    You will often hear the talking heads on TV and blogs refer to the Baltic Dry as a leading economic indicator worth following. It has become a sexy indicator that people use to predict movements in the stock market. They constantly analyze what the Baltic Dry is "telling" investors. I disagree, the Baltic dry is not a good indicator of world economic growth. It is however a good indicator when it comes to the Chinese economy. You see China controls all commodity markets these days and so the Baltic dry will tell you whether China is buying commodities. It will not help you trade the market (outside of China). The Baltic Dry is also influenced by the supply/demand relationship of global shipping. This has pressured it recently due to the large number of new ships entering the market. Lets go the charts. The first one is of the Baltic Dry, the second is of the Chinese stock market, and the third is the S&P 500. You will see that the Baltic Dry has been consolidating for the past 13 months along with the Chinese stock market. If you had followed the Baltic Dry's signal you would have missed out on a large rally in world markets over the past year. So while the index is skewed more to the Chinese economy it is always worth paying attention to.

Black Swan Insights

Don't bet the Farm on the Baltic Dry Index