BDI Baltic Dry Index Weekly and Monthly Charts; BDI in Collapse

The Baltic Dry Index is taking on water and sinking in the ocean blue. The collapse is remarkable. After the Q4 2018 stock market crash, the Baltic was still moving lower well into January. The Federal Reserve panicked in early 2019 and started printing money like a madman in collusion with the BOJ and ECB, and to some extent the PBOC. Global stock markets catapulted to record highs on the central banker largess. You can see the BDI taking off like a rocket ship from February through September, but now falling on its sword.

The dry bulk shipments for the BDI are raw materials that go into every product made. Iron ore, coal, powders, resins, building materials and grains are standard cargo's. Plastic beads and resins are the building blocks of a strong economy. Ores, coal and coke are needed for steel production plus electricity generation. Grains are needed to feed the pigs that fuel humans that become more productive. BDI is a key economic indicator.

The central banker money-printing is at the heart of everything financial around the world over the last 11 years and there may have been a triple-whammy in play for the BDI. Any CEO worth their over-bloated salary had to make a decision to double and triple parts orders last year during the US-China trade war drama. Not only to acquire inventory ahead of any tariff charges but also to stock up in the event of a complete supply disruption. This holds true for powders, ores, any raw material you need to build your widget.

If the source for three of the parts for your widget is China, you likely have 3 or 4 times the inventory you usually stock just because of fear of losing that supply. At the same time, alternate suppliers are being developed outside China. The Vietnamese will work all day for a hotdog and a Coke so many companies are flocking their to build manufacturing plants.

In addition to the central banker largess and huge inventory build last year, there is typically some buoyancy in the BDI ahead of the holiday season as shipments moving across the oceans increase. Thus, a triple whammy of joy. On the downside, grains have to play a big role in the collapse of the BDI. The trade war has drastically decreased grain shipments, such as soybeans, which sends the BDI lower. The swine flu outbreak in China, and the Chinese love their pork, has decreased the need for grains since the pig and hog population had to be culled also sending the index lower.

Looking at the BDI monthly chart, the green circle is where the US stock market topped out in October 2007. The Baltic did come up again to the blue circle. After the long 2003-2008 stock market rally, investors and companies did not believe the party was over. Remember, recessions begin when markets are peaking, not after stocks fall and the economy is weak for a few quarters; by then you are already knee-deep in the trouble. So the BDI crashes with the US stock market into 2009 when the Fed began their sick Keynesian experiment in money-printing that continues to the present day. 2010 a pullback occurs in BDI with a pullback in stocks. Ditto 2011 although the BDI peaked after the stock market like in 2007.

May 2015 was the last legitimate stock market top, as Keystone likes to call it; everything else above is likely froth that will disappear over the next year or two. The drop in BDI was drastic in 2015 into 2016 and the Baltic printed its record low. The BDI also crashed in conjunction with the Q4 2018 stock market crash and look at that, the BDI peaked in August 2018 about 2 months before the stock market rolled over. The BDI peaked recently in September four months ago. What do you think is happening?

Note that the BDI is in a sick sideways stumble for many years. The global economy limps along due to the ongoing support of central banks. The easy money pumps asset prices to the moon as evidenced by the stock market but the flat BDI stares you in the face. It tells you that the multi-year so called healthy global economy is actually quite sick. Stocks did not go up on fundamentals the last few years as evidenced by the lackluster performance in the BDI (note the upward vibe in the BDI during the 2003-2008 stock market rally). Stocks go up on the Fed and other global central banker money printing. Kapish?

The crash in the BDI is worrisome for the global economy. Central banker largess is simply one sugar high after another, each requiring more sugar to keep the energy going. The huge inventory build which likely occurred last year will need time to work out, and interestingly, if demand starts falling off a cliff, it will take even longer to burn off the inventory. Companies do not contract with shippers unless they have raw materials and parts to move.

Obviously, if the seas are quiet and the crewman are sitting in the engine room, in port, playing cards with nothing else to do, this does not bode well for the US economy. Humorously, everyone is so busy buying stocks, drinking Fed wine and singing songs that they do not notice the BDI. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added Tuesday Morning, 1/14/20, at 8:11 AM EST: The BDI is at 765.00 sitting down in the cellar.