BDI Baltic Dry Index Weekly Chart; Ocean Shippers Sinking

The Baltic Dry Index is drowning in the middle of the Pacific Ocean. Blurp, blurp, blurp. The global economy is slowing which takes a toll on the shippers but the conoravirus is the nail in the coffin. If an infected person is aboard a ship, that vessel is deemed contaminated. The cruise lines are starting to quarantine some ships due to the coronavirus. China has shut down its economy to stop the spread of the virus so the ocean shippers are sitting idle trying to find a load to carry.

In addition to a slowing global economy, the Baltic index is getting hurt by a shift in global logistics as the trade wars progress and the West pulls back from globalization. The shipping routes are going more regional these days.

The collapse in the BDI 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 (that does not have a limited shelf-life).

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.Despite the signing of the Phase One trade deal, soybean shipments from the US to the communists were weak.

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. The BDI crashed 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 five months ago. The coronavirus sinks the Baltic ship this year; the ships are taking on water and sinking while docked.

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 to falling 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 (bring up a long-term chart and 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. Do you understand this or are you stupid?

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. The coronavirus punches another hole through the side of the Baltic ship. Humorously, everyone is so busy buying stocks, drinking PBOC and Fed wine and singing songs that they do not notice the BDI. They would not care if they were told. No one wants to throw a wet blanket on this glorious stock market party especially since the dancing girls just arrived. 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 Thursday Morning, 2/6/20, at 5:43 AM EST: The BDI slips further under the sea waves at 430. Quick, throw it a life preserver. Give BDI a load of raw materials it can carry.