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2016/01/22

The Baltic Dry Index Is Forecasting Economic Doom…

 

Dynamic Wealth Report
Dynamic Wealth Report | January 22, 2016
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Baltic Dry Index Hits Record Low…
By Justin Bennett, Commodity Trading Research
Over the past few weeks, we've discussed important economic factors and data points suggesting a recession and big market downturn is looming in 2016.  
 
From horrifically weak Chinese economic data to outrageously poor performance in the commodities space, there are plenty of signs suggesting global growth is screeching to a halt.
 
But no data point is more reliable than this one…
 
In case you're unaware, the Baltic Dry Index (BDI) is a very important economic indicator.  The index measures how much it costs to ship dry commodities, such as steel and grain, across the world's oceans.  
 
If the index is trending higher, it suggests shippers are demanding more for their services as trade picks up.  But if the BDI is trending lower, it means shipping prices are dropping as global trade slows.
 
Judging by a chart of the BDI, things aren't looking so hot…
 
 
Believe it or not, this closely watched index recently fell below the lows set during the 2008 financial crisis.  What's more, this is first time in recorded history the BDI has dropped below 500.
 
Folks, shipping rates are telling us something is seriously amiss in the global economy.
 
But here's the question we're really interested in today…
 
Can the BDI forecast a recession, and further, a stock market crash?
 
The evidence is rather concerning...
 
In mid-1986, the BDI suffered a steep downturn.  Turns out, the shipping weakness occurred about a year before the infamous Black Monday crash of 1987. 
 
Fast-forward to 1999 when the BDI careened to 12-year lows.  That was right before the dot-com bubble burst in the year 2000.  The index set another low in 2001, right before a multi-year recession lasting to 2003.
 
And it's hard to forget the financial crisis of late 2008.  Earlier that same year, the BDI lost half its value in a matter of months.  I don't think I need to explain what happened to stocks in the latter half that year.
 
Folks, the major market indices have already suffered the worst start to a year in history...
 
And judging by the BDI and other essential economic data points discussed the past few weeks, market performance could get much worse as 2016 rolls on.
 
What do you do?
 
Be careful with your portfolios.  And remember, cash is a great place to be in times of market turmoil.
 
Until Next Time,
Justin Bennett

Note: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.

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