The Baltic Dry Index (BDI) is a economic indicator issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."
Every working day, a panel of international shipbrokers submits their view of current freight cost on various routes to the Baltic Exchange. The routes are meant to be representative, i.e. large enough in volume to matter for the overall market.
These rate assessments are then weighted together to create both the overall BDI and the size specific Supramax, Panamax, and Capesize indices.
Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets.
Economists and investors should pay attention to the Baltic Dry Index because it offers a peak into future economic activity. Since the BDI is directly influenced by upstream producers, it will be the first "tell" on what direction the economy is heading. That's why I think the following chart is so scary.
Breaking below long-term support was a HUGE deal. That line was touched a half dozen times between 2008 and 2014 and as such, carried major importance from a technical and psychological point of view. In textbook form, the index is now back-testing that line prior to its next move which, in my opinion, will almost certainly be lower.
Does this chart look healthy to you? The BDI is one of the most important leading indicators of worldwide economic activity, and it is lower today than at the depths of the recession in 2008. Let me put that in perspective for you. When the BDI bottomed in December 2008, the S&P was around 750. No, that's not a typo - the S&P was a full 65% lower than it is today. So what we have is a depression in sea freight which is caused by lack of economic activity, and yet we have the S&P 500, one of the broadest measures of economic activity, marking all-time highs. Yes, I'm sure capacity was over-expanded during the real estate boom, but there's no way that can account for the complete dearth of sea freight demand and drop in prices.
So, what the hell am I missing?