The Predictive Power of the Baltic Dry Index
“Even though the BDI has just spiked higher, the value of the index still urges investors to remain cautious about the prospects of the real global economy.” To confirm the current state of the shipping sector, let’s take a look at the most important companies: Diana Shipping and Dryships;
Diana Shipping Inc. and Dryships Inc. versus the S&P500 over 5 years
The share prices of both companies have been recovering over the year. However, if we look at their performance on a three and five year basis, we can see how much they suffered post-2008. Diana Shipping is still down 65%, while Dryships lost almost its entire value, down 97%. This flies directly in the face of much of the talk of recovery there has been. Even though the BDI has just spiked higher, the value of the index still urges investors to remain cautious about the prospects of the real global economy. It is positive that the index is approaching 2,000, and the higher it goes the better this is for international trade and raw material prices. However, this progress still contrasts poorly with pre-crisis “normal” readings. Given how strongly stocks have rallied since the start of QE Infinity, an alarm bell should be ringing about the chasm that has emerged between financial asset prices and genuine underlying performance. The S&P500, on the other hand, has become a wildly complex beast which is now more a play on loose monetary policy rather than genuine economic performance.
64 | www.thecfdmagazine.com | October 2013