One useful forecasting datapoint

Here’s an interesting datapoint for our futuring purposes: the Baltic Dry Index.  It’s a daily number generated by this British outfit, checking on global shipping prices.

Why does this matter?  Assessing how much it costs to schlepp stuff requires evaluating data for all kinds of economically powerful stuff: fuel prices, commodity prices, market demand.  Moreover, as a good Slate article from 2003 notes,

The BDI is a good leading indicator for economic growth and production. After all, it doesn’t deal with container ships carrying finished goods. It deals with the precursors to production: bulk carriers carrying building materials, cement, grain, coal, and iron. Unlike stock and bond markets, the BDI “is totally devoid of speculative content,” says Howard Simons, an economist and columnist at TheStreet.com. People don’t book freighters unless they have cargo to move.

Sounds very dry, as it were.

Bloomberg carries it, unsurprisingly. WikiInvest has a nice combination of live chart with background.  This Russian site has the best, cleanest version I’ve seen so far.  Alas, things look grim:

Checking for one year, as of 2/12/2012

Why does this matter for the future of education?  Baltic Dry could give us advance warning of economic conditions, which shape private institutions’ endowment and the revenues for states funding publics.

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1 Comment

  1. skjandrews

     /  February 15, 2012

    Interesting. I hadn’t heard of it. It seems like it would suffer from a version of Say’s law (i.e. the one Keynes attributed to him: supply creates its own demand.) In reasonable times, it would make sense to think that, as the Slate piece says, “People don’t book freighters unless they have cargo to move.” But China is a wild card here; cf: this Australian TV doc on the entire cities it is building (using raw materials, many shipped via freighter) in order to boost its GDP.

    They are being supplied, but no one can afford to live in them so they just sit empty: Hundreds of thousands of units. I’m sure that’s only the tip of the iceberg when you factor in infrastructure building going on there as well. This spoils its utility as an economic index with more speculative excess than Slate allows.

    On the flipside, it seems like one of the assumptions of it as an OEI is being overturned: there is now a more elastic supply of these ships, a fact which (as you probably saw in the research) made the index collapse over the past few weeks.

    http://www.moneycontrol.com/news/business/vessel-oversupply-crashed-rates-baltic-dry-index-sci_666645.html

    basically, it seems like they built more ships to handle China’s demand, now China is slowing down with the rest of us so they have too many ships.

    Barron’s claims it will be back online as a good indicator once supply and demand even out again:
    http://online.barrons.com/article/SB50001424052748704444604577207153303414024.html?mod=BOL_twm_mw

    But a consultant here says basically what I do above: http://www.wallstreetwindow.com/node/5131

    “It’s a common mistake to use the BDI as an economic indicator. It should not be used because it has little to do with demand.”

    Reply

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