CHART OF THE DAY: DOES THE BALTIC DRY INDEX LEAD EQUITY MARKETS?
11 September 2009 by Cullen Roche
5 Comments
Excellent chart here from the Trader’s Narrative blog. Is the Baltic Dry Index foreshadowing the next leg down in the bear market?
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Comments
And going by the current BDI means we can expect a huge fall in the S&P anytime soon.
Has anyone seen any critical analysis of the effect of the huge increase in the shipping fleet in the 2004-2007 time frame? I’m wondering whether the BDI (which may have been historically a good indicator) is now just an indicator for shipping overcapacity. It would be nice to have access to overseas rail data (esp. in commodity countries … Australia) as a better substitute.
@jt26 – fair argument, however couldn’t one make the same case for valuations on R/E & Equities, i.e overcapacity/over-dilution? The positive feedback loop generated overcapacity in many different asset classes, this their relative value should still move in relative proportion to one another.
Otter – fair enough … easy to test … if correlation between REIT, Auto shares, CaseShiller residential and SPY (and BDI) are predictively correlated. If you’re interested in that: could try doing an analysis of the US REIT ETF, Ford, Toll Brothers, BDI and the SPY. In fact, maybe combining them would be more predictive. Maybe I’ll try it from Yahoo data. But of course, by the time we finish the analysis, some supercomputer has already done it for a 1000 asset class universe and their computers are already trading the gap to zero. (And, worse, all the computers will start trading against each other, flip the trade and we’ll actually lose money. Damn.) I remember reading some book, titled something like “the speculative trader” and followed some of their statistical analysis a few steps further by looking at trading success based on a strategy that showed “statistically significant correlation”. The end result wound up looking like gambling with odds of 49/51 for the house. You can make money, but you need to double down and have to have enough capital to tolerate large drawdowns. I think the author of the book had a hedge fund where he burned up.
doesnt it look like the s&p is leading the BDIon the chart .. spurious aint it ..
jt26 .. you’d be surprised how people with allthe resources in the world cant narrow the gap to zero because of constraints/risk measures et al .. there is always a lot of money on the table for the small guy..so dont be disheartened..