Ships and Sticks: The Baltic Dry Index

What you don’t measure, you can’t track.

This axiom matters when bear markets hobble your investment portfolio. Understanding the cause, measuring the result, and tracking the patterns,  guides and instructs.

Most of the news we get heightens anxiety or accelerates our greed.

When the news affects personal assets, we shun the obvious in catatonic stupors. Many investors acknowledge choking on their emotions during this recession and stock market decline.

We forget  economic rhythms that always undulate between profit and loss. We sometimes  see economic trends as irrational and bizarre and forget the simplicity of supply and demand.

As long as humans trade dollars for stock ownership, loan money to corporations or  governments for bonds, and manage risk with options, markets will remain rational most of the time and irrational some of the time.

George Soros says, “The key to understanding this crisis — the worst since the 1930s — is to see that it was generated within the financial system itself. What we are witnessing is not the result of some exogenous shock that knocked things off balance.”   “A New Motor For the World Economy”; The Bangkok Post (Thailand); Oct 18, 2008.

Opportunity drives us, taking chances absorbs us, money comforts us, but tracking effectively often eludes us.  Wall Street markers tell us where we’ve been, not where we’re going.

The hiking trail cairns on Mount Washington stand as immovable rock formations that do both. What makes investing so difficult that we don’t use simple indicators rather than a cacophony of mixed-messages?

“Teach a parrot the terms “supply and demand” and you’ve got an economist.”
Thomas Carlyle quotes (Scottish Historian and Essayist, leading figure in the Victorian era. 1795-1881)

Carlyle overreached when saying this, but he’s on to something rudimentary about economic predictions.

Investor cairns or markers include the S&P 500, Russell 2000, and the Wilshire 5000 (intrepid investors may use the Investor’s Business Daily 1000).  An index tells us where we’ve been with myopic predictions.

In 1744, a group of captains and merchants met at Starbucks (well,  the coffee shop on Threadneedle Street in London). Coffee houses were then what they are today, social gathering places where business deals and loud conversation filled the place.

Merchants and investors  wanted to track shipments between Virginia and the Baltic at the “Virginia and Baltic Coffee House”.  They tracked shipments of “tallows, oils, flax, hemp and seeds from the Baltic states”.

Today, “The Baltic produces independent shipping market assessments. Using a panel of international shipbrokers, we provide daily assessments on over 50 dry and wet routes, weekly sale & purchase and demolition assessments as well as daily forward prices.” (Read more about: The Baltic Exchange)

What makes this index prescient? Well, the Baltic Index is a leading indicator. We learn how many cargo ships travel, where they’re going, what they’re carrying (lumber, coal, iron, grain, cement, as examples), and the value of their cargo.  Every business day, the the Baltic membership accesses ” a dry cargo fixture list.  Each fixture is carefully checked and verified.”   The Baltic … is regarded as the most comprehensive and independent such list available.” (The Baltic website)

There’s no economic prognostication or guesswork. The Baltic Exchange motto: “Our Word Our Bond”.

An economist reading “The Baltic” magazine gets the facts. The Baltic Exchange measures what it tracks. When economies do well, shipments increase; no guessing, estimating, or preponderance of divergent economic opinions.

You can peruse “The Baltic” magazine on line; the June 2009 issue bids farewell to Michael Drayton as The Baltic Chairman.  Read his answer to the question “What are your greatest fears for the shipping markets over the medium to long-term?” (The Baltic, June 2009, page 5)

When you want a foward-looking indicator, look  at Bloomberg’s  Baltic Dry Index chart.

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