Much of the focus in the news today is on the economy, and for obvious reasons, it's subprime mortgage this, credit crisis that, the CBC's The National and its slapdash analysis of our woes would make you think we're all getting pink slips tomorrow and an ice cream cone (CTV's National News does a better job at understanding and describing what is going on in the market). Much of the economic indicators that proliferate from our nightly news, like monthly employment numbers and housing starts, mark the goal posts through which our economy is kicked. Any errant balls are wistfully reported on by journalists voraciously anticipating thousands clamoring for the newstands the next day, full of fear that their homes will soon be unafordable. At times, it seems the journalist is the first to fall to mass hysteria and the last to admit it. Thomas Jefferson said, "advertisements remain the only truth to be relied upon in a newspaper", of all the facts that come from our nightly news these day, this sadly remains true.
It's best to take our own minds into our own hands, lest we be led astray by journalists. A great economic indicator that is never quoted in the news and that may be of interest to the skeptical reader or viewer is the Baltic Dry Index. It has been touted in the past as one of the best economic indicators you have never heard of, and what's more, it's a leading indicator, a prescient little factoid that could be unwrapped neatly at dinner parties and delivered to impress the impressionable.
The short of it is, the Baltic Dry Index is a number issued daily by London's Baltic Exchange, which was founded in 1744 by the Virginia and Baltick coffeehouses in London's financial district. Every day, the exchange asks brokers around the world the cost to book a variety of cargoes of raw materials on various routes around the world. The result measures the demand for shipping capacity versus the supply of dry bulk carriers. Shipping capacity is generally inelastic, it takes two years to build a new ship, so increases in demand for raw materials pushes the index up quickly and drops in demand do the opposite at the same rate. What makes this index so interesting is that it ultimately charts the demand for the raw materials that make up our finished goods, so it would be here, at the Baltic Dry Index, where we would see the first signs of a stable increase in demand, signaling a sustained return to growth.
The index has fallen considerably in the past year, a reflection of plummeting demand and deflation, but under closer inspection it seems to have reached a bottom from which it is stabilizing at around 800. A sign of good things to come? Unfortunately, economic indicators, much like economist, make little sense alone, but the Baltic Dry is a good place to start making up your own mind on things.
4 comments:
This is fascinating.
Baltic Dry was brewed up long ago and falls into the category of measures which is factual and immediate.
What a sensible, educated attitude you display in this blog. I like being reminded to think for myself, instead of having someone else's opinion thrust down my throat.
I have added The Baltic Dry Index to my "Favourites" and will advise my friends to do the same.
Thanks for the tip! It looks as if you could be correct and the index is beginning to move up again.
I must confess not to have heard of The Baltic Exchange before, but I found the article most interesting. The idea of using the demand for shipping capacity against the supply of bulk carriers as a measure of economic activity has a certain logic. I wonder, however, if a rise in the index reflects the growing demand for raw materials by China, although it would seem that they,too, are being affected by the current recession. Apparently, their savers have been propping up the US economy and they are just as concerned as the rest of us at the state into which Bush has dragged it.
Isn't it interesting how many financial institutions developed from London coffee houses where the movement of ships and cargoes were posted? Lloyds of London being the main example.
Norman Patterson
Chairman, Insurance
Bank of Scotland
Edmund Burke, when commenting on French affairs in his "Reflections on the French Revolution", pointed out that after the Revolution, France was governed by the rabble in the Paris coffee shops.
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