Written By Basilio Chen

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The Baltic Dry Index (BDI) which measure shipping activity, has rebounded this week on hopes that central bank intervention in China and elsewhere will spur economic growth.  The BDI is a good forecasting tool for the economy since shipping is an inelastic business (it takes months if not years to increase the supply of ships) and the decision to ship is largely a major financial decision with large transaction cost.  Not one that can be made without serious thinking.  (thus is a reliable measure of financial commitment over a medium term – 3 weeks to 2 months).

The BDI measures the costs of shipping iron ore, coal, grains and other so-called dry-bulk commodities commonly associated with industrial growth amongst other sea shipping activities. With stocks rallying but global economies sagging, the index has tumbled more than 56 percent in 2012, falling at one point in 31 straight trading sessions.


But the BDI has rallied about 14 percent this week and more than 4 percent Friday alone — a move that coincided with last week’s Federal Reserve QE+ move and general aggressiveness from central banks around the world.

“It’s perhaps responding to the Chinese threats to create more stimulus in the economy and build another empty city in the country,” said Michael Pento, an economist and founder of Pento Portfolio Strategies. (http://www.pentoport.com/pentonomics.php)