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Shippers Show a Bumpy Road Ahead for Global Economy

By    |   Monday, 28 Jun 2010 01:16 PM

The global economy is slowing down once again.

How do I know? It’s simple. I watch the Baltic Dry Index (BDI).

The Baltic Dry Index tracks worldwide international shipping prices of various dry bulk cargoes.

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You see, much of the world’s raw commodities like coal, iron ore, grains, etc., are shipped by sea. If the global economy is expanding, they will first need to order the raw materials that it takes to expand their economies.

So the coal and iron ore, etc., get shipped first. Then these countries are able to use the coal for energy to fuel the higher demand placed upon the economy and they can use the iron ore to build their corporate buildings, bridges and other infrastructures.

But it all starts with these goods being shipped to the respective countries first. Therefore, the BDI acts as a leading indicator.

This index topped out in May 2008 and I think you know what happened after that. Global trade collapsed and the global recession began. But then in December 2008, the index bottomed. A few short months later (in March), the stock markets around the world also bottomed.

Well, lately the index has started to fall and break its uptrend again. It peaked in November. Commodities peaked in January and stocks peaked in April.

Therefore, global trade is slowing down once again and the BDI index continues to break down.

You see, if the index is falling it’s because shipping rates are falling. Well, they only fall consistently because of a lack of global demand which is due to a lack of global growth.

(Note: I like following indexes like that because they are directly reflective of global demand. I don’t have to trust a politician or a government agency.)

So as shipping rates continue to fall and commodities and stock prices continue to drop, get ready for the defensive currencies like the dollar, yen and Swiss franc to hold up much better than currencies like the Australian dollar or the euro, for instance.

In fact, if we get another “banking crisis” you will see most all countries hit hard again but you’ll really see Europe take it on the chin. For instance, Europe gets about 75 percent of its financing from banks. However, the U.S. gets about 70 percent of its funding from the markets.

So if you think the euro zone has problems now … if global trade continues to slow down, it will only cause the current European problems to get even worse.

Therefore, buckle up … because there is a bumpy road ahead for the global economy.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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The global economy is slowing down once again. How do I know? It s simple. I watch the Baltic Dry Index (BDI). The Baltic Dry Index tracks worldwide international shipping prices of various dry bulk cargoes. Join the Robber Barons Next Door. Your Potential Reward:...
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2010-16-28
Monday, 28 Jun 2010 01:16 PM
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