The transports seem to be the focus of the news today and they suggest that the markets may be overbought. The concern for the transports and what they are saying reminded me of a once influential barometer of growth, the Baltic Dry Index. This index has been left far in the rear-view mirror. Those who forgot the Baltic Dry Index may end up losing the most. Yes the Index is broken to a certain extent, but the underlying reason that the Index has become broken is the true point of dire concern. Taking a look at U.S. equity markets and the markets abroad, in particular in the emerging markets, we see a massive run up. This implies growth has occurred and growth expectations persist. Comparing this to the Baltic Index, the barometer of shipping throughout the world, these growth stories just do not match up. If the economies are growing throughout the world (excluding Europe), as many experts are suggesting, why is the Index obliterated. The index does have an influx of ships due to the expected growth that was cut short by the 2008 financial crisis, but if that were the case the declines are still not reflective of the global growth story. Markets throughout the world happen to be pricing in dramatic growth, but the index through which much of these goods are shipped is pricing in decline. The story does not add up and should make even a die hard bull leery.
“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.” – Herbert Hoover