Instructive history lesson number 44: the rise and fall of the Baltic Dry Index

The Baltic Dry Index is a chart of the daily cost of chartering a ship for carrying dry goods.  Most of the ships are based in the Baltic, many of them run by Greek operators.  This is not a small operation, or one that is limited to the Baltic.  It is global shipping.  Here is the chart of it up to 2008.  Looks fantastic, huh?  Yeah, a lot of people were pretty giddy about these trees seemingly growing to the sky like that.

So what happened next?  Well, given whose blog this is you can probably already guess but below is the full chart.  For a long time, the BDI was flat and then it got the characteristic hockey stick rapid exponential rise before peaking.  When the bottom dropped out it happened so fast that it took everyone by surprise.  Nobody thought it was possible.  In the end analysis, it was a rising expanding wedge.  The fifth wave up busted through the top rail on both the 3rd and 5th waves before literally freefalling to a lower low.

But hey, why worry?  You aren't invested in shipping.  That was a fad, a mania, we all know that now.  That was an isolated case, a blip in history.... 


Or was it?  Maybe it was just the canary in a larger coalmine.  I don't know when the DJIA and S+P are going to collapse and neither does anyone else.  But folks, collapse they both eventually will.  That cannot be avoided; it is baked into the fabric of that chart in the form of leverage.  The main reason is the diminishing volume as prices have risen since 2009.  This is just a very thinly traded market compared to recent years.  It seems that lots of people got shaken out of the game in 2009 for good.  So when the selling starts there are not going to be enough buyers and thus nothing will stop it from falling once the herd believes that the sell is on.  The media will call it a panic.  What are they calling that hockey stick rise?  "NORMAL PROGRESS".  You can see how ridiculous these hypocritical views are but these are the majority views.  The only allowable direction is up according to the media.  I beg to differ.

Look at the BDI chart again.  Now compare it again to the DJIA chart.  The same forces which created that chart created the DJIA chart but at a different scale.  I expect the coming sell off to be historic in nature.