Sunday, September 20, 2009

The Baltic Dry Index and Cross-Currents

Even as the Economic Cycle Research Institute's Weekly Leading Index Growth Rate hits an all-time high (, a measure of price trends to move non-liquid goods internationally called the Baltic Dry Index on Friday hit a low level not seen since May 13. the BDI was at 4100 exactly 5 years ago and now is at 2356, having peaked in May 2008 at over 11,000.

It just may be that there is so much slack in the economy that substantial growth can occur in the setting of an overall sluggish, underperforming U. S. and global economy.

In the past, downtrends in the BDI that broke to new lows often presaged declines in long Treasury bond yields. Now that everyone "knows" that the economic downturn has ended, a growing economy can be viewed as at least temporarily bullish for T-bond prices, both as demand from banks for T-bonds grows and as counter-cyclical spending by the Government declines.

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