Master Rider Blog

Baltic Index

September 14th, 2007 NW Teong

Really no change in my market view despite the surge in US markets yesterday. While I still think Dow Jones is down side biased, it is at an interesting level at the moment. Will it break through its current down trend convincingly? I do not think so, not before 18 of Sept.

Again, looking at the macro indicators that I monitored, most indicators eased a little over night. Obviously, we have to know that these indicators are also linked to investors mood with regards to their view on credit markets, US economy etc. For instance, when they are bearish on the US economy or deep concern on sub-prime markets, than they would choose to park their money on safe haven such as the US Treasurys, hence the yield would come down. The yield went up a little as investors shifted some money into equity as they were slightly less concern on the sub-prime issue due to the positive news that Countrywide managed to get its financing. However, one indicator that did not ease much is the price of the crude oil. It is still hovering at around US$80 per barrel.

Today, I wish to share with you another important macro indicator, i.e. the Baltic Exchange Dry Index which is the leading indicator of the shipping freight rates in the world. This indicator is very important in two ways: one is that it is used as leading indicator for the world economy as it shows the robustness of the world trades, and second it directly gives signals to the profitability of the shipping companies. Let us take a look at this index:-

Courtesy of Yahoo Finance 

After bottoming out at around 2000 in early 2006, it has surged all the way to current level of about 8400. That is a surge of 4 times in a space of about 20 months! The huge surge of this index (i.e. shipping freights) was partly boosted by the huge demand of raw commodities that we have witnessed in the past 2 years. Nevertheless, it tells us the robust activities of the world trade and economy and more importantly the profitability of the players in the shipping industry. Take a look at Singapore shipping company, Neptune Orient Line (NOL):-

The share price of NOL is highly correlated to this index!

I have nothing new to add to my market view (blogs for past few days) for the time being. In fact, today, I take advantage of the positive market sentiment to take some money off the table. Yes, I have locked in a tidy profit on BRC today. Please do not get me wrong, I still like this stock and I think it has the potential to go further if you hold for at least another 6 months. I did this as part of my investrade strategy!  Happy investrade in this volatile quarter, cheers!

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Entry Filed under: Macro, Stocks, Singapore