Baltic Dry Index - Does it tell a story

Baltic Dry Index indicates the price of moving raw material by sea. Note that a higher price indicates high demand for movement of raw material by sea and hence a higher level of economic activity around the globe.

The chart below is very insightful.

(click on the image to get a sharper view)

Note that the index started rising around 2002-03, a time when most of the economies around the world entered a boom phase. The index peaked in 2007 before falling sharply, indicating a contraction in economic activity post 2007. In recent months the index again rebounded. What was the cause for it? Apparently, the Chinese have been building reserves of coal and steel, using their huge forex reserves, just when the prices of commodities were low. Smart of them! Their action helped global economy too to a certain extent.

Note that in the past few weeks the index has fallen roughly 35%. Perhaps the Chinese have eased buying coal and steel. Does this mean that the world economies shall soon show another round of slump? While it would be too early to comment on that, i think this may be so. So expect the next quarter GDP figures to fall around the world, commodity prices to fall again and the stock markets to plunge once again.