The Most Alarming Chart I’ve Seen All Week
Update: I’ve revisited these topics in response to readers’ feedback and recent developments – check it out in “The Blame Game: Revisiting ‘The Most Alarming Chart I’ve Seen All Week.’”
It’s Friday in the Wall Street Daily Nation. If you’re a newbie, that means I’m skipping the longwinded analysis. Instead, I’ll let some carefully selected graphics do most of the talking for me.
This week, I’m dishing on an alarming development for the obscure, yet instructive Baltic Dry Index.
So let’s get to it…
Houston, We Have a Problem
While (almost) everyone finally agrees that the United States has avoided a nasty double-dip recession, a slowdown’s brewing elsewhere in the world.
How can I be so sure? All I have to do is look at the latest chart for the Baltic Dry Index.
For those that don’t know, the Baltic Dry Index tracks the cost of shipping major raw materials (iron ore, coal, grain, cement, copper, sand and gravel, fertilizer and even plastic granules).
Or, more simply, it tracks the precursors of economic output. As such, the Index provides a measurement of the volume of global trade at the earliest possible stage.
When I last reported on the Baltic Dry Index in October 2011, it was coming off an impressive, two-month, 50% rally. Well, that rally’s come to an end.
As you can see in the chart above, the Index is down 48.4% in the last month. And it’s down 54.4% in the last three months.
The culprit? Why, Europe, of course.
You’ll recall that European sovereign debt fears spiked (again) last October. And that’s precisely when the Baltic Dry Index also began its descent.
Coincidence? I think not. And the World Bank and International Monetary Fund (IMF) have my back.
On Wednesday, the World Bank cut its world economic growth forecast explicitly because of Europe’s never-ending debt crisis. Meanwhile, as Europe’s debt crisis persists, Bloomberg reports that the IMF plans to cut its global growth forecasts, too.
The obvious takeaway from today’s chart? Steer clear of companies that sell cyclical products exclusively in European markets. A recession is afoot, if not already underway.
And the less obvious takeaway? As I reported yesterday, avoid U.S. stocks with heavy European exposure.
That’s it for this week. But before you sign off, let us know what you think about this weekly column – or any of our recent work at Wall Street Daily – by sending an email to firstname.lastname@example.org or by leaving a comment below.
Thanks and enjoy the weekend!
Ahead of the tape,