What Does The Baltic Dry Index Say About The Global Economy?

George Leong: The global economy may be on the crux of another slowdown. This was made evident in March, when global delivery bellwether FedEx Corporation (NYSE/FDX) reported a 31% decline in its third-quarter earnings and, more importantly, cut its forecast for fiscal 2013.
What was interesting was that the announcement was followed by the insider sale of 202,000 shares of FedEx by the company’s President and CEO, Frederick W. Smith, according to Edgar Online. But the insider selling was not isolated, as there have been eight insider sales, versus only two insider buys, over the past six months, according to Thomson Financial. Institutions have also been selling, with ownership down 6.1% quarter-to-quarter.
The results from FedEx suggest that the global economy may be set for some stalling, since the company represents a good barometer of global economic activity. And the insider selling also doesn’t really help the company.
On Wednesday morning, the case for the slowing in the global economy was supported by a report from the World Trade Organization (WTO). The report predicted that trade in the global economy would rise a mere 3.3% in 2013, well below the previous guidance calling for growth of 4.5% and just ahead of the lackluster two-percent rise in 2012. (Source: Heilprin, J., “Global Trade To Be Weaker Than Expected,” Associated Press, April 10, 2013.) The WTO report also said the average growth was 5.3% over the past two decades, so the global economy may soon be facing another headwind that will impact economic renewal.
Looking at the trade situation from another angle, the Baltic Dry Index, a commonly referenced gauge used to measure the demand for shipping capacity, remains negative.
The chart of the Baltic Dry Index below indicates a downward-sloping channel since its peak in 2008, when the Great Recession hit. The index has subsequently rallied, but in this case, it was followed by weakness. The current pattern shows some indecision.

Chart courtesy of www.StockCharts.com

Over the next few weeks, we will hear from numerous other key companies that have a presence in the global economy. Listen to what they say.
But with the continued financial crisis in the eurozone, I would not be surprised to see stalling in the global economy. The impact will be the most significant on the U.S. multinationals with major exposure outside of our borders.
While it’s not time to panic yet, I would be cautious toward the levity of the current bull market and suggest you really think about taking some money off the table. (Read “Market Action Driven by Headlines; Investors Should Be Nervous.”)
This article is brought to you courtesy of George Leong from Profit Confidential.