This brief initial comment  from the Legendary Trader Dennis Gartman.  For subscription information for the 5 page plus Daily Gartman Letter L.C. contact – Tel: 757 238 9346 Fax: 757 238 9546 or E-mail: dennis@thegartmanletter.com HERE to subscribe at his website.

“BEFORE YOU GET ALL BULLED UP:  There is so much chatter these days concerning the rising Baltic Freight Index and how positive that is for the global economy and we just want to take a moment or two to say to everyone, “Hey, take a breath.

Slow down: Be calm; try not to get so excited.”  The reason we bring this up is several fold, not the least of which is that the shares in the shipping industry are going absolutely nowhere, and the Baltic Freight Dry Index Itself has rally not risen all that far, no done so dramatically. – Dennis Gartman”

Short View: Reading the Baltic Dry leaves

The Baltic Dry Index, a measure of freight costs for bulk commodities such as iron ore, coal, cement, fertiliser and grains, has become the bear’s best friend. The index is down to its lowest level since October – a fall of 40 per cent in three months – and not far above the level of a year ago, giving ammunition to those investors who believe the global economy is not recovering. The bears, however, will be deeply disappointed.

For years, the index has been seen as a proxy for global economic activity, and at times it has tracked the ups and downs of global trade. Savvy investors followed it, although with some caution. Its recent weakness, however, fails to reflect global activity: the downturn is not the result of lack of demand but of the strong supply of new vessels.

Take capesizes, the largest oceanic vessels. Between 1980 and 2008, shipyards delivered on average one capesize every two or three weeks, slowly increasing the fleet, keeping supply and demand balanced and making the index a relatively useful instrument for investors.

But now shipyards are launching capesizes at an unprecedented rate on the back of massive orders placed when freight rates were high. Last year they built 112 vessels, almost one every three days. This year shipyards plan to deliver 335 capesizes, almost one every 26 hours.

True, cancellations because of lack of finance will reduce this year’s final number. But new supply is astonishingly high and it is overwhelming the otherwise robust demand for bulk commodities from China.

On the other hand, bullish investors should be cautious of any near-term turnround. Rather than a sign of stronger economic activity and commodities demand, it is likely to reflect cancelled orders, scrappage and port congestion.

For the time being, bears and bulls should leave the Baltic Dry where it belongs: to the shipping industry.