How to Form a Long-Term Trading Outlook (Part 4)

11/20/2008 12:01 am EST


Timothy Morge


Do I follow the inflation numbers? Yes, I do. I follow them religiously. But I don’t follow the government’s inflation numbers. Instead, I follow my own calculations of the money supply, done on an Excel spreadsheet, and I thank Dr. Milton Friedman for teaching me the link between the growth of the money supply and the growth of inflation. And I thank Dr. Victor Zarnowitz for teaching me the value of knowing how all these economic numbers were forecast, how they could be manipulated, and as I learned while working on the BLS study, how these economic releases are manipulated on a regular basis. I know not to trust any of the numbers released by the government.

Is there a leading indicator I watch on a regular basis, as a measure of economic activity? There are several, but the easiest and cleanest is the Baltic Dry Index, or BDI. According to the Wikipedia, the BDI is “a number issued daily by the London-based Baltic Exchange, which traces its roots to the Virginia and Baltick coffeehouse in London's financial district in 1744. Every working day, the Baltic canvasses brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes (e.g. 100,000 tons of iron ore from San Francisco to Hong Kong, or 1.000,000 metric tons of rice from Bangkok to Tokyo).”

Because it provides "an assessment of the price of moving the major raw materials by sea," The Baltic "...provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade—devoid of political and other agenda concerns."

More in Part 5 tomorrow…

I wish you all good trading!


Timothy Morge

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