But instead of adjusting to a new shipping world order, the index failed to find a floor.  Jacob Fentz, Classic Maritime Inc. president, noted that the BDI was "overshooting big time on the downside just like it did on the upside."  But there is good news for investors: Ample evidence suggests the index's current inability to find the brakes stems from temporary problems with immediate solutions.

     Short-Term Problems, Near-Term Solutions

     Why do we see an eventual rebound in the future for the Baltic Dry Index? Many of the short-term pressures weighing on shipping prices are already showing signs of abating:

     Easing Credit Worries:  The worldwide credit crisis that has made it harder for small companies and consumers to borrow money, has also made it harder for dry bulk buyers to get their cargos loaded onto ships.  Traditionally, all a buyer had to do was show a letter of credit from a bank.  But as banks became undercapitalized, letters of credit -- the lifeblood of international shipping -- grew harder and harder still to come by.  As a result, commodities began to pile up at the ports.  "There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City.  "The problem is not demand, and it's not supply because we have plenty of supply.  It's finding anyone who can come up with the credit to buy."

     The credit freeze has begun to thaw. Bank-to-bank lending has resumed. Governments around the globe have put up hundreds of billions of dollars to back the world's banking system, and letters of credit appear to be navigating their way through the system again.  
 
     Stabilizing Demand:  In an effort to reduce pollution, China shut down hundreds of construction sites, coal-fired power plants, cement factories and chemical manufacturers a month before the Olympics and throughout the games. While this was only a temporary measure, the drop-off in shipping demand made an already nervous sector panic.  But the temporary fits and starts from the Beijing Olympics are now long behind us.  The Olympic cutbacks were not a real measure of demand any more than the pre-Olympic build up was, and these anomalies are now being seen for what they were.       

     Short-Term Feuds and Still-Strong Growth:  A tiff between China's steel companies and Brazilian iron ore suppliers, which has resulted in limited shipments of ore between the two countries, had wreaked havoc on the index. This situation has cooled, with Brazilians backing down from the price hikes they were demanding.

      China, of course, is an important market for shippers, and many investors worry about a slowing Chinese economy.  While there are some signs of this, it is a relative term. After all, China is on track to maintain an 8.5% rate of growth for the next four years. That's considered breakneck speed for any economy, and it will add +50% to China's GDP by the end of 2013.  China will need iron ore and other materials to build out that growth.  Brazil and other international suppliers with sell it, then ships will move it.  

     "Dry bulk levels may be close to their 'logical bottom'"

     So read the recent headline from Lloyd's List, a respected maritime news outlet.  As many of the temporary pressures on the Baltic Dry Index are already starting to ease, it's hard not to believe the BDI has overshot its floor and will soon find a more rational level -- certainly off its unsustainable highs but also above its equally unrealistic lows.

     In fact, we're already seeing this. The BDI is more than +20% off its lows -- but still nowhere near a rational level. And as normalcy returns to the index, investors still have a chance to profit from shipping's worst fears.  While you can't trade the index itself, almost every shipping stock was pummeled by the fall, and most will follow it up on the rebound. 

     In the meantime, with many shipping stocks trading near their 52-week lows, already generous yields are at unprecedented highs.  Investors not only have the opportunity to lock in 10%-plus yields with stocks like Navios Maritime (NYSE: NM), they have the added potential for share price gains once sanity returns to this sector.

     Shipping is Just One Bright Spot for 2009

     I'm not the only one who thinks the shipping sector is poised for a comeback. Paul Tracy, editor of the StreetAuthority Market Advisor, recently cited the rebound in shipping rates as Prediction No. 3 in his "11 Surprising Investment Predictions for 2009."

     "The bounce-back investment of the year," Paul writes, "will be shipping stocks.  After plunging -94% in 2008, these stocks are ripe for a monster rebound."  Paul has pinpointed his two favorite ways to cash in on the shipping rebound, including one stock yielding 23.2%.

     Along with a historical rise in shipping, Paul makes several other bold investment predictions in this report, including:

     A scarce metal needed for the defense industry will see its price soar after violence in Africa cuts off supply.

     President Obama will pour billions in rebuilding the nation's highways, bridges and other ailing infrastructure.  Three construction companies' revenues will skyrocket.

     A new way to cash in on nanotechnology may make early investors rich. Some people are calling this the "opportunity of the century.

     These are just four of the 12 investment angles that Paul's research team has identified as triggers for explosive profits in 2009. Visit this link to read Paul's predictions report in its entirety right now.

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