A correlation between the Baltic Dry Index for Shipping with the Goldman Commodity Index. So, here’s an idea: Rather than piling onto the bearish bandwagon, when the real price of an indispensable service or commodity drops to a multi-decade low it might make more sense to be bullish. Read more Shipping rates will never go to zero
Shame on you if you thought I or anyone could predict the bottom of any shipping cycle. That impossibility allows reward for the investor who can use time arbitrage. You can use a longer time-frame (three-to-five years) than 99.999999% of all investors. You can listen to an excellent shipping conference here: Marine Money NY Conference. The whole conference is worth listening to so you develop an understanding the industry. See 910 Adam Kent – From the Weeds to the Trees and 855 Jeff Pribor Marine Money Presentation and 250 Panel – Untitled, Uncut and 910 Adam Kent – From the Weeds to the Trees and Falling Knife or Bargain 855 and Jeff Pribor Marine Money Presentation.
At that conference, analyst Andrew Horrocks said that institutional investors all say to him, “Yes, Andrew we have the same data as you–assets are at generational lows and supply looks to be diminishing, but call us in 2017 or ‘just before the cycle turns!’ See chart below of drybulk shippers.
Read his handout Andrew Horrocks on the shipping market and go to page six, then listen to Horrocks Talk to Investors. At minute 11 he points out the good news for drybulk shipping. Supply is waning. There is high scrapping rates, low crude prices, and ordering of new ships is practically nil. Mr. Horrocks says to never underestimate the dimension of time in investing. Even though public institutional investors see the same data, they can’t afford a longer-term investment horizon than six-to-twelve months. Therein lies our opportunity.
See more on time arbitrage: http://basehitinvesting.com/the-market-value-fluctuations-of-the-10-largest-companies/
The reason prices for drybulk ships are at 35-year lows is because of simultaneous over-supply met with falling demand from a weaker global economy. Prices adjusted rapidly. Smart ship owners who have been through several cycles are snapping up second-hand ships for cents on the dollar using cash and then expecting to wait three or more years for the cycle to turn. But for investors in shipping companies, we face the dangers of high debt loads and future dilution. The shipping companies that survive will go up 5, 10 even 30 times or go to ZERO ($0.00). The opportunity/dilemma.
Mr. Bugbee, the president of Scorpio Bulkers (SALT) whose company has diluted shareholders several times to survive, points out that the key is to survive to the other side of the cycle. Go to minute 11 and 24 https://www.marinemoney.com/sites/marinemoney.com/files/325%20Panel%20-%20Dry%20Cargo%20Discussion.mp3 Massive Opportunity or Bankruptcy? Bugbee discusses the opportunities and dangers as Mr. Bugbee talks about survival in this cycle.
He says, ” I have NEVER seen a market that is so EXCITING in the long-term but that is so TERRIFYING in the short-term. Capital is HARD TO COME BY. there is no cash flow in the the market. We hope the market stays ugly for another eighteen months to allow for scrapping rates to clear up the supply, but we should be careful what you wish for. The KEY is to get your company to the OTHER SIDE of this cycle. Meanwhile investures face DAILY or WEEKLY performance pressures.
And finally, always remember:
HAVE A GREAT WEEKEND!
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