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XMFSinchiruna (27.56)

An important read for anyone with dry bulk shipping stocks

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May 07, 2009 – Comments (31)

This is my article on Diana's earnings, highlighting management's extremely cautious outlook for the entire sector... including banks and shipyards. Diana's President sees the potential for a banking crisis "to rival the subprime crisis" based upon the scale of new shipbuilding orders still on the books and the scale of financing behind it... in many cases for companies already leveraged to the point of being in contravention of credit terms.

Please let me know what you think... I haven't changed my stance.. I still see DSX as a tremendous long-term investment because I do think it's singularly in the best position to survive a protracted crisis, but I wouldn't be buying here. I'd wait until the Dow is under 6,000 to consider accumulating... there's not hurry... this will take 1-2 years to play out, and will include some ugly earnings reports for all operators.

I reiterate my warning to all Fools to stay clear of highly leveraged shippers, and I'm even considering reversing my stance on EGLE due to the scale of its new-buildings program.

If you want some good news to balance out the karma from Diana's alarming concerns, consider the production growth that's coming out of my favorite gold miners right now... especially Yamana!!

Tread very carefully, Fools... I think the world is about to discover just how deep this depression will cut.

Always with thoughts of my fellow Fools, and wishing for their good fortune.

Christopher

 

31 Comments – Post Your Own

#1) On May 07, 2009 at 3:44 PM, awallejr (81.43) wrote:

Well should DOW ever go under 6000 there would be a heck of alot better buys in other companies no?

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#2) On May 07, 2009 at 3:53 PM, XMFSinchiruna (27.56) wrote:

awallejr

I do think Dow 6,000 will be breached for sure, so why don't we touch base when it does and select bargains there. :)

At some point, the companies that will survive in this sector become phenomenal investments, and timing for getting long could be once major bankruptcies are materializing. It's a long-term investment, but one that cold do quite well for many years as survivors will enjoy enormous market share.

C

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#3) On May 07, 2009 at 4:18 PM, nottheSEC (80.87) wrote:

You know that whole sector turns me off. Especially the comingling?corruption between DRYS and other concerns. To others with a higher risk tolerance all best and I suggests a market basket of five of these companies all of them with different kind of ships and varying backlogs. I wrote this on my blog today about the bulk dry index culled from the fine folks at ZACKS 

Unfortunately, the scale only shows the BDI, not copper, but it was well over $4 a pound at the top, fell to around $1.25 and is now back at $2.18 a pound."
http://www.zacks.com/stock/news/19935/Is+the+Recession+Over%3F

MY blog

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=191271&t=01003160625517763486

 

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#4) On May 07, 2009 at 4:25 PM, automaticaev (< 20) wrote:

a little dry shipping but not a lot here.  Below 6000 idt so.

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#5) On May 07, 2009 at 4:26 PM, Seano67 (30.15) wrote:

Genco is the only dry bulk shipper I really trust, and of course you have to pay a premium for that level of trustworthiness. But any of those Greek dry bulk shippers, no thanks. They just seem uber-sketchy to me, and I'm just wondering how many of them George Economou has his dirty fingers in.

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#6) On May 07, 2009 at 5:05 PM, awallejr (81.43) wrote:

Well I sure hope you are wrong there Chris about the DOW because then we would be looking at another neg 6-7% GDP in a future quarter.

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#7) On May 07, 2009 at 5:07 PM, ttboydxb (28.83) wrote:

Hi Chris what are your thoughts on NM???  I have a small position and it has done well in the past few weeks (what hasn't) not too concerned about their short term stock price, more wondering if you think they're well positioned to survive the upcoming train wreck when the market loses all it's recent confience??

 

Thanks!

 

Phil...

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#8) On May 07, 2009 at 6:17 PM, XMFSinchiruna (27.56) wrote:

awallejr

I hope I'm wrong too... but I don't think I am. This entire rally is madness, and if you saw what I see everyday delving into U.S. industrial and commodity companies you might just agree. I don't think the likelihood of Dow 6000 can be tied to such a specific GDP forecast, since it can play out in various ways. Another 6-7% reduction in GDP for the U.S., though, is a tame forecast IMHO. On the other hand, I recognize the possibility that in this age of back-handed accounting rules, manipulated markets, plunge protection teams, and unbridled corporatocracy, virtually anything is possible. For all I know, those pulling the strings might just pull off this magic trick for quite some time... but eventually the fundamental deterioration of the domestic economy coupled with the $1 quadrillion + derivative fiasco and the inevitable and sustained devaluation of the USD will indeed make its presence felt within the equity markets.

In the midst of this rally, people have ceased to recognize that the root of the financial crisis - the $1+ quadrillion global market for derivatives - has not gone anywhere... the "assets" look a little different under the new accounting rules, but that doesn't mean their impact can be avoided for long. It's all about derivatives.

We will also be seeing further quantitative easing as dimishing trade imbalances and concern over the fundamental impairment of the USD lead to a sharp reduction in overseas purchases of treasuries... leaving a funding hole that can only be filled by buying our own debt. The looming currency crisis, which I assure you is coming, will ultimately foster stagflation, but before that takes hold it will send investors back out of equities in a new round of indiscriminate selling and back into safe havens... which Treasuries will no longer be! [hence my bullishness on gold, FYI].

Sean... it's been some time since I've looked closely at Genco. I'll take a closer look and get back to you. 

ttboydxb ... I do think Navios has the requisite stability to survive. That's why NM has been my number 2 pick in the sector since this crisis began. :)

Those that don't see Dow 6,000 on the horizon, upon what do you base your confidence? What are you seeing that leads you to conclude that challenges are abating and things are lookng up from here? I'm just curious. Of course, I hope I'm wrong, and I wish I didn't have such a negative forecast, but I am a pragmatist to the core and I have to call it as I see it. In my opinion, the only thing that could prevent us seeing Dow 6,000 breached would be an onset of stagflation so severe as to keep nominal share values above the mark despite economic conditions reaching a degree of stagnation far greater than we saw before the rally began.

I believe that we are in the beginning stages of a stagflationary depression of a scale that very few seem to comprehend. I think Diana's management gets it, since it certainly is not in their best interest to deliver such a gloomy outlook for the sector.

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#9) On May 07, 2009 at 6:59 PM, streetflame (30.47) wrote:

DSX, EGLE, NM, EXM, DRYS but no mention of ESEA?  They have a rock solid balance sheet and are the only shipper with current assets > total liabilities.  And they are just as cheap in terms of PE and PB as the overleveraged companies.

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#10) On May 07, 2009 at 7:03 PM, awallejr (81.43) wrote:

"Those that don't see Dow 6,000 on the horizon, upon what do you base your confidence? What are you seeing that leads you to conclude that challenges are abating and things are lookng up from here? I'm just curious."

 

Had you asked that question this time last year I would have equated you to the bearded guy at the street corner holding the sign "the World is Coming to an End."  At this point nothing would shock me.  But too many positives are poping up (reluctant to use the term "green shoots'). 

Savings rate increasing. Credit card debt has been paid down 10% so far.  People refinancing into historically low rates. About 2 out of 3 companies beating estimate earnings.  Worldwide efforts to stimulate economic activity (unlike back during the great Depression).  Fed doing its darndest to keep liquidity flowing. Libor down dramatically.  Not sure where to read unemployment yet in light of recent stats, but maybe just maybe the worse is behind us (unless of course you use Alstry math).

I certainly can't predict what the future GDP numbers will be, tho someone in authority and clearly in a better position to know (Bernanke) seems to feel next quarter won't be as bad as last 2 and end of year might even see positive growth. I'm a firm believer in GDP/market direction correlation. But I would be very surprised if we see -6% quarters at least during this year.

I do add a proviso, in that I assume no unforeseeable worldwide or national calamity.

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#11) On May 07, 2009 at 7:56 PM, XMFSinchiruna (27.56) wrote:

streetflame

ESEA is too micro to be a safe play, and too small for me to cover at TMF, although their unleveraged state is laudable.

awallejr

If you're listening to Bernanke, may I advise you to stop. :)

I can project the direction of GDP by the facts I've observed covering the companies / sectors I'm focused upon. You can reluctantly use the term green shoots all you want, but those shoots can't stand up to the contrary evidence. 

Banks' earnings were a complete and utter slight of hand.

Bernanke is the marionnette of the bankers.

Green shoots is a marketing campaign.

Domestic steel production is at 40% of capacity.

Railroad freights are down 22%.

And then consider the layoffs.

Good luck. 

 

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#12) On May 07, 2009 at 8:08 PM, awallejr (81.43) wrote:

While it might not be popular on this site, I am actually a fan of Bernanke.  Did he make early mistakes?  Yeah, but we are facing something none of us ever faced before during our lifetimes.   

Just curious then. What are your future GDP projections, and how based?

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#13) On May 07, 2009 at 8:35 PM, XMFSinchiruna (27.56) wrote:

awallejr

My GDP projection is: down. :)... based on all of thee above.

Mistakes?! Bernanke's response to this crisis is the biggest fiscal mistake ever made! Obama's not helping any with a $3.6 trillion budget.

 

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#14) On May 07, 2009 at 8:42 PM, XMFSinchiruna (27.56) wrote:

An Open Letter to Our Founding Fathers

The Mother of All Currency Crises

$10.2 Trillion Was a Drop in the Bucket

The Scariest Balance Sheet of All

Reincarnation of the Decoupling Debate

Your Very Own Canary in a Coal Mine

When Blazing Furnaces go Stone-Cold

The Chattanooga Choo Cho Boo Hoo

The Ultimate Commodity Update

 

 

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#15) On May 07, 2009 at 8:47 PM, XMFSinchiruna (27.56) wrote:

And for anyone who wants to look back through my calls on the shipping sector:

Darwin and Diana are Adorable Newlyweds

DryShips vs. Moby Debt

Survival Trumps Profit for Shippers

Last Call to Abandon Ship

Rogue Wave Swamps Dry Bulk Shippers

A Gaping Hole in the Sides of DryShips

Where Greek Mythology Meets Modern Investing

Darwin Would Have Married Diana

The Perfect Strorm Will Slam into Shippers

 

 

 

 

 

 

 

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#16) On May 07, 2009 at 8:49 PM, awallejr (81.43) wrote:

Down how hard and for how long tho? To me this really is the most important question to answer when trying to predict the market's future direction.

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#17) On May 07, 2009 at 9:06 PM, peachberrytea (66.16) wrote:

hmm how did you come up with dow 6000?
i mean i agree with you that this rally is whack and the fundamentals point down, but how do you come up with dow 6000, versus 6500 or 5500?

a while back i read an article somewhere that the DOW probably can't go below 5500 because you can make BAC JPM to go zero, decimate AXP GE, take large chunks outta the oil majors and solid firms like JNJ PG, and still you'd only be at 5500

sorry if i seem like i'm making a big deal outta nth.. but the point is i wanna know when's a good time to get in again, and so is that DOW 6000 or potentially even lower

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#18) On May 07, 2009 at 9:06 PM, peachberrytea (66.16) wrote:

hmm how did you come up with dow 6000?
i mean i agree with you that this rally is whack and the fundamentals point down, but how do you come up with dow 6000, versus 6500 or 5500?

a while back i read an article somewhere that the DOW probably can't go below 5500 because you can make BAC JPM to go zero, decimate AXP GE, take large chunks outta the oil majors and solid firms like JNJ PG, and still you'd only be at 5500

sorry if i seem like i'm making a big deal outta nth.. but the point is i wanna know when's a good time to get in again, and so is that DOW 6000 or potentially even lower

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#19) On May 07, 2009 at 9:08 PM, peachberrytea (66.16) wrote:

hmm how did you come up with dow 6000?
i mean i agree with you that this rally is whack and the fundamentals point down, but how do you come up with dow 6000, versus 6500 or 5500?

a while back i read an article somewhere that the DOW probably can't go below 5500 because you can make BofA JPM to go zero, decimate Amex GE, take large chunks outta the oil majors, and still you'd only be at 5500

sorry if i seem like i'm making a big deal outta nth.. but the point is i wanna know when's a good time to get in again, and so is that DOW 6000 or potentially even lower

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#20) On May 07, 2009 at 9:16 PM, XMFSinchiruna (27.56) wrote:

I don't place all my insight eggs into the GDP basket. GDP will be artificially boosted by stimulus spending that will have no appreciable efficacy at stemming the core sources of economic deterioration. Given the myriad plausible scenarios imaginable as this all plays out, a specific GDP forecast at this stage is nothing more than a hunch... whether it comes from me, Ben Bernanke, or the Oracle himself. I have my hunch, and you have yours... let's meet back here in a couple of years and see how many green shoots ended up blooming.

GDP in nominal terms can look most impressive once stagflation takes hold. It might be the right indicator to focus on during periods when the shell game is working fine, but once the cat is out of the bag and the banking houses turn up broken, you have to shift paradigms a bit and look for broader sources for leading indicators.

In no particular order, here is my preferred basket of leading indicators for macroeconomic forecasting.

Unemployment, loan default rates, national debt, entitlements, bankruptcies, corporate tenancy, steelmaking, mining, heavy industry, the USDX, gold and silver, Treasuries, railroads, shippers, agriculture, energy, college tuition enrollment, actual inflation numbers, budget deficits, trade imbalances, foreign reserves, China, derivatives, city budgets, state budgets, pension plans, consumer-discretionary spending, fiscal stimulus, copper, iron ore, coal, taxes, credit default swaps, the yen carry trade, and probably a few dozen more that didn't occur to me just now.

Thanks for a lively debate. :) Fool on!

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#21) On May 07, 2009 at 9:30 PM, XMFSinchiruna (27.56) wrote:

peachberrytea

Again, I believe that numerical forecasting at this stage is both impractically imprecise and unnecessary for successful investing. I did not mean tim overstate the significance of the number I threw out there, but rather used it as a means to express my expectation that we will see equities hit new lows. Watch events unfold and then see where / when you might want to rebuild positions. I'm not saying to get completely sideline, but just to get really defensive. I have my own internal projections for the Dow, but as I said above they are essentially hunches given the number of factors at play. The important thing is not the number, but the trend. We remain in a deleveraging event being met with ever-larger re-leveraging tactics by our government and its pal the FED.

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#22) On May 07, 2009 at 9:54 PM, awallejr (81.43) wrote:

Something I found interesting, particularly figure 2.

http://www.econbrowser.com/archives/2007/10/the_stock_marke.html

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#23) On May 08, 2009 at 12:53 AM, RainierMan (75.47) wrote:

Chris: thoughts on GNK?

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#24) On May 08, 2009 at 2:54 AM, puccini3005 (29.74) wrote:

Sinch, I really appreciate your insights in this sector.  Great articles - you're my favorite caps writer, although I sometimes resist reading your blogs because I come away gloomy and scared.  But I'm glad you call it like you see it.

I have a position in EXM leftover from the stock-and-cash Quintana deal.  After watching that position plummet, the recent rally has been nice.  But after going through a few of your articles I'll be looking hard at selling that position, probably soon...

Finally, concerning precious metals...  I admit even after following your columns and blogs, I have a hard time wrapping my head around how to plan defensively and be wise.  Are gold/silver stocks a good enough play vs futures vs buying gold and sticking in a vault (I have relatives that are doing this).  I know this last bit is really broad and kinda out of place here, but perhaps you could write a remedial aritcle on these type of questions some day....

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#25) On May 08, 2009 at 3:15 AM, uclayoda87 (29.31) wrote:

Ever since I saw Cramer's rant yesterday that the "Bulls have Won", I was wondering if he was inadvertently calling the top to this recent rally.  He was encouraging investors to get out of "safe" health care stocks, which went up today, and move into more aggressive growth stocks, which probably went down.

The one common theme that I had noticed on various financial news programs, including Fox Business, was the disappearance of fear.  The only mild fear that I noticed was the fear of not participating in this rally.

The big banks are still going up after hours, but this appears to be due to the hope that the banks can get away from the TARP program and not because of the bank's financial strength.

So I have to wonder, was yesterday the top?  Profit takers hit FCX, PCU, WDC, AAPL, CNQ, and PDS which have all had a nice run up in price.  It will be interesting to see how the market reacts to the employment numbers on Friday.  A rise in the market and the rally will likely continue, but a substantial fall may set up a mass exodus on Monday (Sell in May and go away).

 

 

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#26) On May 08, 2009 at 7:48 AM, none0such (71.75) wrote:

Hi everyone, I would like to ask a quick question to you readers and writers. I have been thinking seriously on opening a position in the shipping sector - specifically in Taiwan since the recent warming of political ties between China and TW have created some interesting opportunities in transportation there. Are there any thoughts on the merits of this area and, again specifically, Evergreen Marine (TPE:2603), Taiwan Navigation (TPE:2617), Yang Ming Marine (TPE: 2609) or Wan Hai (TPE: 2615).

Thanks

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#27) On May 08, 2009 at 7:48 AM, none0such (71.75) wrote:

Hi everyone, I would like to ask a quick question to you readers and writers. I have been thinking seriously on opening a position in the shipping sector - specifically in Taiwan since the recent warming of political ties between China and TW have created some interesting opportunities in transportation there. Are there any thoughts on the merits of this area and, again specifically, Evergreen Marine (TPE:2603), Taiwan Navigation (TPE:2617), Yang Ming Marine (TPE: 2609) or Wan Hai (TPE: 2615).

Thanks

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#28) On May 12, 2009 at 10:05 PM, portefeuille (99.60) wrote:

on shipping

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#29) On May 12, 2009 at 10:22 PM, portefeuille (99.60) wrote:

Morgan Stanley fund to invest in shipping

Morgan Stanley is to set up an opportunity fund to take advantage of the global downturn in shipping by investing up to $400m (£267m) in dry bulk and container ships.

By Jonathan Russell
Last Updated: 6:46PM BST 04 May 2009

The bank is working with two Greek shipping organisations to create the debt fund which will target distressed investments in shipping. The fund is aiming to invest in shipping debt that could be sold off for as much as a 60pc discount.

Although the market for large ships has stagnated in recent months, with buyers demanding far bigger discounts than sellers are prepared to offer, distressed sellers are expected to come to the market shortly under pressure from their lenders.

Industry analysts estimate there is up to $600bn of debt attached to ships and the shipping industry, much of it originated from specialist German banks, although UK banks including RBS have been active in this area.

With the volume of global trade falling sharply, many of these ships have been lying empty, filling up ports such as Singapore.

However, running costs and servicing debt on these ships is significant even when they are empty.

...

(from here)

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#30) On May 14, 2009 at 1:20 AM, MGDG (35.33) wrote:

Thanks for the timely info on DSX Sinch. I was able to close it in the Green again. A little off topic here but I see NAT will issue new shares at $32 to fund their Capital needs. Why take on debt when the market will fund it for you.

Looking forward for the Market, I think someone forgot to water our green shoots and I'm afraid they are going to wilt under the Summer sun. I found some info from inside the U.S. transportation sector that there was a doubling of freight activity in March and the first half of April which may have contributed to what looked to be improving numbers or not as bad as expected in economic activity. Unfortunately those numbers have now fallen of a cliff and are currently this week below the dismal January volumes. When the May numbers will be officially reported they should reflect this.

Regardless of what numbers are reported, we need a Test of the March lows to see if this is a start of a new Bull, or if it's just a Big Bear Rally and what a rally it's been. I'm in the latter camp and believe your Dow 6000 may be a little optimistic before the Bear is truly done growling.

It looks also like we may get a decent size correction in the Oil related stocks before they can run to higher levels. The dry Bulk shippers may just follow suit if their Global shipping volumes are dropping as quickly as the U.S. transportation volumes are.

 

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#31) On July 05, 2011 at 4:42 AM, Fundament (< 20) wrote:

Here is a current sheet of 13 stocks from the shipping industry with highest dividend yields. ++ http://t.co/K5xQ0wr ++ The average price to earnings ratio (P/E ratio) amounts to 19.29. In average, the dividend yield of the best yielding stocks has a value of 7.88 percent.

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