Boats against the current....borne back ceaselessly into the past
“So we beat on, boats against the current, borne back ceaselessly into the past.” F. Scott Fitzgerald wrote this as his closing statement in his masterpiece the Great Gatsby, as Nick Caraway was looking out over the Long Island Sound in the late Gatsby’s lush mansion, the proverbial green light flickering on and off, reflecting on the events of Gatsby's life.
What does this have to do with the markets? Well, boats, and specifically Dry Bulk. Honestly, I just like the quote. Boats, mainly shipping have begun to return to price levels that better reflect their performance, though I believe they are still being traded highly on fear and speculation.
Recently, according to data compiled by Bloomberg, shipping fuel costs are forecasted to go down significantly over the coming months as owners of ships are locking in low fuel costs to continue operation. Commodity prices, as shown with this graph: http://www.bloomberg.com/markets/commodities/cfutures.html are regularly increasing.
What does that mean for the macro economy?
Its recovering, and been recovering for some time now. But we already knew this. Though, how do these commodities get from one point to another? What means of transportation? If you said shipping, you’re right. Shipping, while one of the oldest forms of transportation is still considered a heavily lucrative and risky investment as spot prices on the BDI (Baltic dry index) constantly fluctuate. Recently, the BDI has taken an extreme plunge (When the CEO of OCNF, a mixed fleet company diluted the shares and scared away investors, I personally lost enough money in to buy a new car).
However, looking at the BDI charts http://shipping.capitallink.com/baltic_exchange/stock_chart.html?ticker=BDI&date_r=9mo&c=1&s=BDI (and I highly recommend shipping.capitallink.com for all shipping investors) 9 month chart, the prices are violently fluctuating, with much risk involved. However it is recovering, and a general uptrend can be seen. But why recommend these stocks? Because they are necessities to the global economic recovery! If we have no shipping, no one can receive the iron ore, copper, steel, or other commodities in such large supply.
These stocks, I recommend, trade in tight and quite noticeable trends. I am personally invested in DRYS (Dry Ships, a company infamous for its treatment of investors). As you can see from the technical chart: http://www.stockta.com/cgi-bin/analysis.pl?symb=DRYS&num1=3&cobrand=&mode=stock the stock has traded within the past 3 months between 5.50 and 6.50, sometimes breaking the 6.50 point and running wild. I got in at 5.68, and I’ve been quite happy ever since. Trade within the trends, buy low and sell high, and you will make some $$. I doubt DRYS will go below 5.40, as it has locked in steady income through time charters for several years and has recently invested itself in offshore drilling and ships quite frequently to China. Chinese construction activity, spot steel prices, and crude steel production are recovering as well, allowing DRYS to have continued commercial interest in the region. Many of their ships have time charters locked in through 2010. (source: http://www.irwebpage.com/dryships/files/DryShips_2q09_Presentation.pdf).
I’d like to make one correction to many investors’ general beliefs on accounting book value and shipping companies. I understand the Book Value of shipping companies is much higher than the equity trading in the market. This is because Shipping companies have huge investments in….well ships. These are tangible assets that can easily be calculated, it is much harder to calculate the book value of a company such as National Semiconductors because they have more intangible assets (Employee talent/intelligence). Just because DRYS, OCNF, and others are trading below their book value DOES NOT MEAN they are a “steal”, they have plenty of debt on their books and I only recommend shipping companies to investors willing to risk it all or nothing.
As a closing statement to this mess, I refer once again to Fitzgerald’s quote. We can all look into the past, and reflect upon our actions, knowing we should have done something at one point or the other. Looking into the past, we always have 20/20 vision, as we know the outcome. I, as a long-term shipping investor, have faith the shipping equities will recover, from looking into past performance. However, stocks like DRYS will not reach the levels they were once at, but we can still make money trading in between the trends.
I welcome comments. While I’ve been trading for some time now, I’m not perfect and open to discussion.
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