While I do agree they are a heck of a way to play the global trade boom, many have turned into pure momentum trader stocks. And the problem with momentum traders are they are great friends on the way up to help push your stock up, but they are not the marriage type - they are more the 1 night stand type. So at the first sign of distress they run like mad. Today was one of those days.
Half of investing is knowing WHOM you are investing with. Much like with the solar stocks, the type of investors piling into the dry bulk stocks (at this stage in their run) are not really the type who care much about fundamentals. Those people were in the solar/dry bulk shipping stocks about 60% lower. So realize it is a double edged sword. Now with that said, things can turn on a dime and these same pack animals can turn the stocks right back up if the mood serves them. But the news of the day was that dayrates fell for the first time in MONTHS.
- The dry bulk shipping industry was washed ashore on Tuesday as freight rates on the largest vessels dropped for the first time in months and squeamish investors pulled out.
- Freight rates on cape size ships, which are the largest vessels, dropped unexpectedly on Tuesday, which some analysts say may be a sign that Chinese steel production has leveled off, causing shipping prices to decrease as less vessels are needed.
- Others said that Chinese steel producers are downplaying the demand for steel by holding off on chartering ships in order to rattle the shipping industry since a decrease in demand for steel would mean a drop in shipping prices.
- That’s good news for the dry bulk shipping industry, which has seen even its worst stocks skyrocket as much as 150% in the last year.
- Rupinski said that it now costs more to ship iron ore than the ore itself is worth, given the high rates for larger vessels and the long distances needed to bring the ore from Brazil to China. In addition, shipping rates are way up because there aren’t a sufficient number of ships to keep up with demand. “There’s been a lot of talk from Chinese steel officials that they’re not happy with the rates for iron ore,” Rupinski said.
Natasha Boyden, an analyst at Cantor Fitzgerald, said she sees absolutely no change in the fundamentals in the dry bulk shipping sector. Boyden says the decrease in stock price should be seen as a buying opportunity.
To see what type of pricing has been behind these monster moves here is a chart of the Baltic Exchange Dry Index. It makes the stock market in Shanghai look like a snoozer. Parabolic would be doing injustice to this type of move. But now it's reached the point where actually SHIPPING the product is costing more than the PRODUCT. Quite amazing.
Again I am not a bear on this sector, and in fact if some froth was removed I'd be interested - I'd been looking at Diane Shipping (DSX) for a while but the stock just is relentless in its move up. Until now. Perhaps if we get a market correction these stocks will falter even more as they are not exactly held by 'strong hands' anymore. The biggest risk, and I'd argue the biggest risk to the entire market now is the conventional wisdom is global growth can continue without much help from the US. I'd argue that while that is more true than it would of been a decade or even 5 years ago, I hardly see a slowdown in the US and Western Europe (which will slowdown right with us, especially the UK - a very similar economy) as benign for the rest of the world. With that said, the shortages in commodities are real; and the growth in emerging markets is real. It's just a matter of degree.
For an example of how you can suffer some near term pain if your timing is off in chasing momentum stocks here is a sampling of this large group of stocks.
Dryships (DRYS) -17.5%
Diana Shipping (DSX) -12.4%
Genco Shipping (GNK) -14.0%
Excel Maritime (EXL) -20.0%
Paragon Shipping (PRGN) -11.7%
Remember, half the battle in making money is not losing money. Sounds like a cliche, and it is, but cliches are cliches because they are generally true. And as Cramer mentioned yesterday, when you are in a bubble you have to accept the fact and realize at some point in return for the benefit of riding the bubble, you are going to have to give some back at the end of the move. That's part of doing business.
Some people want to be "right" and make money, and I am telling you that being right is not always the same as making money. Sometimes the really rigorous thing to do is to "suspend" your judgment temporarily and play the bubble because the money can be made so fast and it is so lucrative that it is worth playing. I will ride them to the bank, and then I will give some back when the bubble bursts. But not before I have taken enough off while the critics sniffed.
And with this sector, there "will" be a lot more ships hitting the market - its just a matter of when; until that point you can ride the wave - but then, you need to "jump ship" (couldn't resist). Now the question is, is this a short term anomaly or is indeed the canary in the coal mine for the global economy slowing? I read today that steel output the past 6 weeks has also seen a slowdown.... could be the start of something bigger; or just a pause that refreshes. We won't know until we look back a few quarters from now.
SA/SS
No positions but would be interested lower
