My favorite Elton John song:
It's gotten way too negative in emerging markets,
especially Brazil (where stock prices have descended past the gates of
Hades). RYWVX (Rydex 2x Emerging
markets) actually closed this morning's 1030 window off yet another -1.49% to
49.54, despite a slight rise in EEM at the time. Shanghai?
I'm willing to buy at the second -30% off sale this month.
Packing my bags for another trip on RYWVX at today's
close. Adding a little RYPMX (Rydex
Precious Metals) into the fuel mix.
Adding positions in CAF (China 'A' Shares) + EWZ (Brazil)
+ PBR (Petrobras) + ABX (Barrick Gold) near the close.
I was lookingat ABX yesterday actually. I understand the trade but get this:
ReplyDeleteCombined Net Income over past 15 years: -$6.06 Billion
Combined Free Cash Flow over past 15 years: -$3.28 Billion
During one of the biggest bull markets in the history of gold. Crazy huh?
Not only crazy but I'd bet an example of the lack of actual demand for physical metal vs paper metal?
DeleteWith ABX , they always had the reputation of being a smart miner, able to make profits in any market. They did a good job of controlling costs and hedging sales against production through the gold bear market.
DeleteWhen the bull market in gold got into full flight, they had a lot of pressure to unwind their hedges to get full exposure to the gold bull market, and did so at a very bad time when prices were already quite high and had to take a huge hit against earnings.
They then got caught up in the metals mania and made a large, bad acquisition of Equinox (?) and then ended up writing that down and taking another huge hit to earnings (maybe $10 billion?).
So anyhow, my point is they are generally a well-run miner who made some bad, expensive decisions. WIthout those, they would have made a lot of money during the bull market. They now they have gone back to just running their mines and probably will do well at it. They have an overpaid upper management and directors and a weakened balance sheet, but should be able to work through this.
Funny, or sad, how companies can mess up the best markets of their lives though
DeleteBB - I hear you on the growth vs value but it does look like Growth (IVW) has the following companies trading at below market p/e's:
ReplyDeleteAAPL
MSFT
GILD
JNJ
INTC
WFC
QCOM
CSCO
MRK
ORCL
UNP
Of the top 47% of holdings, those above make up nearly half or 21%. I'd classify those as value actually.
I looked into it and they judge growth versus value based on book value, earnings, and sales to price.
DeleteBased on those metrics, the stocks you list are on the more value-oriented end, but probably still in the growth half:
https://finance.yahoo.com/quotes/AAPL,MSFT,GILD,JNJ,INTC,WFC,QCOM,CSCO,MRK,ORCL,UNP/view/v4
Here's the top holdings for the value funds:
http://finance.yahoo.com/quotes/XOM,GE,BRK-A,JPM,PFE,VZ,BAC,T,C,CVX,WFC,IBM/view/v4
Generally, the value ones are cheaper on a p/e basis and quite a bit cheaper on a p/b and p/s basis.
I think in a growth-type market, people tend to focus on p/e's, but when we shift to a vale one, p/b becomes much more important and p/s does to a lesser degree.
Gotcha. Tough to compare p/s and even p/b in varying industries. Relative to their own industry I understand but not across industries.
DeleteTWTR - Whoops! :(
ReplyDeleteFree stocks trades to anybody on this blog that can dance like this.
ReplyDeletehttps://www.youtube.com/watch?v=HDLLXUaqZxg
What do you guys make of TWTR AH?
ReplyDeleteShow us ur nuts! :) "Twitter: 2Q beat, but still hasn’t cracked the user code; Neutral July 29, 2015 01:40 AM ET"
Delete2Q revenue and EBITDA beat; revenue upside on higher ad loads and better than expected direct response ad sales. A cautious MAU growth outlook and declining DAU/MAU trends will remain an overhang. Project Lightening coming in the Fall. Lowering our PO to $40 (30x 2016E EBITDA). We expect a smaller multiple gap to FB (at 18x Street EBITDA) given user trends.
DeleteFSLR - Pretty low here, time to load up some solar just in case we have a warm winter?
ReplyDeleteAKS - Target was $9 or $8 I think. "Q2 LPS beat expectations but got a big LIFO benefit boost. Positive H1 FCF calmed the bears but we temper the H2 recovery. We cut our PO to $6 on a lighter H2 rebound and unchanged 8x 16E EV/EBITDA. We still like the risk/reward for shares here"
ReplyDeleteTWTR, as opposed to AKS, right?
ReplyDeleteFWIW
ReplyDeleteHere is the exact quote from Jason Goepfert:
"Corporate insiders in the energy sector have dried up their selling activity while making some buys. At
the same time, sentiment on crude oil has soured to one of its worst levels in over a decade. When we've
seen this kind of difference in opinion between insiders and public, energy stocks have consistently
rallied."
And, all the talk of hedge funds loading up has totally ceased, if they were to sell you wouldn't hear a peep. Same kind of talk with gold but the difference is nobody burns gold, the similarity is you can't just walk into your back yard and dig up either one.
DeleteCP we are definitely not in the club and will never be first to know.
DeleteJust what it is, interesting game none the less.
FDML - What a bunch of crap.
ReplyDeleteBB POW.TO is interesting thanks.
ReplyDeleteYou and TOF talked about growth vs value, but in the general mkt tanks they all go down imo.
Yeah if it tanks you're right. But look at the dow versus the nasdaq during the 2000-2002 bear market. And there were plenty of stocks in the dow that did fine. In 08 everything tanked
DeleteAnd the 1998 - 2000 period, it was only growth that went up and the value stocks were hurt even as the Nasdaq when to 5000+
Delete2007 was crushing on pretty much everything except the super-defensives like WMT.
"2007 was crushing on pretty much everything except the super-defensives like WMT."
DeleteThen the opposite might be true as well?
Bought a little JUNO, working on CAR T for the blood cancers I had, perhaps its just an emotion buy and hope for a future cure.
ReplyDeleteBIIB my jump already beat up and should have bought not mulled MU CNX ZINC CBI a few days ago, still interested in most but need pull backs now.
BDX just keeps gving.
ASYS - Trying to keep an eye on this one.
ReplyDeletePSEC - Pretty strange, thus justified this rallies on ex-div day?
ReplyDeleteContemplating FCAU heading into earnings tomorrow. I think this might be a good chance to buy half here and add on any weakness tomorrow.
ReplyDeleteFLY getting hit today as they took an impairment charge on about 20 planes.
ReplyDeleteWas pissed off as they generally sell planes at a premium to book (on the concall, the CEO they have sold in total about $120 million over book), but now had to take this $65 million charge. Makes you wonder if they are accounting properly and if there are any other ones coming up - hopefully management was smart enough to take the full hit at once.
Thought about selling, but the concall ran into the market open and it got away from me. I think they will still do fine, but just pushed out the date to getting full value for the company by a year probably. Their $1.00 dividend is still safe, but just shakes your confidence some.
MTW - Okay dip shiz, sell MTW ahead of the transit funding bill you know will pass like goose poop.
ReplyDeleteMTW is interesting and I have it on my watch list. Earnings after market today, so will see how these turn out, but I think the company split will create value. My concern is demand for the crane side of the business and the value is not that great.
DeleteGS just downgraded to sell, the day of low. So, WTF.
DeleteAverage age of vehicles on US roads is 11 years.
ReplyDeleteNo rate hike.
ReplyDeleteEWA - Still hasn't shaken the trend but might?
ReplyDeleteDHR - No longer a multiple top. Bought PLL not long ago, my water play.
ReplyDeleteIEP - Going to $40? Looks like no insider ownership, am I right?
ReplyDeleteFLY, etc. Are these companies cutting lose anchors and moving on, or are they struggling? Which is most likely?
ReplyDeleteFLY is selling off a bunch of it's older planes with an average age over 12 and buying some newer ones with average age around 2. They say this will be accretive to earnings, but if something is accretive by $5 million a year, but involves a $65 million write-off, is this really a good deal?
DeleteIt is still trading under book value, even the new reduced book value, 7% yield, generally well run, and the airplane cycle is still strong and likely will be for quit a while.
Sounds like the buyer got a smoking deal?
DeleteThe planes they sold they made a $33 million profit on.
DeleteBut in the process of selling these planes, they came to realize that 20 of their other planes were being carried above book value on their books. So, by GAAP rules, they had to write them down and take a non-cash charge. When they go to sell them, they now should get close to book value for these.
Ah, I guess it beats renegotiating leases at unfavorable rates.
DeleteZero Hour, 9 am!
ReplyDelete(a) EEM (emerging markets) +1.23%.
(b) EWZ (Brazil) +1.75%. PBR (Petrobras) +6.98%.
(c) CAF (China 'A' Shares) just slightly green @ +0.25%, but FXI (China 'H' Shares) +1.47%.
(d) ABX (Barrick Gold) +4.14%. GDX (majors) +1.72%.
I see no reason not to stick with all positions for now.
Nice upgrade for YRCW from our buddies at Raymond.
ReplyDeleteJKS - Looks good here maybe there will be a real effort to implement?
ReplyDeleteTwo of my holdings have earnings tomorrow pre market: MMYT and FCAU. Should be interesting.
ReplyDeleteCame across this report by Goldman on Indian e-comm:
http://gadgets.ndtv.com/internet/news/indian-e-commerce-market-to-account-for-25-percent-of-gdp-by-2030-goldman-sachs-690199
Good numbers out of DB this morning - profits beat expectations and capital ratios improved. CEO saying not good enough and they will do the right things (cut unprofitable business, cut costs, etc.) to get where they should be. Stock up almost 3% in Europe.
ReplyDeleteStill no results out yet from FCAU.
FCAU results to be out after the Euro market closes at 4:00 CEST or 10:00 New York time.
DeleteLooks like FCAU results are out already.
DeleteRaised outlook for year and stock is up almost 5% now.
Have to do some more reading.
Looks like they crushed top line and did about .33 bottom if I'm reading it right
DeleteNice. I hope it holds for you guys and goes up.
DeleteMTW - Seems to be selling off in pre market. I guess those earnings weren't well received. Looks like a short, lol.
ReplyDeleteTCK - Wonder if this one has bottomed? I doubt it.
VA - Response isn't negative, so far it's up.
ReplyDeletePKX - Haven't seen this one this low in my memory. Broker target $40, must've noticed too?
ReplyDeleteDHR - Olympic sewage in Rio, send in DHR.
AAII Investor survey shows % bulls down near lows from last 20 years and last 2 times this low were near bottoms fo 2003 and 2009.
ReplyDeleteHard to see how sentiment is this horrible, but I like it . If we do get some good things happening in the economy and the market, their could be big upside in stocks.
MMYT had a miss on top and bottom. Guidance for hotel booking was strong though so maybe they don't sell it down too much.
ReplyDeleteI forgot that SNE had earnings today. I bought some yesterday and just sold at $30. Took small profit.
Didn't you predict $10 was coming? My broker had a buy on it with $40 target.
Deletemy bad, $25 target was on it not sure if that's a new target or the previous one. Still no response report on the earnings but soon probably.
DeleteCanadian Energy giant, SU, which I still hold, had earnings out yesterday. Pretty decent, raised their dividend and increased production outlook slightly. Also cutting capex further. But interesting that can increase production with less spending. Bad signal for the service guys and the price of oil really.
ReplyDeleteAlso, forgot to mention yesterday, GIB missed earnings and stock was down. Getting to the point I might consider adding to my position. Good company and looking for ways to increase growth further, probably via an acquisition, which they usually do very well.
They use natty in the sands production, right?
DeleteYes, that helped earnings too.
DeleteFED interest rate hike - Does this mean banks must pay a higher rate and pass the rate on or will that squeeze their margin?
ReplyDeleteJD - Notice how strong this stock has been through the China turmoil. May not mean a whole lot but was just noticing.
ReplyDeleteMakeMyTrip misses by $0.05, misses on revs; lowers FY16 revs below consensus
ReplyDeleteReports Q1 (Jun) loss of $0.05 per share, $0.05 worse than the Capital IQ Consensus Estimate of ($0.00); revenues rose 7.5% year/year to $38.1 mln vs the $42.1 mln consensus.
Co issues downside guidance for FY16, sees FY16 revs of ~$153-160 mln vs. $170.96 mln Capital IQ Consensus Estimate. In view of the various priorities and a focus on Hotels & Packages and India online hotel transaction growth, which is going to come at the expense of margin and other associated costs, the co's current guidance on Net Revenue growth in constant currency is being revised at 10% to 15% for the fiscal year 2016. (revised from prior guidance of 22-26%)
Horrible. I had a decent sized position in this. I believe I'm going to hold but this is not very encouraging.
DeleteSounds like they are cutting pricing to maintain market share as the growth toward online booking of hotels is really strong. I'm willing to hold this I think. Fact is only 7% of hotel bookings are online and they have a 40% market share. Their air ticketing transactions growth was really good as they continue to gain market share.
DeleteCXO - Kicked some tail too. Intermission over, let the blood bath resume (I guess).
ReplyDeleteRe FCAU, margins improved, but still have a way to go. If he can get margins up 3% to the mid-point of GM and Ford, will add about $1.60 per share in profits (assume 30% tax rate). Add that to current profit and you get to around $2.50 per share in profits. Allow for $6 per share for Ferrari spin out, so $9 for a rest of company and you get a sub-4 p/e. Still very promising in my way of thinkng.
ReplyDelete"Marchionne has promised to close the North American margin gap with GM and Ford by 2018. FCA's margins in the region rose to 7.7 percent in the quarter, from 4.9 percent a year earlier, boosted by better pricing, purchasing efficiencies and currency effects. This compares with Ford's 11.1 percent and GM's 10.5 percent."
PCRX missess top/bottom and rises 9.5%
ReplyDeleteGreenwood, the company which initially got me interested in FCAU (actually, it was FIATY on the pinks when I bought it) out with an updated research report and has a target for FCAU of E$35.86 or US$39.
ReplyDeletehttp://www.gwinvestors.com/wp-content/uploads/2015/07/FCA-Fasten-Your-Seat-Belts-July-2015-Update.pdf
Ah, nice! :)
DeleteThe pause that refreshes. That's my opinion re this morning's opening selloff. Adding to positions in miners + emerging markets (which now include RSX [Russia] and GREK [Greece]).
ReplyDeleteAlso added to EXAS (Exact Sciences) on the morning dip below 24. This stock is poised for another spike up, IMO.
ENR - Upgrade buy $46
ReplyDeleteAdded to MMYT to bring average down to $18.2. I hate doing this but I think this reaction is a bit overdone given the long term prospects for growth and how early India is in the growth phase of airline travel. They're in the middle of a pricing war which has reduced the fees they take (which feeds into their revenue) which I think is fairly normal at this stage as the internet population is growing rapidly. They own a 40% market share in hotels bookings and had a 40% market share in airlines but it looks like that is growing.
ReplyDeleteFCAU vs CBI - BB, Thinking of offing the CBI so I can re-enter FCAU. Any idea of what CBI's objective might be?
ReplyDeleteTough to add to FCAU here but I think it can still go to about $20 before the Ferrari IPO which is ~30% upside.
DeleteI would agree with TOF, Buying a stock up on 5% up day generally is a bad strategy as you usually get the chance to buy lower.
DeleteBut I am happy to own both and think they both go much higher. Longer term I think CBI could more than double as they continue to execute and the fear comes out of the stock. It's a sub-10 p/e and generally trades at a market p/e, so say 17, and if their earnings grow buy 20 percent over a couple of years, you have a 200% return.
FWIW, from what I have read CBI is a good LT hold with a nice back log, but things change and BB is positive and he knows fundamentals really well.
DeleteMEP - Supposedly an LNG play.
ReplyDelete$457M market cap and 0.4 debt for this?:
Delete"The company operates approximately 11,100 miles of natural gas gathering and transportation lines; approximately 233 miles of NGL gathering and transportation lines; and approximately 40-mile crude oil pipeline and 40-mile non-core propylene pipeline, as well as holds interest in an approximately 593-mile NGL intrastate transportation mainline and a related NGL gathering system. Midcoast Holdings, L.L.C. serves as the general partner of the company. The company was founded in 2013 and is headquartered in Houston, Texas."
Broker underperform $11 target.
DeleteIBB sitting on 50dma 373.50 ish.
ReplyDeleteUptrend intact only broke 50 dma in late APR for nine days. TWT time will tell
NBG - An ancient ruin, seems like.
ReplyDeleteBought a starter position Rolls Royce - RYCEY. Reading through more of the Greenwood documents (the FCAU guys), it sounds pretty compelling It's down quite a lot, so I did some quick reading and it looks good so I bought. I will do more research later and may either sell it or buy more, but got a starter position for now. Here's the info from the report:
ReplyDeleteWe have used the recent double punch of European volatility and a guidance reset at Rolls Royce (RR/ LN) to build a core position in the company. We’ve done extensive work on the significant profit margin opportunity ahead of Rolls and have constructively engaged the company to share our conclusions. Just last week, the company replaced its underperforming CEO with Warren East from ARM Holdings. Warren built ARM from a small British company to the dominant designer of mobile microchips, making a mockery of the Intel Goliath. Notably, East achieved such a feat while also returning substantial sums of cash back to shareholders through dividends and stock repurchases. Warren enters Rolls at a time when the company is embarking on an unprecedented growth rate in its installed base of jet engine, as it currently has the most efficient large engine in the world. As a result, the company has been able to secure exclusive positions on most of Airbus’s wide-body planes, which are also the most efficient in the world (despite Boeing always trying to deny this). Rolls will be the fastest grower in the commercial aerospace industry, yet its shares are the cheapest in the industry and the valuation reflects deep pessimism today. Similar to FCA’s North American profit margin opportunity, traders have lamented Rolls Royce’s profit margin gap vs. its main competitor, GE Aviation, as well as its poor historical management which dramatically lowered the firm’s return on invested capital (ROIC). Simply by following his own playbook used at ARM, we believe East will be able to nearly double the profit margins of the company’s civil aerospace division and restore ROIC back to attractive levels north of 20%. With just a few small acquisitions, large-scale 3D printing and some share repurchases, we think Rolls shares are worth nearly five times today’s price over our typical time horizon. If we ask any American investors which blue chip companies can quintuple in a few years, all we get back are blank stares. The jet engine business has some of the highest competitive barriers to entry in the world, and as Rolls seeks to improve the fuel efficiency of its industry-leading engines into the next decade (with a 25% reduction in fuel burn), the company has a decent chance at monopolizing the wide-body engine market, the fastest growing segment of the civil aerospace industry. Thankfully, East will have a daily reminder on his morning commute to, “mind the gap,” between his margins and GE Aviation’s.
Interesting one. Thanks for passing it on. The CEO sounds good and could be the key differentiator.
DeleteThat's what I'm thinking too. Seems like they've got good engineering and products and well positioned in the market, but need a strong leader to get them on the right track. Things like their share buyback last year were dumb given the state of their business (It has now been cancelled). Hopefully the new guy can replicate some of his ARM success.
DeleteNew CEO is :
Mr East said a strategic review would be undertaken by the board to consider the future focus of the group in 12-18 months.
In the meantime, Mr East said he would concentrate on reviewing the operational performance of the group and he pledged to update investors on his priorities by the end of the year.
http://www.ft.com/cms/s/0/593abaaa-3603-11e5-b05b-b01debd57852.html#ixzz3hOSlQQF0
http://www.businessinsider.com/ferrari-california-t-specs-facts-video-drive-2015-7
ReplyDeleteGBX - Off @ 46.44 Concern over TRN low-balling?
ReplyDeleteCBI - Off @ 52.77, couldn't catch 53 with my 53.01 offer
I see China is weak again, this should keep stuff from moving up I guess?
PSEC - Pretty convincing story that guy on SA keeps harping on, not feeling good about this one.
ReplyDeleteRe ROlls ROyce, here is another view:
ReplyDeletehttp://brontecapital.blogspot.be/2015/03/rolls-royce-and-sequoia-letter.html
IMH - Interesting or not?
ReplyDeleteGUKYF - Note the super tight BB and Getting pummeled again. Boots on the ground in Iraqi oil district, doesn't look good for Iraqi energy. How does this flush out?
ReplyDeleteOGZPY not looking too bad though (Gazprom)
CNX - This just gets beterttrter and betterer then gets more gooder. "09:39AM Greenlight Capital Boosts Stake in Consol Energy
ReplyDeleteAnybody believe my broker serves their own interests? "CONSOL Energy: Slashing capex to ensure FCF, but is growth sustainable- Reiterate Underperform July 28, 2015"
DeleteYa think a wave of defaults in the oil/gas patch will drive coal and natty prices?
DeleteNXPI - There are so many stocks out there just running nicely but none are in my account. :(
ReplyDeleteStill doing some research on Rolls Royce. Thanks again for the idea.
ReplyDeleteFCAU having a stellar day, up 7% now.
My broker pulled all their FCAU forecast reports, now no coverage. WTF, maybe they're gonna buy Ferrari?
DeleteOPEC says won't cut production. I just found out.
ReplyDeleteThe DJIA recovered nicely from its -100 point opening decline, and is now in the green. Emerging markets and miners, not so much. My only comments this afternoon:
ReplyDelete(a) I'm a John Templeton guy, one who prefers buying at the point of maximum pessimism.
(b) It's impossible to outperform the market by swimming with the crowd.
A capitulatory wave in the commodities + emerging markets sectors has sentiment at multiyear lows. No reason sentiment can't wash out to even lower levels, but at some point a reversal will ensue. I think that point is now. Famous last words.
(a) I'm a John Templeton guy, one who prefers buying at the point of maximum pessimism.
Delete(b) It's impossible to outperform the market by swimming with the crowd.
Then try natty gas, lol! :)
Yes, well that's more like a tidal wave or an avalanche and you just want to get out of the way!
DeleteAMZN - Recall how the valuation was ridiculous last Christmas? Now 90% more ridiculous?
ReplyDeleteGEVO - Well, this one was $3 today, beating the pants off many.
ReplyDelete"08:30AM Gevo Announces First Pump Sales of Isobutanol-Blended Gasoline at Express Lube Service Station in Texas GlobeNewswire"
Rolls Royce - Will China become a competitor or a bidder for the company?
ReplyDeleteEXAS - Those are boolish hammers.
ReplyDelete(a)The $USD plunges -1%, which sends the Euro soaring +1.5%.
ReplyDelete(b) A great example of what can happen at the point of maximum pessimism:
http://www.kitco.com/charts/livesilver.html
Silver reverses a -1% overnight decline and now +2.6% and high as a kite.
GDX (miners) open +3.26%. EEM (Emerging Markets) open +1.2%. EWZ (Brazil) +1.82%.
DeleteNice upgrade for GPROner.
ReplyDeleteIf I didn't think JCP was a crappy store with shitty merchandise I might be interested here in the stock.
ReplyDeleteI shop there. Back in the Sixties, before Gap and all the other retailers, I used to buy my Levis and t-shirts at the Stanford JCP. My wife hates it, and keeps buying Gap/Banana Republic t-shirts for me, but I prefer the Penney brand. Now that's a contrarian move!
DeleteSold GM today. Probably fine to hold, but needed cash form that Rolls Royce purchase yesterday and didn't want to go onto margin and it was in the right account.
ReplyDelete.
Commodities Trader: Some color on commodities and dry bulk shippers
ReplyDeleteI posted this late Friday, so I'd like to re-post it once this morning. I hope it's helpful.
Commodities hit a 13-year low on Wednesday, as measured by the Bloomberg Commodity Index, while the Baltic Dry Index (BDI), a measure of shipping rates on ships that haul commodities across the oceans, was sitting up 120% on Wednesday since its all-time low was hit on February 18, 2015.
Key catalysts driving this commodities slump we've been seeing are as follows:
• Falling demand in China is a big driver
• Slower economic growth
• Dollar strength
• Oversupply in many of commodities
As I wrote on July 13 (please see 08:54 post), many commodities were sitting at multi-year lows:
• Copper: Copper futures just hit a six-year low
• Steel: U.S. steel prices are modestly above six-year lows
• Chinese steel futures fell to a record low in the week on weak demand and a supply glut
• Iron ore: Iron ore prices just hit a 10-year low. Spot iron ore is near $44/ton
• Aluminum: Prices are near a six-year low
• Platinum: Prices are at a six-year low
• Palladium: Futures are at a two-year low
• Coal: Met coal is near a 10-year low; Thermal coal near a six-year low
• WTI crude oil: We all know what's happened here. Crude oil prices have fallen sharply between June 2014 and now it's not far above a six-year low.
Note: This morning, Chinese PMI (a preliminary gauge of China's manufacturing activity) fell to a 15-month low, which created additional pressure on the commodities space.
The Caixin-Markit China Manufacturing Purchasing Managers' Index's initial reading was reported this morning at 48.2 in July, which compares with a final reading of 49.4 in June. A reading below 50 indicates contraction in manufacturing activity. Ultimately, today's PMI reading is negative.
Moving back to the surge in shipping rates seen this year...
So how can commodities hit a 13-year low, while dry bulk shipping rates are rallying? Let's get into that here.
First, I want to note that the Bloomberg Commodity Index talked about in the media this week is made up of 22 commodities, which includes: Gold (11.22%), WTI crude oil (9.31%), Brent crude oil (8.57%) Natural gas (8.44%), Corn (7.52%), COMEX copper (6.96%), Soybeans (5.43%), RBOB gasoline (5.22%), Aluminum (4.23%), ULS diesel (4.16%), Silver (3.92%), Chicago wheat (3.44%), Sugar (3.28%), Live cattle (2.89%), Soybean oil (2.81%), Soybean meal (2.61%), Zinc (2.20%), Lean hogs (1.77%), Cotton (1.66%), Coffee (1.63%), Nickel (1.59%), Kansas City wheat (1.12%).
Second, I want to note that dry bulk shipping rates are largely influenced by iron ore, coal and grains. Iron ore and coal make up about 55%-60% of total dry bulk carrier demand. Grains make up about 10%. In short, these three commodities make up about 2/3 of total global dry bulk ship demand.
DeleteThis right here helps explain why there can sometimes be a ‘disconnect' or discrepancy in commodities and dry bulk shipping rates that haul commodities across the oceans.
Dry bulk shipping rates, as measured by the Baltic Dry Index (BDI), are up 113.4% since the all-time low was hit on February 18, 2015 at 509 (The BDI fell 16 pts overnight to settle at 1,086). That all-time low led to increased scrapping levels in the first months of 2015, which helped support prices.
The move in the BDI was driven by strength from all of its the main components, which include the capesize, panamax and supramax rates, which have rallied 184%, 129% and 86%, respectively, during the same time frame. Separately, the reduction in global fleet supply is also helping prices as it helps balance the market out.
Supply reductions are critical because the industry has been struggling with oversupply of ships since the financial crisis.
In the first half of 2015, the dry bulk industry experienced all-time record shipping demolition rates with the month of April seeing the highest one-month recording of 5.36 million dead weight tons.
Overall, for a full year, the record happened in 2012 when 33.4 mln deadweight tons. In the first half of 2012, 18 mln deadweight tons were wiped out. In the first half of 2015, 20 mln deadweight tons have been wiped out, so the full year 2015 has a chance to create a new full year record of the highest demolition rates.
Drybulk shipping rates are a leading indicator for raw materials demand. And of course, there's some lag time between the surge in global dry bulk shipping rates and the price of the related commodities that are being hauled across the oceans to fulfill import demand.
As you can see, the capesize was the largest contributor to the BDI surging so much since February and the main commodities transported on these capesize ships are iron ore, coal and grains. Currently, you can rent a capsize ship for $14,603/day on the spot market, which is up from the cost on Feb. 18 of $5,447/day. Iron ore is the most transported commodity by the dry bulkers so the big rally in iron ore prices seen from early April through June was a huge contributor to rates rising. Yes, since that rally above $60/tonne, iron ore prices have pulled back hard.
One would say that is a concern that will weigh on dry bulk shipping rates in the near-term. But, so far, it hasn't as grain and coal demand has helped offset some of the weakness in iron ore demand, along with the demolition of ships.
However, ultimately, we should be concerned that the recent rally in dry bulk rates will prove to be unsustainable. We can't see the surge continuing much, at least at this point. But currently, it's difficult for anyone to make a long-term forecast in rates at this point, so we are taking more of a week-by-week approach in gauging where rates are headed. Following 14 consecutive sessions of gains, the BDI pulled back today and yesterday.
Given the general collapse in commodity prices (Bloomberg Commodity Index hit a 13-year low on Monday), we find it hard to believe that the BDI will continue to rally for now.
Steel prices remain sharply lower and since iron ore is one of the main ingredients in making steel, we believe capsize rates will pull back some in the near term. Met coal is the other main ingredient in making steel. At the same time, thermal coal (used to make electricity) prices have been under notable pressure, especially in the U.S. where this industry has been under attack by tighter governmental regulations and cheap natural gas.
Dry bulk names include GOGL, SB, DSX, DRYS, DCIX, SHIP, SBLK, EGLE, SINO, KEX, FREE, PRGN, SFL, SALT, NMM, NM.
Briefing.com
NM back near support risk to say 3.30.
DeletePersonally do not feel incline here.
That was great, thank you. Food for thought.
DeleteAdded to my MMYT at $15.01. I don't know where the bottom is but if I think of the big picture for ecommerce in India, I have to be buying this here and just putting my shares in the cupboard for a better day. Look at the 3 biggest public players in China:
ReplyDeleteCTRP: $10.5 Billion market cap
QUNR: $4.9 Billion
TOUR: $2.25 Billion
LONG: $490 Million
TOTAL: $18.14 Billion
MMYT sports a 50% market share of OTA in India and its worth $650 Million. I think India will be where China is in 10 years. I know I'll regret not buying the stock here so just gotta close my eyes and buy.
Q: Any idea why they had to reduce prices, to maintain or grow business? The internet has no borders, good to know 50% market share but wonder if that's really true. Trying to be objective, not being critical.
DeleteBB - Did you buy any more of Rolls Royce?
ReplyDeleteNo. Opened up and was up all day. Was lucky to get my buy in yesterday. Will watcg for an opportunity to add.
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ReplyDeleteRolls Royce piece
ReplyDeletefile:///C:/Users/New%20User/Downloads/273161693-Rolls-Royce-Mind-the-Gap.pdf
from
from
Deletehttp://www.marketfolly.com/2015/07/valueact-capital-takes-rolls-royce.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarketFolly+%28Market+Folly%29
Like that news
DeleteYou knew I'd do it. In at 14.60. Catch you at happy hour....
ReplyDelete(a) Note that spot gold set new 52-wk lows overnight before prices began to spike early this morning. True to form. The grind lower no doubt led more than a few traders in Hong Kong and London to capitulate. Miners also slid in the premarket session, in many cases retesting last Friday's lows.
ReplyDelete(b) Prices reversed hard with just minutes remaining in the extended hours session. After hours of watching prices slide, not only had most traders stopped paying attention, most had likely sold down positions in disgust ahead of the open.
(c) The above scenario is a classic 'shakedown.'
(d) It didn't end there. Traders who chased the opening highs (or who were simply relieved after a week of brutal selling) were tested again when miners gave up most of their early gains.
(e) A week of relentless selling + an overnight session that introduces new lows + a gap-up open that gets sold = assures that any true reversal will unfold with few passengers on board.
(f) Monday offers even odds on two scenarios: [i] a stronger gap-up, one which will likely begin overseas and effectively block most US traders from participation, or [ii] a hard gap-down, one brutal enough to throw most remaining passengers off the train.
$US climbed off the low. Seems like if $US is gonna rally (not saying it is, just maybe), then is it smart to own offshore equities denominated in the foreign currency? Might be good, don't know, but shorting the currency (or being long UUP, for instance) might be a good play?
ReplyDeleteEWS - This one was weak today, EWT is pretty beat up too,
ReplyDeleteWMT as well.... not sure what else?
CNX - A double waiting to happen? Hard to believe but anything's possible, huh?
ReplyDelete"Jul-31-15 Reiterated FBR Capital Outperform $42 → $35"
CVEO - Guys, what's up on this one?
ReplyDeleteAGCO - Considerable short float? Wow, that's some channel, looks dangerous for shorts? I dunno though, seems US farmers are getting the squeeze while Ukraine and probably India are snapping up tractors?
ReplyDeleteCHNI and DE as well, all of these have been rocking. Why aren't we playing "tractors"?
DeleteENSV - You guys know oilers drilled a bunch of wells that haven't been "completed" b/c there was already too much oil in the market. ENSV is one that pops the caps so to speak, right?
ReplyDelete