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With the BDI sinking amidst a worsening situation of overcapacity and economic malaise in Europe, the rally in Courage Marine's share price provided a chance for me to cut my long exposure with minimal losses.
We are also blessed to have an industry insider, Jason, amongst the regular readers of ASSI and if the evidence provided is anything to go by, the bleak situation for bulk carriers looks set to worsen.
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Although Courage Marine entered the worsening state of affairs from a position of strength, it is unlikely to do better than the preceding year. In fact, for some, its very survival is in question.
With today's white candle formed on the back of higher volume, could we not see price going higher? We could, of course. 11c or even 12c could be tested next if the bullishness continues. I am already in the queue to sell.
Related post:
Courage Marine: BDI plunging.
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15 comments:
Congrats, CM is climbing back to $1, which IIRC is the price you bought at. My observation of shipping companies is their P/L is lagging the economy. So even if economy recovers, their P/L wont recover as fast.
Hi Ray,
Cutting losses on rebounds, selling at resistance, is consistent with my style. Price could go higher (or not) but the important thing to me is to stick to what I know. I stray and I could fall into a shit hole. ;p
It's interesting to see the shipping stocks all moving up despite the BDI dropping rapidly.
May I ask if in a market downturn, are shipping stocks the next to decline after the financials?
Hi spinfire,
If we look at the volume and value of trade in the last three days, the pennies are forming the bulk of the trading volume as liquidity filters down from blue chips and second liners. Speculative activity could be peaking.
I do not have the answer you seek. Let us see if anyone here has the answer. :)
I had the opportunity of reading one of the leading shipping analyst companies in the industry reports - RS PLatou. It also noted the strange rise of shipping stocks vs falling BDI.It mentioned equity prices underestimate the "wrath" of falling asset valuations in this turbulent market.Once the shipping banks really call back their loans to recapitalise (due to Euro bond losses and the new Basel II), that is when the shit really hits the roof. Shipping stocks are cyclical much like electronics BUT these are extraordinary times in shipping - commodity prices have risen strongly since 2009 but shipping freight rates have plunged
Hi Jason,
It seems like we could be witnessing something cataclysmic in the not too distant future. Giving shipping stocks a wide berth till then. Thanks for sharing. :)
I read this article on the BDI and thought it may interests some readers here.
http://www.businessinsider.com/the-truth-about-the-massive-plunge-in-the-baltic-dry-index-2012-1
I used to work for NOL and I know for a fact, they try to work with competitors within the industry to raise freight rates. I used to hear from the mgt that even though volume are high, yet with the low rates, they are running losses.
I believe shipping stocks are rising because investors are putting money there in anticipation that these stocks will climb like they did post 2009. They are betting on that the shipping stocks are at the bottom.
Hi Ray,
Thanks for the link. A simply written article which anyone can understand. I like it. :)
Hi Ray,
We are seeing a broad market rally now. So, I am not so convinced that investors are sanguine about the prospects of NOL. A rising tide simply lifts all boats. Pardon the pun. ;p
Of course, if NOL et al are able to curtail capacity in light of more anaemic demand, it could do their bottom lines some good. How would things turn out is still anyone's guess.
If we believe that the stock market is a leading indicator of the real economy, then, we should expect that global trade and shipping demand would improve 9 months or so down the road.
So, we should see the eurozone crisis resolved (averting recessions) and the USA back on the path of strong growth by then. If we do not believe this to be probable, then, it is more probable that what we have now is a very powerful rebound from oversold positions.
What do I think? My stance on being 50% invested says it all. I don't know what to think. ;p
Hi all,
I used to work in ship finance. The dry bulk market is experiencing a perfect storm. Not only is there lots of new tonnage coming into the market thanks to the Chinese govt propping up their yards (they bailed out orders which the original owners walked away from), but the demand side is terrible too due to the heavy rain/floods in Aus and Brazil causing mines to shut. Rates should improve somewhat with the weather, but we'll see the real nadir only when brand new vessels go from the yard straight to the scrapyard, which happened in the crisis of the 80s. But unlikely that will happen again as low interest rates mean owners/banks aren't that desperate - yet!
Hi Serendib,
Thank you for sharing your insights. Another vote for selling into the rally? ;)
Courage Marine fell deeper into the red in 3Q2014 as revenue tumbled on weak demand for dry-bulk shipping services.
The bulk carrier incurred a net loss of US$2.3 million ($2.9 million) in the September quarter, more than the US$616,000 loss a year earlier.
Revenue fell 48% to US$2.6 million.
For the first nine months of 2014, Courage Marine suffered a net loss of US$4 million, almost double the US$2.2-million loss in the same period last year.
The company expects its 2014 financial performance to be "adversely affected" amid low demand for commodities in the Greater China region and persistently low freight rates stemming from an oversupply of bulk carriers globally.
Source:
http://www.theedgemarkets.com/en/node/169739
i think the entire shipping industry is pretty bad. NOL is at its lowest in 10 years i think.
Hi Ray,
Courage Marine was a good example of a value trap and I was fortunate to cut my long position when I did back then.
The cyclical downturn has to run its course. The upturn will come back but when is it going to happen is anyone's guess.
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