IBD Article- Dry Bulk Shippers

A great article on IBD covering the future prospects of Dry Bulk Shippers.
My favorite in this sector is DryShips(DRYS). I have been holding this since 60 as posted earlier. Today DRYS closed above 90. That is a good 50% return during a very bad market.

Investor's Business Daily
Smiling Dry-Bulk Shippers See The Boom Times Lasting For Years
Friday September 28, 7:00 pm ET
Marilyn Alva

If anyone knows about the perfect storm, it's dry-bulk shipping companies that ply the Seven Seas.

They haul iron ore, coal, grains and other bulk commodities.

Thanks to a convergence of factors -- including the growing needs of China and other developing nations -- they're also raking in more cash than ever. Charter rates are at record highs.

"We've already surpassed profits from last year," said Eleftherios Papatrifon, chief financial officer of Excel Maritime Carriers (NYSE:EXM - News).

Along with other dry-bulk shipping executives at an industry conference put on by Jefferies & Co. in New York on Wednesday, he predicted 2008 would be another banner year.

Others said the dry-bulk boom could last even longer.

Upbeat Comments

The upbeat comments came from some of the bigger dry-bulk companies, such as DryShips (NasdaqGS:DRYS - News) and Eagle Bulk Shipping (NasdaqGS:EGLE - News), and smaller outfits, including startup OceanFreight (NasdaqGM:OCNF - News).

They had their reasons, and not all of them pointed solely to China.

"We think the market is undervaluing India," said Sophocles Zoullas, Eagle's chief executive.

Citing a massive urban infrastructure project just getting underway in 62 second-tier cities in India, he said the need for steel and concrete will explode over the next several years.

Iron ore is needed to make steel, and prices are already at record highs. Shipping titans say industry buzz has iron ore rates going up 20% to 25% next year.

Demand for iron ore certainly isn't slowing elsewhere, either.

China continues to suck in much of the available supply from key source countries such as Brazil and Australia, leaving many other customers scrambling for what's left.

The supply crunch often means customers must tap into more distant sources, meaning longer ocean voyages -- and more revenue -- for shipping firms.

China also became a net importer of coal for the first time this year. In itself, that's good news for dry-bulk business. Also, like iron ore, coal customers besides guzzler China are pressed to bring in supplies from longer distances than usual.

"Charter rates are setting all-time highs on a daily basis," said Douglas Mavrinac, managing director and lead maritime analyst at Jefferies.

The average spot rate for large capesize ships averaged $150,000 a day last week, while smaller panamax boats fetched an average $75,000 per day on the spot market, according to Jefferies.

While its outlook on the crude oil and product tanker market is cautious over the next two years, Jefferies' view of the dry-bulk shipping market over that time is favorable.

In addition to strong demand for iron ore, significant new supply is coming out of Australia and Brazil to meet it, Mavrinac says.

"So there's more to ship," he said. "So much so, it's outstripping the number of new ships being delivered from shipyards."

Port congestion is adding to the vessel supply crunch. The long waits to unload in ports has reduced dry-bulk vessel capacity by more than 11%, said Diana Shipping (NYSE:DSX - News) President Anastassis Margaronis.

In India alone, he said, port capacity must increase by 130%. That's not likely to happen anytime soon.

Said OceanFreight CEO Robert Cowen: "The whole logistics chain is being pulled tight."

To keep up with demand, dry-bulk operators are stepping up ship orders.

In July, Eagle Bulk announced it would spend $1.1 billion to buy 26 new supramax vessels -- the smallest type of dry-bulk ship, for delivery starting next year through 2012. The firm acquired 39 other ships in the last two years for $1.5 billion.

TBS International (NasdaqGM:TBSI - News) expects delivery of four new ships later this year through the end of 2008. It has contracted for six new ships to be built in China for its core Asian and South American markets, at about $35.4 million each, with delivery expected in 2009 and 2010.

"These ships are sorely needed, especially as globalization goes forward," TBS' CEO Joseph Royce said.

Golden Ocean Group, listed on Norway's stock exchange, has ordered 23 vessels for delivery between 2008 and 2010.

Overcapacity

Since overcapacity is an ongoing concern in the dry-bulk business, the higher number of deliveries slated for 2009 and 2010 caused some to question the potential for rate drops.

But shippers waved away the concerns.

"Demand is overwhelming and will be from 2010 and beyond. You haven't seen the full strength of India," said Quintana Maritime (NasdaqGS:QMAR - News) Chief Executive Stamatis Molaris.

Not all of the boom in business comes from iron ore and coal. TBS transports all kinds of dry cargo, from fertilizer to finished steel. TBS's Royce said renewals from customers are "at higher (rate) levels than anytime in the past."

Jeffries' Mavrinac says rates will keep climbing through 2007, and that 2008 rates should be higher than in 2007.

Since they are more volatile, spot rates are typically higher than fixed rates. For now, firms that have more spot-rate exposure, such as DryShips, can "maximize their returns," Mavrinac said.

DryShips' Chief Executive George Economou said 98% of the firm's fleet next year will be left unfixed "to take advantage of the strong environment."

Genco Shipping (NYSE:GNK - News) is in the middle. It uses a balanced approach of both spot and fixed contracts.

Quintana's Molaris said his company has been criticized for its emphasis on fixed-time charters "in this boom market."

But he said, "We run the company to minimize market risk. We have significant upside potential for the risk we take."

Eagle Bulk also has a higher degree of fixed charters than spot-rate deals. But since renewals are likely to be priced at higher levels, as Mavrinac says, the company isn't shifting gears.

"This is the first time I've seen in my career charterers coming to us and asking for packages," Eagle Bulk's Zoullas said. "Charterers are saying, 'Give us more years.'"

Citigroup cuts 2008 market targets

I follow Tobias very closely and find his comments very accurate.
His comments for 2008 below:

Citigroup cuts 2008 market targets

Citigroup strategist Tobias Levkovich set a 2008 year-end target for the S&P 500 of 1,675, “below our mid-year 2008 expectation of 1,725, which is consistent with our concerns that corporate margin and political issues could contribute to pull down equity prices in the second half of the year.”
He pegged the Dow Jones Industrial Average at 15,100 at the end of 2008, with mid-year at 15,500, compared with a 2007 yearend forecast of 14,400. “Our most powerful sentiment gauge no longer supports equity market strength by late next year,” he writes.
The S&P 500 finished Friday at 1,484 and the benchmark Dow at 13,442.
“While second-half 2008 trends could be more challenging for stock investors, the near-term potential for gains still seems very high, especially given likely Fed action to add incremental liquidity,” Citigroup says in its strategy focus report.
It is expecting strength in both the financials and consumer discretionary sectors, citing “very low investor expectations and traditional positive reaction to rate cuts.

Recession and the effect on Stocks

What is Recession ?
Recession can be defined as a decline in a country's GDP(Gross Domestic Product) in two consecutive quarters. In a broader sense it would mean decline in the economic activity across the economy. The low economic activity will directly affect job growth, corporate profits and new investments.

Stocks would decline considerably during a period of low economic activity as earnings would drop and low future earnings translate to lower stock prices.

Consumer Discretionary stocks will be affected the most. These are companies whose products are discretionary in nature- for e.g. automobiles, durables, hotels, restaurants, media, leisure etc. Some companies in this sector would include: Comcast, Home Depot, Amazon, Target, McDonalds, GM, Starbucks, Harley Davidson etc.

Consumer Staples are a good place to hide during recession. These are companies whose products provide essential services and would remain in demand when the economy is down. Some products in this category are- food, drug retailers, beverages, tobacco, household products, personal products. Companies in this sector- Walmart, Procter and Gamble, Coca-Cola, Altria, Walgreen, Colgate, Safeway, Whole Foods etc.

Wheat keeps making new highs

Wheat Price Rises to Record $9 a Bushel on Global Crop Concerns

By Madelene Pearson and Danielle Rossingh
More Photos/Details

Sept. 12 (Bloomberg) -- Wheat surpassed $9 a bushel for the first time as a drought in Australia and Canada cut production, pushing global stockpiles toward a 26-year low.

The U.S. Department of Agriculture today cut its estimate of Australia's wheat crop to 21 million metric tons from last month's estimate of 23 million tons. Some analysts expected the USDA forecast to show Australian production would be as low as 15 million tons. Canada will produce 20.3 million tons, a 5.6 percent drop from August's estimate, the USDA said.

Increasing demand from Egypt to India and weather damage to global crops have driven up prices in Chicago by 79 percent this year. Users including Kellogg Co., the biggest U.S. cereal maker, General Mills Inc, Sara Lee Corp. and PT Indofood Sukses Makmur, the world's biggest producer of instant noodles, are responding by raising prices, fueling inflation.

``The market is in a real frenzy,'' said Tobin Gorey, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney. ``It's feeding through to the consumer.''

Wheat for December delivery rose 8.75 cents, or 1 percent, to $8.9925 a bushel at 10:40 a.m. on the Chicago Board of Trade, after earlier reaching $9.1125 in overnight trading. The most- active contract has more than doubled in the past year.

Egypt, Jordan, Japan and Iraq plan to buy 460,000 tons of wheat. India is seeking to import 5 million tons this year to replenish its inventories. The grain, used in livestock feed, noodles, cakes and bread, trades in 60-pound (27.2-kilogram) bushels, each with enough grain to make 73 loaves, according to the Web site of Lake Oswego, Oregon-based bread.com.

The Hunt for Black October- 1987 Market crash

Great article on the October 19, 1987 crash.

With the anniversary of the worst one-day decline in U.S. stock market history approaching, MATTHEW REES sets out to find its cause. And determine whether it can happen again.

On October 19, 1987, a bizarre and completely unprecedented set of events unfolded in America’s financial markets. In New York, the brokerage firm Donaldson, Lufkin & Jenrette posted uniformed security guards outside its office, fearing armed conflict with its clients. In San Francisco, a precious-metals and foreign-currency firm sold its entire stock of Krugerrands and American Eagle gold coins. At the New York Stock Exchange, executives of a Las Vegas company called Jackpot Enterprises tried to celebrate their new listing amid reports that floor traders were fainting.

For the preceding seven weeks, the stock market had been skidding. Now, on this sunny Monday, it was on the verge of total collapse. When the day was over, the Dow Jones Industrial Average had lost more than 500 points, or 22.6 percent of its value—the equivalent of a drop of about 3000 points today. A half-trillion dollars in wealth disappeared overnight—equivalent at the time to the entire gross domestic product of France. On the heels of the decline, a recession was considered a near certainty and a depression a distinct possibility. After all, on the worst previous day, October 28, 1929, the market had dropped just 13 percent. Now, 58 years later, a New York bar was serving a mixed drink of dark rum and black Sambuca called “Black Monday,” the same term applied to the previous crash.

The size and speed of the 1987 decline were breathtaking. So was the very fact that it happened: the U.S. economy was strong, and there had been no major destabilizing events. No terrorist attack, no presidential assassination, no failure of a major bank or brokerage firm. While there was apprehension, only a few analysts were predicting a major market downturn, and no one called a crash of this size.

Will FED cut on September 18 ?

I think FED will prefer to hold back and try to perfom open market operations. The market has been surviving so far with these open market operations.

If FED was thinking that the market was at peril, they would have already cut. They really don't need to wait for Sept 18 ..do they ?

The immediate cut of discount rate by 0.50 was the first signal that FED wanted to hold back on rates. On that very day market turned around.

If they cut, as many expect it will be very poor on FEDs part...a sudden jump in stocks...but overall the downward slide in markets will start. I would guess the FED is more concerned about the market

Following trend with Dry Bulk Shippers-DRYS

One of the strongest sectors in the market and the strongest stock in this sector. I picked this one around 61 on the earnings day. See how it broke out of the downtrendline. I will sell this around 85.

August Jobs Report

The August jobs report reported 4000 jobs were lost. Economists were expecting an addition of 100,000 jobs. We further had downward revisons for the months of June and July. So, is the housing slump affecting other areas of the market? Do we get a rate cut on Sept 18? Difficult questions to answer. But we don't want the Fed to cut on Sept 18 as this will only lead to further weakening of Dollar.