Wednesday, November 23, 2016

Low Tide For Shippers

"The market is irrational and it can stay that way longer than you can stay solvent" is an old Wall Street proverb.

That wisdom is so relevant under today's market euphoria. The market seems to hit new record highs on a daily basis since the Trump upset election win. This high tide has lifted all boats, but I'm here to warn you that shippers have been caught on a sandy bottom for three years running. Yet, shippers have enjoyed gains of parabolic proportions. Dry Ships(DRYS) is up 1500%. How about Paragon Shipping(PRGN)? It is up 49% in two days. Throw a dart at a shipping company and see profits that will cover all your holiday desires.
No Free Lunch
is another expression and it applies doubly to shippers. Let's take a closer look.
is the symbol for the Baltic Dry Shipping Index. It too has jumped off the charts. The day before the election it stood at 800. It now floats at 1257 and rising. Now, in the fourteen or so days after the election, did all shipping companies receive a 50% order increase? By the way, this index hit a low back in February of 290. I can safely say that they didn't have to call-in help to answer the phone orders. Now, I'll answer the question. No. Let me say this again, but even louder. NO!
Shippers face a double whammy. There are too many boats facing declining orders as global trade has slowed. The fifty day moving average for the index is 620 and the 200-day is 925. So, do you want to pay 33% more than the moving average? There is strong resistance at 1480 because the tide has already left the harbor.
What about individual issues, you ask?
How about Dry Ships? This rusting carrier had it stock jump(see above) since the election. It is only paint covering the rust. This company specializes in stock splits or I should say reverse stock splits. Back in October of 2014, it did one and its stock went to $7,500. per share. Then, it went straight down to $3.84 just last month. But paint covers many faults and with another 15 to 1 reverse split, the stock went over $100 last week. If you bought this election hype, get a tin cup fast. You're going to need it as the stock fell to $11.81 on Friday. This carrier is not alone as there are many other examples like Paragon Shipping(PRGN - see above)which climbed to $2.61 a share. There are rumors that the board has already approved a bankruptcy plan. The stock was $45. a share back in July 2015. How about Sino-Global Shipping? It had gains of 553% two weeks ago and another 68% last week. By the way, Sino-Global is one of three members in an Asian trade alliance which lost one member - Hanjin Shipping. It entered bankruptcy back in June.
Consider This:
You ordered something. Hanjin ships it. The court now has jurisdiction. You can't unload. Due to the failure of your order, you go bust. You call a lawyer. He just got back from his vacation cruise. He gets in the court line to file your lien along with thousands of other lawyers for a claim against a company that already couldn't meet its normal obligations and now, faces this.
Marianas Trench
is the deepest part of the Pacific Ocean floor and if you buy into this shipping frenzy, this is how deep your stock could fall. Another pearl of wisdom, "A sucker is born every minute." Caveat emptor!