Thursday, January 27, 2011
Well well, Japan is downgraded to which TMM has one thing to say to those flipping out about this:
Which coincidentally is what the JGB mini futures investing public said – meanwhile as we write the Yen has moved about 90bps and the sovereign CDS spread is out 5bps on the move. Without getting too punchy TMM are to fade the spot traders and go with the JGB traders on this one and stick by our observation that sovereign CDS is a more blatantly rigged market than your average casino.
Moving onto something less “tabloid” there has been a continued slow boil of news headlines about Bulk Dry and how it’s almost back to the 08-09 lows. People often look at BDIY and assume that its some kind of proxy for commodities demand and that as a result it should move somewhat in line with commodity prices and particularly Chinese imports. As usual when one looks only at demand you’ve got half the story. The other half is below. White is the total in thousands of Deadweight Tons in service for bulk carriers and orange is the % of the total fleet on order and green is the level of BDIY.
As you can see the shipbuilders of the world got way, way ahead of themselves in 06-08 ordering vessels just as the world economy was going into cardiac arrest. The problem with this is unlike other products you order and get instantly (ebooks) or almost instantly (electronics) ships take a very, very long time to build. As a result, when you get inventory overhang in this industry its less like a mild hangover and more like jumping off a building and crashing through 20 sky light windows Wiley Coyote-style before you hit the bottom. And the bottom appears to be getting closer though a return to 6000 on BDIY is a very long way away indeed.
Which gets TMM onto another thing worthy of some further investigation and that is DnB NOR and perhaps Norwegian banks in general. You see, the shipping finance industry is incredibly concentrated and a relatively small numbers of banks are most acutely exposed to it. With headlines like this hitting the wires TMM have to wonder whether this outperformance in DnB NOR is warranted versus, say, Santander:
TMM think that DnB NOR via their JV DnB NORD may have been the best way to play the Baltic Banking bounce but this shipping problem does not appear at first glance to be in the price.
In the meantime, TMM would like to set up a poll as to what you should do with the glut of Capesize vessels:
- Moor them off Hong Kong to provide cheap housing and save on land reclamation costs.
- Lash a large number of them together to make a Mad Max version of Macau – which would look like Macau, just with more ultimate fighting.
- Moor them off Somalia to take advantage of low wages and proximity to Europe and India for light manufacturing.