E A Stock Bubble

There is a glut of world maritime vessels, overbuilt earlier in the century on the expectation that dry bulk demand would grow 3-4% per year—which didn't happen. The new protectionism in the US under Trump, and retaliation by other countries will reduce the volume of trade shipped around the world. The Panama Canal is wider so it needs fewer ships to cross it. South Korea's shipyards and shipping firms are lining up to file for bankruptcy after STX and Hanjin Shipping sank earlier this year.

Our former holding in the sector, Dry Ships, is run by the gorgeous Greek playboy George Economou who is in debt up to his blond thatch. DRYS is a shipwreck, selling off its fleet to repay creditors under a complex restructuring forced on Gorgeous George. Yet, to my amazement, the share we sold way back when is up 1500% in 5 days.

It is not alone, with other mostly Greek bulk shippers up also—but only in double digits. This is a classic stock bubble to avoid.

Meanwhile, a staid and respectable dry bulk shipper, A.P. Moeller-Maersk of Denmark, which we also once owned has seen its share price hover between DKK 7500 (during the selloff early this year) to12,000 earlier this month. Yesterday was at DKK 9015. Unlike the Greek upstarts, this company is ancient and a force in the global constellation. Its stock rose when it announced a plan to split its oil and transport businesses, the latter including tankers, container ships, terminals, and bulk carriers. Oil would be engaged in drilling for the stuff and vessels to supply offshore drillers.

The Maersk boomlet reversed when Maerk revealed that it might consider buying South Korean shippers like Hanjin—or Hyundai Merchant Marine, which is like the Greeks because it is being forced by its creditors to restructure. Danes don't like Asian upstarts either.

But the Maersk move on Korean shippers and shipbuilders was what triggered the rise in the stocks of other listed bulk carriers so far not yet in official bankruptcy.

Back when we owned these stocks, we would check on the Baltic Dry Index, a tracker of prices for bulk carriers. It has gone up from about 800 last month to 1084 yesterday and has nearly doubled year-to-date.

As for DRYS, the daily suspension probably indicate a short squeeze, but I am only guessing. Its trading gets suspended by Nasdaq almost every day.

My verdict on the sector is to sail in other waters. Some other shipping sectors are doing better on the prospect of more liquefied natural gas shipping (among other things because there will be more drill, baby, drill in the USA, resulting in a surplus). The obverse of the coin is that oil tanker companies are doing more poorly because their commodity faces more competition. This is not a certainty, as there are daily ructions up and down in the stock market over the variations in the price of oil.

My internet connectivity remains dodgy despite the cable company making repairs yesterday evening in my neighborhood, after storms and stresses on the system from a locally-based future US president

More on oil, drugs, social media, and a few other sectors follows including two conference calls.

*Tencent Holdings (TCTZF) of Hong Kong yesterday, fell 1.6% here after it reported on Q3. The numbers were okay but below analyst forecasts which had gotten beyond reality. Revenues rose 52% y/y to RMB 40.388 bn, or $6.048 bn, on which operating profits came in at RMB 14.46 bn or $2.165 mn, up 40% y/y. Its net rose 42% to RMN 10.776 bn or $1.614 mn.

Here are some reasons for the share drop. Net margins this year were 36% vs 39% in Q3 2015. Basic eps was RMB 1.134 and diluted 1.121 to exclude its share-based compensation and its bonus distribution to its employees to celebrate its 18th birthday. Share-based compensation (to the brass as well) rose 45 % in Q3 this year go RMB 4.964 bn or $8.95 bn. China is a Communist country and Hong Kong is governed from China, lest we forget.

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