DON’T CALL IT A COMEBACK

Let me start off by saying I was right before I was wrong. In the beginning of my Dry Bulk thesis, I felt and stated that BALT should trade up to $15, as rates normalized. Then day rates plunged by 70% in January and I decided to sell my position, in the $6’s for gargantuan gains. I then chilled, like a lobster in Maine, watching the BDI get dismantled and BALT down to low $5’s. I was not prepared, however, for what came next.

Capesieze rates had fallen from $45,000 per day to $7,000. They bottomed, first slowly, then exploded to the upside, like a volcano out of hell. They closed the day at around $20,000. This is a very profitable level for Capesize players. Companies like DRYS, BALT, SB and SBLK should do well.

But the run isn’t over.

The head fake was January. The BDI should continue to do well, especially with signals out of China that they might begin monetary loosening. Commodities are doing quite well and demand for iron ore is persistent. This time around, I am going to see it through–but not on the BALT ship. I am long SB (Safe Bulker) and have no qualms about opting for the safer play, in a world filled with pirates and drunken sailors.

PRGN, NM and EGLE are also interesting. DSX is a charter rate play, so I am not interested in them.

I consider this a high probability play and do not feel as if there is much risk associated with the trade. It’s a fairly straight forward business and earnings are not an issue yet, since expectations are so low. The only real risk is dilution, as these bozos shift around, trying to recapitalize their insane balance sheets. SB, however, has one of the better looking balance sheets in the biz, another reason why I am long.

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