Capes Crushed Again

Oh come on already. Day rates for capsizes just fell by another 10%, to levels that I never thought I’d see again. These seamen out there, moving stuff around, heading towards China, hemorrhaging money now.

Most of these companies are losing $10,000 per day now and BALT is in an especially tenuous spot, being 100% tethered to spot–having just doubled its fleet. Ouch.

This is all about iron ore, demand emanating from China.

I recall getting mud-stomped into the ground when I was fresh in the business, in 1997 through 1998. I told this tale several times here (you can find it under “Fly stories”). The long and the short of it is, I was very green and very ignorant to the world around me, just like most of you. I’d carelessly run about the city, drinking beers and throwing money away on sterotypical broker stuff. All the while, a storm was brewing, as plain as day; but I was too focused on commissions and how I might make them get bigger.

Over the past several months, borrowing costs in Asia have skyrocketed. Some of their currencies are being dislodged and a general sense of anxiety is now in the air. This all has to do with our Federal Reserve and how QE money found its way into Asia. The good news is, many asian nations have decent reserves and aren’t levered up like us. However, borrowing costs are borrowing costs and that’s gonna eat away at growth, as evidenced by the Dry Bulk shipping rate collapse.

Have a look at some 10 yr bond yields in Asian and South America, terribly reminiscent of the European crisis of a few years ago.

Turkey

Thailand

Taiwan

South Africa

Singapore

Russia

Malaysia

Indonesia

India

Hong Kong

Colombia

China

Brazil

Someone just threw a BRIC through our facade and reminded us how incredibly fragile the world of finance is. Back in 1998, I wanted to die, instead of looking at the market every day. Markets like that drive men to alcoholism and/or abject poverty. Just when you thought the market couldn’t go lower, it went down so hard you felt as if you were living in a comical world, where up was down and down was in hell. I do recall, however, DELL managed to trade up during that time, as it was a hyper-growth stock back then and everyone wanted in.

Let’s look at SHIBOR (interbank lending in China)

And here is the wonderful “SPY action” from 1998, the wonder year, the year that broke me and then made me.

If you haven’t raised cash already, it’s not too late, as this thing looks like it’s just getting started. Plus anyway, now is a good time to ditch the speculative stuff and place the high quality stocks, that are now discounted, onto the proverbial front burner.

We’re teetering on the edge and shorts are pressing their bets. Ahead of a two day Fed meeting, the stakes are high. In light of recent “emerging market” dislocation, will The Bearded Clam opt to let the spigot loose with fiat cash? Or will he embark on the stupid plan of tapering?

The world wants to know and judging by today’s action, if nothing is done, we’re heading lower.

As for me, I am dealing with the punches, upped my cash to about 18%. I’d like to up my cash holdings to about 25% into strength. However, if “this time is different,” I will capitulate.

I am not chasing this bounce, nor selling into it. I am not looking for ideas either. I am simply trying to manage my current holdings, deciding upon possible “average down” points of interest and where I might want to liquidate. Truth be told, the best opportunities come when things look the bleakest. If that’s the case, this is Bleak House and I’ll be your Dickens, guiding you through the mud towards winship.

UPDATE: I sold out of BMRN.

While the market gifted me with horrifying losses this morning, I opted to ignore it and watch a movie. While most of my stocks were down anywhere from 6-10%, resulting in mind numbing losses, I ate popped corn and laughed heartily at the funny pictures.

Naturally you are thinking “why did he do that and is he really crazy?” Well, The PPT flagged OS on Friday and I am comitted to seeing this market through until Wednesday. I did get a chance to sell out of my PRAN position, which is one of the very few stocks up today, for a 23% profit. My largest holding, RPTP, was down more than 8% at one point; but I was never worried. As a matter of fact, this market is so bad, I wouldn’t be surprised to see the market go back down to the lows, AND MORE. As for the latter of the question I proposed, I leave that to you.

Either way, I am going to give the market the benefit of the doubt, no matter how retarded the people in China are and regardless of what analysts have to say about “valuations.”

Relax and go eat a sandwich.

Whenever I’d speak with management at some of the big dry bulk shippers, they always referred to the upside move in Capesize rates, moving off a low of $7,000 per day, with a real sense of relief embedded in their tone. They were fortunate, almost to a higher being, that their collapse was staved off by the Chinese gods who demanded steel, no matter the expense.

Well, Capesize rates just fell another 6% this morning, down to $10,000 per day.

In short, Capesize rates are now off 77% over the past month!

Can you imagine operating in such a ridiculously volatile environment? These rates are now back to levels when people were worried about the solvency of the bulkers.

I’m a buyer of the bulkers under two conditions.

1. Rates snap back, sharply, by 50%.

2. Share prices drop by another 20-25%.

NOTE: Under these conditions, DSX benefits, since they’re not tied to day rates. They are 90% charter rates, whereas BALT is 100% spot.

CAT reported a big number this morning, and they’re buying back almost every single share possible–amounting to $10 billion. It’s an outrageous sum, a gross and negligent use of shareholder money. If I were a shareholder of CAT, I’d much rather see that money issued in the form of a special dividend. Nonetheless, I am not a financial engineer and do not even try to play one on the internets.

Markets will bounce on the open. Let’s hope (fingers crossed) it sticks. I must admit to being a bit glum this morning, after working myself up about a market calamity. I had visions (extra Nostradamus) that I’d skip the whole event, watching movies at the theatre, as the nation crumbled like a cupped cake in the hands of a glutton. I’d step in later on, when everyone was strewn out to waste, and buy it all up, profiting from the despair of others.

Oh well, all that is gonna have to be put on pause. My cash horde isn’t that big anyway and I stand to profit from any bounce in the general indices.

Good news out of AAPL, with regard to Sapphire on silicon, which should boost the shares of GTAT and RBCN. AAPL is moving towards Sapphire and others will follow. To hell with gorilla glass.

I’ve been thinking about my ANGI position and have decided to ride it out through earnings. As much as I would like to avoid it, there is no two ways around it. If ANGI is ever going to break higher on “normalization of its multiple”, they’re just gonna have to smash earnings, at some point or another. If they do, I suspect the shares will quickly move towards $25, encapsulating short sellers into a tomb, buried hundreds of feet below ground.

The Dry Bulk market has been destroyed. Those ships out there are better off docking and having their seamen smoking cigars all day, instead of wasting fuel on delivering goods to China. Better yet, they ought to fix their vessels with sails and just sort of float on the seven seas, until oil collapses.

As of Friday’s close, the day rate for leasing a Capesize vessel (the largest shipping vessel) ran down to 10,609 per day. Rates were upwards of $44,000 at the beginning of 2014.

Also, 5 year credit default swaps for the “Great Satan” nation of China are nearing Italian levels, up to around 138ish. Actually, Chinese 5 year CDS are now higher than Spain’s, a harbinger of assured doom if in fact the credit markets are right about China. Hell, everything runs on China, not Dunkin’ Donuts, from the steel markets to met coal to oil and of course to the dry bulk shipping. Perhaps the dry bulk markets are telling us something.

If it is, the sages who trade US futures aren’t made aware of it, thus far, as they are now higher by about 3 points.

Just to give you laymen folk a reference point, the disastrous economy of the UK possess a CDS spread of just 24; now extrapolate that against 138 and what do you get?

Good news everyone: the markets aren’t set to open down 10%, just a mere 2%.

However, let’s not get comfortable with such minor losses, as China just halted bank cash transfers.

Pardon the link to the nefarious advertising whoring folks ar Forbes; but the story is theirs.

Here is my favorite part of the tale:

The specific reason given—“system maintenance” at the central bank—is preposterous.  It is not credible that during the highest usage period in the year—the weeklong Lunar New Year holiday beginning January 31—the central bank would schedule an upgrade and shut down cash transfers.

A better explanation is that the country’s banking system is running dry.  Yes, there is an increased need for money in the run-up to and during the Lunar New Year holiday, but that is only a small factor.  After all, central bank officials knew this spike in demand was coming—it occurs every year at this time—and a core function of central banks is to manage seasonal liquidity fluctuations.  Moreover, the holiday has not started yet, and the PBOC, as that institution is known, could have added more liquidity to meet cash needs.

So what’s really going on?  This crunch follows similar incidents in June and December of last year.  In June, for instance, the central bank used the excuseof a “system upgrade” to allow banks to shut down their ATMs and online banking platforms.  As a result, they conserved cash and thereby avoided a nationwide meltdown.

The meltdown is coming folks. Are you ready?

S&P cuts are -5.5 below fair value and European futures are indicating a -1.5% open as well.

UPDATE 8:05pm: Both Korean and Japanese markets have bounced of the lows, but still down about 2%. However, european and American futures have recovered, considerably, pretending that the world isn’t about to meltdown. FOOLISH WESTERNERS!

Now just because I am not a devout fan of apocalyptic financial meltdowns doesn’t mean that I cannot, overzealously, spectate from the battlefield. I intend to tell you great stories of mishap and misfortune; as the market unwinds, so do the lives of the purblind.

By the way, if any of you are interested in seeing a play that Karl Marx himself would be proud of (workers unite!), go see the Newsies on broadway. It makes for wonderful communist small talk across from the fireside.

Oh, by the way, I will be live blogging the opening trade of Asia tonight, as I expect their shares to get “fully decimated” under the weight of their hubris.

Here are some videos to warm you up.

NOTE: The PPT market report (for members only) is now up.

…patiently waiting for the lauded Oversold signal by The PPT, which is flawless in calling bottoms over the past 6 months and 84% to the good during the history of the algorithm.

I shed less than 1.5% for the day.

http://www.youtube.com/watch?v=JyxBCzLh-Tc