If you sold your dry stocks at the top, and now wish you sold "double hulled" at the double top, so what are you doing here?

I'm from the investment world - but haven't done anything with shippers (seems most were newly public around 05-06. ergo near the top. Lots of "newly public" is a Wall Street way of telling you it's a top). The BDI sure looks like it should be a bottom, if not now, then soon; but the old Wall Street adage of "don't catch a falling knife" probably applies.

Nonetheless, I just listened to PRGN's 3rd qtr conference call and most of the Wall Street questions were about the dividend sustainability (at 40%+ yield!) and capital liquidity and the possibility of an equity offering (Company wants to take advantage of cheap ships while analysts DON'T want shareholders diluted; one analyst made an interestin contrary point that buying back stock was a "40%+" return... I say, ONLY if the dividend is't cut, so it's a sure sign it will be.).

While I believe the equity offering would be foolish at current stock prices, it certainly seems that PRGN is thinking "challenge equals oppotunity", but so too was DSX when it eliminated it's dividend and saw its stock drop.

Still, the "best info" I heard on the call was that letters of credit were beginning to be released and the CEO thought financing was starting to lossen up. Personally, I think this is "iceberg" news (for the market as a whole!), I just hope I mean "big" and not "big... gonna sink you".

With all this said, I return to my question: "What are you doing here?". It seems you know the business BUT are ready to throw in the towel. That's capitulation, which is what I want to hear, so it makes me think "patience equals opportunity". Patience is "buy and hold", which is exactly what I do NOT do: I trade options and sometimes stocks (but only for a few days). Am I wrong? Is the falling knife going to cut me? If it cuts me, am I going to bleed for a while, or die of  blood loss?

If you choose to answer, why is drybulk such a mess? Surely world trade will continue to grow (ergo, the worlds getting smaller), even if it has a recessionary setback. The only thing I fear is what appears to be a huge amount of capacity coming "online" (and quickly being cancelled) and I'd like your thoughts on that. Thanks.

Well, happily I can respond to others, including Miles, not just to my own blog! I have not thrown in the towel, quite the opposite. I know shipping very well, but making money with stocks requires a knowledge of investor psychology which is more important, at this juncture, to anyone investing in any sector. As outside non-shipping folks come in, and invest, it brings more liquidity, but the outside investors take a more dispassionate view than I do about the prospects for shipping.

As far as my own trades, I did not say that I sold all my dry stocks- I said that when the market got near that first top (Oct 2007) I sold the ones that I felt were likely to track spot rates (which I thought could not be sustained at that time because the marketplace all was valuing forward rates way below spot). The lament comes in because I still believe that the fundamentals of the dry markets will support the market. So for companies with charter coverage, I see steady streams of regular cash coming in, and dividends coming out. Those are the ones I switched into. But the investor psychology plays a much more over-arching role, and the investors in general don't believe that even those stocks will fare well. So I moan and groan.

One view of the markets, which I give serious consideration to, is that they will recover when the huge China versus Brazil conflict, re iron ore pricing, is settled, at least for 2009. On a grand scale, perhaps we are all caught out as these two titans battle to the death. China has a habit of faking out the market, as I have noted, so why not now? As for as charterers defaulting throughout the marketplace, that seems to be middle men, freight operators, so far. The sky is not falling, but disrupted daisy chains can still have a disastorous effect. Solid owners with deals to solid charterers will continue to see regular inflows.

Clearly, drybulk has also the signs of a "bubble". I would characterize the bubble more like a beer with foam on the top. In this "bubble", according to my view, the froth tends to be near the uppermost layer, and there is a lot of solid business further down (solid owners and solid charterers). Yet someone looking at the whole thing would say, oh-that's very frothy (I word I have used in market reports that I have written). So, again, being the industry boosting optimist, I would say that there is a solid market below that wobbly top layer. Precise numbers, I cannot predict, but one must certainly look at costs for vessels as a floor, and the BDI at 800 and something is way way below those floors. So, in my beer glass analogy, I would say that present expectations have us scraping the bottom when we should be perhaps two or three inches down from the top.

And, finally, on order cancellations. I never believed that orders would be cancelled due to the greenfield yard factor, in fact- evidence pointed to owners paying to speed up deliveries. But, the credit issues, post Sept 2008 are a different animal altogether, because they impact the overall economic activity and potential cargo flows. The cancellations have occured and will occur where there is no cargo cover (not in that solid level underneath, to get back to beer glasses).  And if cancellations remove the severe supply overhang, then that would set the stage for a more even balancing.

If you look at players like GNK and DSX- very smart people in both cases, their priority is building up their warchests to find bargains as others bleed out. They are already looking ahead to the inevitable rise. GNK took a hit on some unchartered vessel newbuildings but paid back the debt used for deposits and pointed to their liquidity/ war chest. DSX stopped their dividend, not because of a problem with bank covenants, etc, but because they felt the cash would be more valuable in their warchest.