"Life is mostly froth and bubble, two things stand like stone, kindness in another's trouble, courage in your own."
Adam Lindsay Gordon
It now seems like a distant memory, but sometime earlier this year I received a very nasty e-mail from one reader complaining about my view that dry-shippers like DRYS, GNK and DSX were a very well defined bubble. His basic argument was based on the low P/E ratio, high dividend yield and "hot prospects" for Chinese growth. Now after an almost 90% decline the lesson for all of us is very clear- trailing P/E are pretty much worthless and there is no such thing as a "super cycle" in the commodity business. I only hope he did not have too much of his net worth tied up in these stocks...
Oct. 24 (Bloomberg) -- The 90 percent tumble in the global benchmark for commodity shipping costs since May exceeded the Dow Jones Industrial Average's plunge during the Great Depression, signaling globalization is ``the biggest bubble of them all,'' Bespoke Investment Group LLC said.The CHART OF THE DAY shows the rise and fall of the Baltic Dry Index, a measure of freight costs on international trade routes, along with three other bubbles during the past decade identified by Bespoke: The Nasdaq Composite Index of technology stocks, the Standard & Poor's Supercomposite Homebuilding Index and the CSI 300 Index, a benchmark for Chinese equities.
The Baltic Dry Index's drop from its peak just five months ago surpassed all of those, along with the Dow's 89 percent retreat from 1929 to 1932, according to Bespoke
source: bloomberg.com
The moral of the story in my opinion is that, while the current prevailing argument on MOS and POT is that they are cheap "growth stocks" because of their low P/Es, market history suggests that their "bubble story might not be quite over yet, as both are still trading at prices much higher than as recent as 2007 and are clearly in the commodity market coming off of it's super cycle...
Stay safe out there if you can, skepticalcapitalist@gmail.com
