Baltic Dry: The Death Of An Index (SEA, DRYS, SFL, NAT)
February 2, 2012 by Jon C. Ogg
Just what does a cratering Baltic Dry Index mean? Frankly, it looks and acts as though it is signaling the next recession is here already rather than signaling that it is coming. That flies in the face of many current trends, but perhaps it is the woes of Europe. After all, Belgium is the first country so far to have two negative GDP quarters and the other Eurozone nations are somehow claiming that they will escape a 2012 recession. There is a lot more to the story.
The Baltic Dry Index is not just at a year low. It is back to lows at the peak of the recession 2007 to 2009. It is hard to imagine. One of the major issues may simply be high excess in capacity. Shipping may have run into the same problems as the worlds manufacturing lines. There may just be too much supply now versus demand.
Since the recession, boats have continued being built. The world just may be awash in capacity. It is surprising but the shipping stocks are actually holding up well with the stock market rather than tanking with tanker day rates. Here is how some of the more active ship stocks look, even though not all are exactly pertinent or covered under the Baltic Dry Index:
The Guggenheim Shipping ETF (NYSE: SEA) is up 0.7% today while its 52-week trading range is $13.37 to $28.21. If you tally up the last four dividend payment this one has a yield of about 5.7% but you have to keep in mind that three-quarters of that dividend is from the June quarterly payment last year.
DryShips Inc. (NASDAQ: DRYS) is down 0.5% at $2.18 and its 52-week range is $1.75 to $5.19.
Ship Finance International Limited (NYSE: SFL) is up a penny at $11.56 but its 52-week range is $8.62 to $21.15. Its dividend is well above 10% now.
Nordic American Tankers Limited (NYSE: NAT) is down five cents at $13.95 against a 52-week range of $11.58 to $26.18. Its dividend is now over 8%.
Is it possible that not all of the old ships in the world are being sent to India and Sri Lanka for scrapping any longer now that India has slowed down its blistering pace? There are many reports calling it a dead index as well. Stay tuned. Imagine how well shipping stocks might perform when the underlying price index is cooperating.
See the index chart for the last five years below….
JON C. OGG
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