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Ichi the Killer

Bursa Malaysia stock trading portfolio of nobody really important.

Wednesday, October 22, 2008

Don't be stupid & shipping stocks

1. This post is a bit late, but it seems the US Government has finally come full circle to include the buying of stakes in US financial institutions as part of the rescue package. Originally Treasury Secretary Paulson said the $700bil would only be for buying troubled loans but following the UK's direct bank recap actions, the US has no choice but to follow suit.


2. Actually this is a much better measure than just buying problem NPL's from banks. Since the core problem is under-capitalisation of banks (and perhaps the whole US economy), leading to a loss of confidence in the entire banking system, it is only logical that one needs to shore up their capital bases. In effect, this two-prong approach is a mirror of what Malaysia Boleh did with Danaharta buying up NPLs (at discounted prices) to free up bank balance sheets and Danamodal coming in to recapitalise those that needed it.


3. It is rumoured that between US$250-500 bil will be used to take up stakes in a whole range of financial institutions. At the back end, the US is looking towards China and SWFs from rich countries like the Gulf states and Singapore to take up hundreds of billions more in US treasury notes to fund this programme. In the recent past, China and the SWF's were not allowed to take up controlling stakes or even have any board representation in US companies and banks in which they invested billions to rescue (contrast this to the US stance during the Asian financial crisis).


4. Even a proposal to buy some US ports by Dubai investors met severe political resistance and was eventually shelved. This time, the US will probably expect the same lopsided arrangement, but China and the SWFs should not be stupid. Yes, it is in their interest to assist the US economy (due to the ridiculous amount of USD-denominated foreign reserves they are holding) but they should not let the US take them for a bloody ride again. This time, if the US wants the dosh, insist that they swap their money or treasury notes for direct equity stakes in US institutions. If the situation or valuations warrant it, even controlling stakes should be demanded. After all, this is only in line with the free market system that they have been championing all along.


5. Regarding shipping, up until the early part of this year, I used to receive several offers a week for vessels from ship brokers. These were offers to BUY all types of vessels, from tugboats to barges to bulk carriers to service vessels, etc. It truly seemed like the whole world was looking for vessels and there was a serious global shortage.


6. However, over the last 3 months, the number of brokers offering to SELL vessels has been increasing at an amazing rate, to the point now where I can say I do not receive a single offer to buy anymore. That it has now tipped to a global oversupply situation can be clearly seen in the way the BDI has really tanked recently, although it started tanking quite a while ago. The alarming part is over the last 4-5 days, I have been receiving notices of AUCTIONS. Yes, not even offers to sell, but auctions now.


7. Another bit of news I received was that India's (and Bangladesh on a smaller scale) until recently booming ship demolition industry has now ground to a screeching halt, due to inability of yard operators to secure financing to buy old ships. Besides the commodity bust and lower freight volumes due to economic slowdown, this could be another reason why shipping rates have tanked due to oversupply of vessels... vessels that were meant for the demo yard are now being put to use longer. Some shipowners also changed their minds about selling as the current bottom-scraping charter rates have resulted in prices and values of vessels sinking like rocks to the bottom of the sea. It also does not help that scrap rates have dropped 30-40% from their recent peak. In the end, it becomes a vicious cycle. So, to those holding shipping stocks, better be on your toes.


/ichithekiller