Shipping Stocks and the Final Nail in the Coffin for Deflationists

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Includes: IEF, IYT, SEA, TBT, TLT
by: Thomas MacLeod

Evidence suggests that the bullish breakout by shipping stocks is far from being just another lesson in random noise. We approach the investment case for shipping stocks from a number of perspectives, namely the behavior of:

  • Shipping (the Lloyds List 50) and shipbuilding stock prices (Bloomberg World Shipbuilding Index)absolutely and relative to the MSCI World Index,
  • Freight rates (Baltic freight rates in particular the Handysize Index),
  • Timecharter rates (ConTex),
  • Spot Metals (CRB), Iron Ore and Coal rates.
  • Bunkers prices (as in the black grunge they burn),
  • Fundamental valuations (P/book etc.),
  • The degree to which the industry remains out of favor with analysts (they are even more lowly rated than US Regional Banks).
  • From the graphs below it would appear that momentum has turned positive across the board particularly over the last couple of months.

Once a primary trend is in place it tends to last for months, if not years. Given bullish confirmation of indices below, it would appear that a primary bullish trend in shipping stocks has begun. Does this suggest that global growth is picking up? Given that what happens on the high seas is a leading indicator for world trade, we think so.

From a more macro perspective, global growth is public enemy number one for US treasury prices. Perhaps the breakout in shipping stocks is the final nail in the coffin for the deflationist “camp” and US treasury bulls – but of course only time will tell!

Lloyds List 50 Index

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Bloomberg World Shipbuilders Index Click to enlarge

CRB Spot Metals Index

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Bunkers Prices (Singapore) Click to enlarge

Baltic Handysize Index Click to enlarge

ConTex Time Charter Index Click to enlarge

Yes you may be wondering what about the behavior of the ConTex Time Charter Index. It appears to be going nowhere. Correct but have a closer look at what has been happening over the last few months. Anyway beauty is in the eye of the beholder!

Disclosure: Long SEA, TBT