beegdawg007

The Real Rationale Behind Current Supply and Demand for Oil and Other Commodities

>>>The US coal market is now a bear market. Coal is long term bullish but short term bearish.<<<

Careful... within the next three weeks, most of the coal companies will be announcing the settlements for 2009-10 thermal coal pricing. Almost all of the 2009 coal is already priced at prices which are 50 to 100% above the 2008 prices. JRCC for example, has most of its 2009 app thermal coal priced at $96/t vs last years price of $55/t. Despite the negative news you are hearing, the 2009 earnings year for all of the pure US thermal coal producers will be a banner/blowout year. JRCC for example will earn about $7.00 share and BTU will earn over $5.00/share. It is also worth noting that the balance sheets are in the best shape they have been in for the past ten years and most are now buying back their own shares. Also, insiders have been buying a lot of stock this past quarter.

Because their 2009 coal is all sold under contract, none of the US coal producers have any real exposure to the decline in the world economies until the second half of 2009 and than, and even than it is only the coking coal sales which will require new contracts. For the biggies like ACI, BTU and ARLP... all 2009 coal is already priced at very favorable prices! Also, China's largest supplier last week, signed three power plants to new contracts for low quality (10,000BTU/lb) thermal coal at $80US/tonne. Also, current US spot prices are still way above the cost of producing coal which is roughly $55/ton for App coal and $32/ton for Ilb, $10/t for PRC... at the current spot prices these companies would make money butt over boot day in and day out!

www.eia.doe.gov/cneaf/...

Dryships: The Saga Continues

"DRYS has rigs and bulk vessels, plus perhaps some additional value from its organization and customer relationships."

You glossed over a very important asset. The two drill rigs owned by DRYS are chartered via long term charters (one charter is 3-5 years) at an average day rate of $600K/day. In addition, about half of DRYS vessels are now booked to long term charters some as long as 10 years. And finally, DRYS has a lock on 4 new build Ultra Deep Water - Nasty Weather Drill Rigs. The waiting que for these is 4 years. Two of the Drys drill rigs are set to be delivered in 2010. There are now only 89 of those in existance. Those assets could be easily turned today for a $200M profit given that the day rate less operating cost is $500K/day. I have worked through several valuation exercises based only on an estimated real liquidation valule. Using various figures for the ships, rigs, contracts and new build holds, I conclude that the minimum liquidation value is $60/share. It is interesting to note that at this moment, newer used ships available for immediate delivery are selling for more than the contract price of a new build similar vessel to be delivered 2 years down the road. With the exception of 2 vessels, all of DRYS vessel are newer vessels.

DryShips Deserves More Love

>>>>PE of 3? Please - that's based on the earnings they spoon feed the gullible folks - and clearly there's enough that actually believe it. <<<

Do you have any evidence of this?? It is pretty hard to rig the earnings for a company which has a business model that is as simple as the model used by all of the dry bulk shippers. geez.. the daily charter rates are posted every day.. the cost of operations can easily be compared between companies because they all site that information. What's left.. depreciation.. pretty straight forward.. and iterest on the dept.. 6.5% X current debt load provides a very close annual estimate of the debt. These companies are not like banks or investment brokers who employ complex models and who use 30:1 leverage schemes. But, if you have any proof that the earnings quoted by GE are wrong, bring in on!!

DryShips Deserves More Love

stockcharts.com/h-sc/u...

OOPs.. I linked to the wrong chart. This is the right link.. My argument is the same..

DryShips Deserves More Love

Doctor Doctor...

stockcharts.com/h-sc/u...=$INDU&p=60&yr...

Look for yourself. This URL is a link to a stockcharts.com 60 minute chart of DRYS (solid line) vs. S$P 500 (dashed line). Can you see that they are moving like sychronized swimmers? That is because short term traders are using DRYS as a vehicle to trade the ups and downs of the market. They do this because DRYS has a very high BETA, so they get more bang for the buck. Your eyes do not deceive you. The price swings have nothing at all to do with the business fundamentals.

DryShips Deserves More Love

finance.yahoo.com/q/ae...

See for yourself, For the seven analysts that follow DRYS, the lowest EPS estimate is $16.56/share. Using the lowest estimate still yields a PE of 3.6. Not trusting others to do my homework, I did a detailed analysis of DRYS 2008 EPS. My conclusion is that there is better than a 60% chance that DRYS will earn between $16 and $20/share. So, I get a PE range of 3.0 to 3.6. This stock is cheap, cheap cheap....

Why is the stock now so cheap? The stock is cheap only because the beta for DRYS is 2.3. Traders are using this as a proxy for trading the market because they get more bang for the buck in the short term. That sword will cut both ways. If there is a market rally, DRYS will go up 2.3 times faster than the market.

The DRYS CEO has taken a lot bashing following a highly critical Forbes article. The guy is anything buy dumb. George Economou is an MIT graduate who has spent the last 20 years of his life in the shipping business. For any who care to do a wee bit of research will see that his foray into purchasing and leasing rigs for ultradeep water drilling makes perfect sense. These rigs are in extreme short short supply for the foreseeable future. The latest Ocean Rig setting price was $637,000/day for a 3-5 year contract. FYI, the operating cost for that rig is less than $150,000/day. There are enormous profits to be had from this industry. In addition, because this business does not at all correlate with the Dry Bulk shipping industry, the deep water drilling industry provides sensible diversification from the dry bulk shipping business.

The only thing that most people know about George Econonomou is what they read in that Forbes Hatchet-Job of an article which was written by a bush-league reporter who is simply trying to use sensationalism to promote his own care! DRYS traded for $131 in November, given that 2008 is shaping up to be a stellar year for dry bulk shippers, DRYS should at least revisit that price this year.

Marc Faber: Short Emerging Markets - Barron's

If in fact Faber's view of DRYS is as simple as he says... "tanker rates have plunged, while dry shippers have not", then he will be wrong about DRYS. The shipping rates for dry bulk shippers did drop quite a bit during Jan. But, that was do entirely to short term issues. For example, coal could not ship from Australia do to flooding. Iron ore was not shipping from South America because of some port issues. Etc. However the demand is clearly there. The Baltic Dry Index - a handy index which, on a daily basis, tracks the dry bulk charter rates for shipping for the major shipping routes - has been steadily increasing since late January.

www.dryships.com/index...

These dry bulk shippers break even at rates which are less than half the current charter rates. Analysts est. that DRYS will earn between $18 and $20/share this year. My own analysis is a bit higher. DRYS is currently trading with a forward PE of 4!!!

Now, short sellers have been all over DRYS recently, so perhaps Faber new something other than what he said! The earnings however are really quite easy to calculate. Many have done so. And, the lowest forecast I have seen to date for 2008 is $13/share. I figure EPS to be closer to $22/share. It is also worth noting that DRYS has recently put more of its ships under longer term charters. Now, 40% of the fleet is locked in for a year or more. The largest of the DRYS fleet, the cape size vessels, are now chartering for over $140,000 PER DAY!!

I should conclude by saying that thus far Faber has been right about shorting DRYS. So if his comment in Barron's was for the short term, he was right. However, if he meant to short this for the longer term, he will get burned by that short because there is no quetion that 2008 earnings for DRYS will be stupendous. FYI... DRYS earned over $4.00, during the fourth quarter of 2007.