March 18, 2014. Russia just annexed Crimea. All G-7 countries condemned the move and promised more sanctions. First sanctions were small and weak. That same day, Jay Carney, Obama's chief spokesman, literally said: "I wouldn't, if I were you, invest in Russian equities right now. Unless you're going short."
I remember big noise on CNBC. Several pundits, including Jim Cramer, said that it's not for a politician to predict any market, including stock market. Several financial companies predicted serious (15-20%) growth for the year for Russian stocks. Well, let's see. I'm using Market Vectors Russia ETF (RSX) as a proxy for Russian stock market.
March 18. RSX closed at $23.51
Today, December 29. RSX closed at $14.61. 38% Drop.
QED. Sometimes politicians know better. Russian market was a toast even before sanctions. GDP growth for the year was expected at 0.5%. After the sanctions, there is no growth. For the year 2015, Russian officials predict GDP drop in range of 3-5%.
Why politicians know better? At least in this case? Because they saw that Putin declared the war on Western World. Western World in extended sense, including Australia and Japan. In other words, country with GDP 2% of the total world GDP declared the war on countries with about 55%. Sanctions moved this war from war of words to the war of economics. Can't you predict the result?
Full disclosure: I don't have any positions, long or short, in RSX or any other Russians stocks.
Monday, December 29, 2014
Tuesday, December 9, 2014
Can't Make Money in Shipping
Well, I can't. Maybe you are better at it. Before going on vacation I closed my Diana Containerships (DCIX) position. Huge loss, more than 60%.
When I bought it in March 2013, it looked like a reasonable investment. Economy of the whole world is recovering, trade, especially trade in finished goods, is blooming. Most finished goods are shipped in containers. Should be good for container shipping companies, right? Here comes DCIX. Unlike others it's very transparent. You can go to the company's website and see current and near future ship employment, with rates and commissions. Company usually buys ships which are already employed, choosing moment right, or so it seems.
What I didn't think about is competition. There are a lot of ships entering service right now. more than enough to carry increasing trade. And, despite increasing trade, rates are going down. Right now they are at the point of zero margin. And this isn't the end of it. I decided to sell DCIX when I saw this article. The problem isn't that Maersk is building the biggest container ship in the world. The problem is that Maersk is building 9 of them right now. Which means that shipping capacity of post-panamax ships (those which can't travel through Panama Canal) is increasing a lot. That's the segment in which DCIX was trying to make money lately.
Lesson learned. When analysing any business, main attention should be paid to supply and demand in the industry, everything else comes after that. Demand might be increasing, but if supply is increasing faster, there is no money to be made.
Disclaimer: I don't have any positions in companies mentioned in this article.
When I bought it in March 2013, it looked like a reasonable investment. Economy of the whole world is recovering, trade, especially trade in finished goods, is blooming. Most finished goods are shipped in containers. Should be good for container shipping companies, right? Here comes DCIX. Unlike others it's very transparent. You can go to the company's website and see current and near future ship employment, with rates and commissions. Company usually buys ships which are already employed, choosing moment right, or so it seems.
What I didn't think about is competition. There are a lot of ships entering service right now. more than enough to carry increasing trade. And, despite increasing trade, rates are going down. Right now they are at the point of zero margin. And this isn't the end of it. I decided to sell DCIX when I saw this article. The problem isn't that Maersk is building the biggest container ship in the world. The problem is that Maersk is building 9 of them right now. Which means that shipping capacity of post-panamax ships (those which can't travel through Panama Canal) is increasing a lot. That's the segment in which DCIX was trying to make money lately.
Lesson learned. When analysing any business, main attention should be paid to supply and demand in the industry, everything else comes after that. Demand might be increasing, but if supply is increasing faster, there is no money to be made.
Disclaimer: I don't have any positions in companies mentioned in this article.
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