The Rude Awakening
Baltimore, Maryland
Wednesday, May 23, 2007 ------------------------- - Planes trains and short sea shipping,
- Cashing in on the biggest boom in cargo since WWII,
- When frothy becomes too frothy, record highs around the world and plenty more…
------------------------- Eric Fry, in transit from California to Maryland, reports… The Shanghai stock market touched a new all-time high last night, lifting its year-to-date gains to a whopping 55%. And that's on top of the 133% advance that Shanghai stocks logged last year. It's easy to see, therefore, that the Shanghai stock market has become a bit frothy…but impossible to know when "frothy" is too frothy. On average, Shanghai stocks sell for 48 times earnings and yield less than one half of one percent. Value investors, therefore, would find little to love on the Shanghai stock exchange. But so what; everyone else seems to love Shanghai stocks. Everyone else also seems to love Australian stocks, which \also touched a new all-time high last night…and Brazilian stocks, which reached a new all-time high last Friday…and U.S. stocks…and Canadian stocks…and almost all other kinds of stocks. Is this global equity love-fest destined to end in tears? Probably, but it has created many smiles along the way.Your editors here at the Rude Awakening do not trust this late-stage frenzy in the global equity markets, but neither do we underestimate its power. It is what it is, even if "it" does not entirely deserve to be what it is. The world's rallying share prices probably deserve to trade at lower levels. On the other hand, commerce is flourishing all around this globe of ours. Business is booming from Shanghai to Sao Paulo…literally…which means that the freight transport business is also booming. Chris Mayer, editor of Capital & Crisis, has been keeping a very close eye on the global transport business. In the column below, he shares his latest insights about this booming industry. --- Chris Mayer's Capital & Crisis --- ALERT: You could be missing out on lucrative 50% average gains a year if you're not following the… Three Secret "Sweathog" Strategies To avoid missing out on these spectacular gains, let me show you three secret sweathog investing strategies that a small circle of tuned-in investors are quietly using to build their fortunes. These stocks are sweating some hefty gains pretty quickly… 127% in 10 months… 62% in 16 months… 42% in six months… 16% in three months… All You Need To Get Started Today is Right Here -------------------------------------- Shipshape!
By Chris Mayer Trade between Asia and the rest of the world is booming so fast that port facilities around the world struggle to handle the volume. Looming is another congestion crisis such as the one that happened three years ago. In the summer of 2004, container ports around the world choked-up because they simply could not keep up with the surge of containers from abroad. The problem was particularly bad on the U.S. West Coast. Many ships anchored offshore, waiting for a place to unload. There was simply no place to go. The ports of Los Angeles and Long Beach receive about half of the nation's incoming containers. People in the shipping business have voiced concerns about the long-term efficiency and capacity of U.S. ports. With forecasts calling for container traffic to double over the next 15 years, things look to get worse before they get better. Indeed, it seems a repeat of 2004 is in the offing. China alone accounts for one out of every four shipping containers handled worldwide. The problem is the rest of the world can't keep pace. Local residents and environmental groups oppose bigger ports, and labor unions often fight efficiency efforts if those efforts will cost them dues-paying jobs. The union issue is a big one. In 2002, a large strike shut down 27 West Coast ports, led to $15 billion in losses and took 100 days to clear the resulting cargo backlog. America's ports are not as efficient as ports in other parts of the world. According to research by Accenture, America's ports lag the efficiency of those in Hong Kong and other leading Asian ports by four or five times. The result of this congestion is a great boom in shipping rates. In particular for the dry bulk carriers - those that haul grains, ore and other dry goods. The Financial Times reports: "Soaring demand from China and India for iron ore, coal and grain has combined with a shortage of ships to drive charter rates for dry bulk ships up sharply the past two years." Peter Georgiopoulos, chairman at Genco Shipping, recently opined: "The last time there was a really big dry cargo boom was after the Second World War, as Europe and Japan had to be rebuilt. We are coming to something similar to that - but India and China are bigger than Europe and Japan were after the Second World War." Last June, I recommended Horizon Lines (HRZ:nyse) to the subscribers of my investment letter, Capital & Crisis. Horizon Lines is in the middle of this whole thing. Horizon's president and CEO, Charles Raymond, has been outspoken about the problems in our ports. He told attendees at a recent conference, "It is no longer a question of if our nation's transport infrastructure will start to fail, but when." Raymond has a solution: short sea shipping, or shipping along our coasts and inland waterways, which is what Horizon could provide. Raymond says, "Short sea is not the only answer, but an answer we must explore now." As our major ports get overly congested, short sea shippers like Horizon Lines can move cargo from congested ports to others with available capacity. This is something the large vessels entering the major ports cannot do. Horizon Lines will have the ships as early as 2008 to launch short sea shipping services. There seems to be plenty of work around. Jon Langenfeld, an analyst at R.W. Baird & Co., points out that inbound activity is growing faster than costly port expansions. "It is clear to us that the congestion issues will re-emerge in a significant way in future years," Langenfeld wrote in a research note. Horizon has been a winner for us, up about 130% as I write. The only regret I have is that I didn't pick up another shipper or two. Several have doubled since last summer. But there will be other opportunities, not only in shipping companies, but also in ports and other ancillary businesses and infrastructure elements. Shippers are also exploring alternative routes. Some have introduced services to Mexico's port of Lazaro Cardenas, where containers are then shipped by rail to the U.S. There is also a new port in the works at Prince Rupert, on the coast of British Columbia. It's 1,100 miles closer to Shanghai than Southern California and shippers have access to the U.S. via an uncongested railroad line. Maybe this is why Buffett likes railroads - they are part of this cargo boom. Then there is expansion of East Coast ports, which China accesses through the Panama Canal (itself undergoing expansion). There is one other area that also looks interesting. Take a look at the airfreight companies. It doesn't take a lot of imagination to figure that overly congested marine ports could help put some business in the sky. (Though ocean freight has been growing faster than airfreight in recent years). Airfreight should triple its traffic load over the next 20 years, according to independent estimates. As a result, the world's air freighter fleet should double over that time. In a special report issued last September, I recommended ABX Air (ABXA:nasdaq), an air cargo company. It is up about 16% as I write. Recently, it has slipped below my buy-up-to price of $7. It is a more speculative idea (hence, its exclusion from our core portfolio), but an interesting one, given the backdrop for freight. The stock also trades for only about 10 times this year's earnings estimate. It's another way to gain some exposure to the biggest boom in cargo since World War II. Joel's Note: Faithful Rude readers will be familiar with Chris Mayer's value-conscious approach to investing. He's a master at uncovering value where most investors never look. You'll finnd yourself saying, "Well, of course that makes sense…why didn't I think of that?" But that's just the thing that makes Chris such a great investor…by the time most people are "onboard," he's already cashing checks at the bank and scouting for the next value play that nobody has heard of. You can learn more about Chris' investing style and also where he is looking next by picking up a subscription to his Capital & Crisis newsletter. The sign-up cost is less than a fifty cents a day and, considering the wealth of informative and actionable ideas he churns out, cheap enough for even the most prudent value investor to get excited about. All you need to know can be found right here: Chris Mayer's Capital & Crisis | 
