Why are people running scared recently from the market?

Olav23 · 03-14-2007, 03:43 PM

I understand the subprime market is a risk, but from an overall economic perspective, is there any reason to think we are in a bubble?

I remember reading a study that said the P/E ratio averaged 17.5 for the past 90 years and it reverted to the mean cyclically. Just as a comparison, I checked the P/E of SPY (S&P500) and it reports that the P/E ratio (I assume of all the components averaged) is 15.64. Maybe they are computed differently, but is there any real economic reason to think things are "overpriced" or out of whack?

Cut-Throat · 03-14-2007, 03:46 PM

No and that is why the market has not corrected 10% - which I believe is the definition of a 'Correction'. In the grand scheme of things the volatility of the last 3 weeks is pretty tame. <2% swings.

brewer12345 · 03-14-2007, 03:50 PM

Nope. The fundamentals seem to be fine, outside of the housing industry. Look at any company that actually produces soemthing, transports something, etc. (especially if it is a commodity of any kind): they are all going gangbusters. The stock market sell-off has offered us some very attractive bargains. EGLE and DSX are absurdly cheap now, for example.

Sam · 03-14-2007, 04:15 PM

brewer,
You appear to be very fond of these two shipping companies. In your opinion, are they both good for "buy and hold" (long term), or just for a short time (less than 2 years)?

wabmester · 03-14-2007, 04:17 PM

Quote:

Originally Posted by Olav23

Maybe they are computed differently, but is there any real economic reason to think things are "overpriced" or out of whack?

It all depends on what you believe will happen to the "E" part of P/E. If earnings continue to grow at the same rate of the last few years, then we're in good shape.

brewer12345 · 03-14-2007, 04:24 PM

Quote:

Originally Posted by Sam

brewer,
You appear to be very fond of these two shipping companies. In your opinion, are they both good for "buy and hold" (long term), or just for a short time (less than 2 years)?

Tell me where shipping day rates (what they can charge per day to rent out the ships) will be and I will give you an answer. The main index of rates has annual volatility of over 40%, so there are lots of ups and downs.

Seriously, I think these companies are both really worth $23 to $25 a share, plus I expect them to pay out in excess of $2 a share annually in qualified dividends. That makes for a very attractive total return, and the huge payouts help cushion any downside risk. EGLE is the more conservatively run and positioned of teh two, but DSX is run in a pretty conservative/sane manner as well. I expect to hold them indefiantely, or at least until I see real evidence of China & India going kaboom. But these two require some stomach for volatility.

Sam · 03-14-2007, 04:30 PM

Thanks for sharing your view.

Olav23 · 03-14-2007, 04:51 PM

Thank you, I guess I just wanted affirmation that things are not as bad as they seem. I guess it is a product of overhearing lots of conversation about the sky falling and all...

As far as earnings, I guess I can't make any kind of educated guess, as I'd be a lot richer. I can't even estimate my own long term earnings! It all will hopefully come down to a rounding error. If the economy really is cyclical, then as the earnings drop out, something like a paradigm shift or "disruptive technology" should happen.

Hopefully it will be relatively quick and involve robots that can clean my house, do my work for me and then hand me a beer. Oh, and I want that rocket car that I am due.

d · 03-14-2007, 04:55 PM

Quote:

but from an overall economic perspective, is there any reason to think we are in a bubble?

... no bubble ... but earnings/GDP does appear to be peaking, which might suggest something (or not).

Brat · 03-14-2007, 07:13 PM

Quote:

Originally Posted by brewer12345

Nope. The fundamentals seem to be fine, outside of the housing industry. Look at any company that actually produces soemthing, transports something, etc. (especially if it is a commodity of any kind): they are all going gangbusters. The stock market sell-off has offered us some very attractive bargains. EGLE and DSX are absurdly cheap now, for example.

Eagle EGLE just issued more shares. DSX has a modern fleet and a low debt to capital ratio. Hummmm...

brewer12345 · 03-14-2007, 07:18 PM

Quote:

Originally Posted by Brat

Eagle EGLE just issued more shares. DSX has a modern fleet and a low debt to capital ratio. Hummmm...

EGLE issued shares to fund an accretive ship purchase.

Brat · 03-14-2007, 07:23 PM

Quote:

Originally Posted by brewer12345

EGLE issued shares to fund an accretive ship purchase.

That is good as, according to Standard & Poor's, they have a debt to capital ratio of .3x vs DSX .1x. EGLE's dividends must reflect the difference in debt.

I would rather hold DSX than STON for dividend income.

Sam · 03-14-2007, 07:33 PM

Eagle is a very young company, is there any concern with that?

Where can I get financial data (stock price, dividend) for Diana previous company (Diana Shipping Investments Corp.), from 99 to 2005?

JustCurious · 03-14-2007, 09:11 PM

Quote:

Originally Posted by Cut-Throat

No and that is why the market has not corrected 10% - which I believe is the definition of a 'Correction'. In the grand scheme of things the volatility of the last 3 weeks is pretty tame. <2% swings.

On Feb 27, the S&P 500 dropped from 1449.25 to 1399.04, which is a 3.5% drop in one day.

Brat · 03-14-2007, 10:02 PM

Quote:

Originally Posted by Sam

Eagle is a very young company, is there any concern with that?

Where can I get financial data (stock price, dividend) for Diana previous company (Diana Shipping Investments Corp.), from 99 to 2005?

If you are a Fidelity customer you can find lot of data on the research part of their wesite. It might be on Diana's website.

My son and DIL are Maritime Acadamy graduates and sailed tankers for a few years. Let me assure you that the age of a shipping company is not an issue. Corporate culture can be, but unless you (or I) are in the industry that is a factor difficult to measure. A prime reason why ATC didn't aquire ARCO's maritime transportation division is that the managers and crew members didn't like what they saw, they told their story to Phillips ... the rest is history. That division was VERY profitable.

Given that I don't have any inside knowledge of the industry now I can only look at the age of the ships, contracting style and debt level.

brewer12345 · 03-15-2007, 07:13 AM

Quote:

Originally Posted by Brat

That is good as, according to Standard & Poor's, they have a debt to capital ratio of .3x vs DSX .1x. EGLE's dividends must reflect the difference in debt.

I would rather hold DSX than STON for dividend income.

EGLE offsets its higher debt level vs. DSX by owning a class of ships (Supramax) with much less volatile day rates and by generally having longer term time charters on its ships. DSX has less debt (thus far), but tehir greater exposure to the Capesize market and their shorter average charters on the rest of the fleet make less debt a wise choice. I expect to see DSX lever up modestly over time.

STON is an entirely different beast, and a lot less volatile.

Brat · 03-15-2007, 10:34 AM

Quote:

Originally Posted by brewer12345

STON is an entirely different beast, and a lot less volatile.

Agree, but it is a stock on the list for investors who value dividends.

Cut-Throat · 03-15-2007, 10:36 AM

Quote:

Originally Posted by JustCurious

On Feb 27, the S&P 500 dropped from 1449.25 to 1399.04, which is a 3.5% drop in one day.

I'm sure you could find an index that did worse than that.

**Gumby** · 03-15-2007, 04:42 PM

Quote:

Originally Posted by brewer12345

EGLE offsets its higher debt level vs. DSX by owning a class of ships (Supramax) with much less volatile day rates and by generally having longer term time charters on its ships. DSX has less debt (thus far), but tehir greater exposure to the Capesize market and their shorter average charters on the rest of the fleet make less debt a wise choice. I expect to see DSX lever up modestly over time.

STON is an entirely different beast, and a lot less volatile.

Any thoughts on NAT? Seems cheap right now, although more exposed to the vagaries of day rates than EGLE.

al_bundy · 03-15-2007, 04:58 PM

money raining from heaven into the subprime market is the reason home prices increased until around a year ago. tighter credit means less buyers in the market and there is a glut of inventory in a lot of markets due to overbuilding. there is also a huge number of rate resets in the alt a market in 2007 and 2008. $2.5 trillion in loans will reset to fixed rates from adjustable in 2007 and 2008 and will fall to $900 billion in 2009. if you look at an arm loan it's usually 2% or so over LIBOR so we are looking at 7% based on today's rates and a max rate of 9% to 12% depending on the loan.

there are close to 10 million home sales every year. some estimates say 1.5 million people will be out of the market in 2007 due to tighter credit. no word on 2008. a lot of people are planning on selling due to the coming reset or they bought another home already and there is going to be less buyers.

there is already a glut of inventory from last year and a lot of people in alt-a may be facing foreclosure in 6-9 months

03-14-2007, 03:43 PM	#1
Olav23 Recycles dryer sheets Join Date: Jul 2005 Posts: 423	Why are people running scared recently from the market? I understand the subprime market is a risk, but from an overall economic perspective, is there any reason to think we are in a bubble? I remember reading a study that said the P/E ratio averaged 17.5 for the past 90 years and it reverted to the mean cyclically. Just as a comparison, I checked the P/E of SPY (S&P500) and it reports that the P/E ratio (I assume of all the components averaged) is 15.64. Maybe they are computed differently, but is there any real economic reason to think things are "overpriced" or out of whack?

03-14-2007, 03:46 PM	#2
Cut-Throat Recycles dryer sheets Join Date: Jan 2007 Posts: 366	Re: Why are people running scared recently from the market? No and that is why the market has not corrected 10% - which I believe is the definition of a 'Correction'. In the grand scheme of things the volatility of the last 3 weeks is pretty tame. <2% swings.

03-14-2007, 03:50 PM	#3
brewer12345 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Mar 2003 Posts: 9,248	Re: Why are people running scared recently from the market? Nope. The fundamentals seem to be fine, outside of the housing industry. Look at any company that actually produces soemthing, transports something, etc. (especially if it is a commodity of any kind): they are all going gangbusters. The stock market sell-off has offered us some very attractive bargains. EGLE and DSX are absurdly cheap now, for example. __________________ “When you realize that you are one of the rare few who observe moral principles in their relationships with others, there is a temptation to sink into amorality, not out of conviction or pleasure but simply to avoid further pain, because there is no greater suffering than being an angel in hell, whereas a devil feels at home wherever he goes.” – Martin Page, How I Became Stupid

03-14-2007, 04:15 PM	#4
Sam Thinks s/he gets paid by the post Join Date: Mar 2006 Posts: 1,743	Re: Why are people running scared recently from the market? brewer, You appear to be very fond of these two shipping companies. In your opinion, are they both good for "buy and hold" (long term), or just for a short time (less than 2 years)?

03-14-2007, 04:30 PM	#7
Sam Thinks s/he gets paid by the post Join Date: Mar 2006 Posts: 1,743	Re: Why are people running scared recently from the market? Thanks for sharing your view.

03-14-2007, 04:51 PM	#8
Olav23 Recycles dryer sheets Join Date: Jul 2005 Posts: 423	Re: Why are people running scared recently from the market? Thank you, I guess I just wanted affirmation that things are not as bad as they seem. I guess it is a product of overhearing lots of conversation about the sky falling and all... As far as earnings, I guess I can't make any kind of educated guess, as I'd be a lot richer. I can't even estimate my own long term earnings! It all will hopefully come down to a rounding error. If the economy really is cyclical, then as the earnings drop out, something like a paradigm shift or "disruptive technology" should happen. Hopefully it will be relatively quick and involve robots that can clean my house, do my work for me and then hand me a beer. Oh, and I want that rocket car that I am due.

03-14-2007, 07:33 PM	#13
Sam Thinks s/he gets paid by the post Join Date: Mar 2006 Posts: 1,743	Re: Why are people running scared recently from the market? Eagle is a very young company, is there any concern with that? Where can I get financial data (stock price, dividend) for Diana previous company (Diana Shipping Investments Corp.), from 99 to 2005?

03-15-2007, 04:58 PM	#20
al_bundy Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 1,410	Re: Why are people running scared recently from the market? money raining from heaven into the subprime market is the reason home prices increased until around a year ago. tighter credit means less buyers in the market and there is a glut of inventory in a lot of markets due to overbuilding. there is also a huge number of rate resets in the alt a market in 2007 and 2008. $2.5 trillion in loans will reset to fixed rates from adjustable in 2007 and 2008 and will fall to $900 billion in 2009. if you look at an arm loan it's usually 2% or so over LIBOR so we are looking at 7% based on today's rates and a max rate of 9% to 12% depending on the loan. there are close to 10 million home sales every year. some estimates say 1.5 million people will be out of the market in 2007 due to tighter credit. no word on 2008. a lot of people are planning on selling due to the coming reset or they bought another home already and there is going to be less buyers. there is already a glut of inventory from last year and a lot of people in alt-a may be facing foreclosure in 6-9 months