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Shipping Rates Could “Blow Through The Roof” In 2022 If This Happens

Shipping Rates Could "Blow Through The Roof" In 2022 If This Happens

Submitted by QTR’s Fringe Finance

This is part 2 of an exclusive Fringe…

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Shipping Rates Could "Blow Through The Roof" In 2022 If This Happens

Submitted by QTR's Fringe Finance

This is part 2 of an exclusive Fringe Finance interview with shipping analyst (and friend of mine) J Mintzmyer, where we discuss the state of the supply chain in the country, the developments with Canadian truckers, logistics, the effects of Covid and what shipping names he likes for 2022. Part 1 of this interview is here.

J is a renowned maritime shipping analyst and investor who directs the Value Investor's Edge ("VIE") research platform on Seeking Alpha.  You can follow him on Twitter @mintzmyer. J is a frequent speaker at industry conferences, is regularly quoted in trade journals, and hosts a popular podcast featuring shipping industry executives.

J has earned a BS in Economics from the Air Force Academy, an MA in Public Policy from the University of Maryland, and is a PhD Candidate at Harvard University, where he researches global trade flows and security policy.

Q: J, What do you make of Covid's effect on the shipping sector? Is there any chance that a loosening of restrictions will happen this year, in your opinion? If so, what affect will that have?

COVID-19, or more precisely the global policy response to COVID-19, is a key factor in the entire supply chain mess. Things were already tight in late-2019 and US ports, particularly on the West Coast, have been underinvested for a decade, but the enormous lockdown disruption is what 'broke' the machine.

Probably not the best metaphor, but I sometimes compare this to a snake accustomed to eating a steady diet of hamsters every day and keeping the jungle free of rodents.

Then the hamsters disappear for a few weeks and the snake gets super hungry, eventually finds a warthog and panic eats. While the warthog is stuck digesting in the snake, hundreds of hamsters are piling up, running amok, and the jungle is infested. That's crude, but that's essentially what happened with ports operating at near full capacity by 2019 while the world was addicted to gimmicks like Just-in-Time inventory management. ...the unwind is taking awhile.

Easing restrictions obviously will help, but the system is all sorts of broken right now. Even with no government meddling and friction, this will take several months to unwind, even in the most optimistic scenarios.

Do you see the U.S. economy heading toward recession. Why or why not?

That's a bit out of my scope as a maritime shipping investor. Frankly, the Chinese economy is a bigger focus and risk area for many of our investments. Generally speaking, my concern would be if a mixture of higher rates and equity market collapse drove a rapid slowdown in hiring and other economic activity. The corrections we saw in January were very encouraging and it looks like a decent chunk of the speculative bubble has started to deflate.

Do you ever use market cap to GDP to measure how expensive stocks are? Why are why not? If not, what's your favorite metric to use.

Also a pretty broad question for me, but I'll try my best, just please remember I'm outside of my lane here! I think the market cap-GDP ratio is likely skewed based on how many companies are public versus private. Although not a perfect index, I do like the Schiller CAPE (cyclically-adjusted price to earnings) caveated by interest rate levels.

A mistake a lot of bears have made for the past 3-4 years was to ignore that we are in a ZIRP environment (zero interest rate policy), which means historical CAPE comparisons are flawed. With rates now set to slowly start rising in 2022, the CAPE starts to become more relevant and that's likely why high-flier speculative things like the ARKK ETF have been unwinding hard.

If you look past the broad market indices (SPY, QQQ, Dow 30), we are arguably in the midst of a raging bear market in small caps. Price discovery is starting to come back, and fundamental valuations should hopefully play a much larger role going forward.

Any progress on ports being upgraded or rail lines being improved, as you suggested may happen back in 2021?

The infrastructure bill had some hefty port allocations, but these are massive projects which will take years to roll out. Call me in 2023-2024 to chat about those!

The far bigger supply chain concern this year is the pending renewal of the ILWU (west coast labor union) contract, which expires at the end of June. This was a hard-fought 3 year extension agreed back in mid-2019 when the industry was in a far weaker position. This time around, the workers have enormous bargaining power and they are likely to fight for better provisions. If this leads to a strike or shutdown of any sort, then congestion could surge, freight rates could blow through the roof, and all my more conservative projections are likely to be exceeded.

In this sort of outcome, stocks like ZIM could go to $200+. Will this happen? It is hard to tell. Labor negotiations are never easy, but the industry might also be more willing to cut a sweetheart deal or offer a lucrative extension until things are more normalized. We'll see... I am watching closely!

Do you ever invest in rail? If so, what are some of your favorite names and why? If not, why not? How does rail differ from shipping to a novice investor?

No. Valuations just are not attractive in rail right now versus the maritime angles. Rail is a better business in general due to fixed capacity and extreme difficulty for new entrants to compete (i.e. a strong moat), but I don't believe it's worth paying 5-10x the valuations versus strong maritime shipping firms.

Maritime shipping is more of a commodity like energy stocks or mining stocks. Rail is much more comparable to utility or telecom stocks.

Tell us about what's new with your service.

Thanks for asking! We have rolled our updated Model Portfolios for 2022, which recently included an update for February 2022. Thus far YTD (as of 2 February), our models have returned an average of 12.3% while the Russell 2000 is down over 10%, so I am very proud of that performance. As a reminder, in 2021, our models returned an average of 136.2%, which was the best year on record. We cater primarily to larger investors and traders and also work with a few dozen family offices and hedge funds. If you are interested in checking out our research platform, please head to www.mintzmyer.com. If you are a smaller trader or investor, then you can follow me on Twitter @mintzmyer.

Part 1 of this interview is here.

--

If you have the means and would like to support my work by subscribing, I’d be happy to offer you 22% off for 2022: Get 22% off forever

DISCLAIMER: 

I have not personally vetted J’s returns — it is up to readers considering his service to do so. I own ZIM as does J, as disclosed. None of this is a solicitation to buy or sell securities. It is only a look into our personal opinions and portfolios. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe.

MORE DISCLAIMER:  

These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot. If I am here listing things I got right or things I think will happen in the future, note that there are likely twice as many things I got wrong over the same period of time. I’m not a financial advisor, I hold no licenses or registrations and am not qualified to give advice on anything, let alone finance or medicine. Talk to your doctor, talk to your financial advisor or your therapist. Leave me a alone and do your research elsewhere. If you can find somewhere to rate this Substack one star, please do so as to save future readers from the misery of my often wholly incorrect prognostications.

 

Tyler Durden Mon, 02/07/2022 - 20:40

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Spread & Containment

How to Use Dividends to Find the Best Tech Stock

Investors Alley
How to Use Dividends to Find the Best Tech Stock
When we talk about tech stock investing, we hear discussions of all sorts about different…

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Investors Alley
How to Use Dividends to Find the Best Tech Stock

When we talk about tech stock investing, we hear discussions of all sorts about different measures used for picking stocks.

For example, some tech investors use year-over-year revenue growth. Others subscribe to a theory that has been floating around for many years, that the secret to picking tech stocks was looking at the percentage of cash flows spent on research and development.

All too often, tech stock analysis consists of storytelling and searching for ideas that will change the world, something I’ve heard thousands of times during my career. The number of companies that actually did change the world probably totals up to a few dozen over three decades.

Some of those beat the market. Others did not.

I have found a variable that can help tech investors spot promising opportunities to identify technology companies that have higher probabilities of providing market-beating returns: dividends.

Note a stock’s dividend yield: investors who want higher dividends with an overall total return would be smart to look into high-yield tech stocks as part of their income strategy. The key to using dividends to find market-beating tech stocks is to look at the rate of their dividend growth. It doesn’t matter how high the dividend is at any given time. We want to see companies that are consistently growing their dividends.

A tech company that pays a dividend is making a statement. It tells the world: “We are generating enough cash to pay the bills, hire great people, and fund our future growth plans as well as R&D. In fact, we are generating so much cash we have some left over to pay out to our investors.”

Ideally, we want to limit our universe of companies to those who are increasing their payout by at least 20% annually. Growing a dividend at that high a rate says that things are just continuing to get better.

Once we have a universe of tech companies that are growing their payouts at high levels, we want to make sure we only own those that really do have a wonderful business that just keeps getting better. We want to use a financial checklist to make sure our companies are in excellent financial shape and have what it takes to keep growing the business.

I prefer the nine-point checklist developed by Professor Joseph Piotroski when he was at the University of Chicago – known as the “Piotroski F-Score”. This is a list of nine criteria of profitability, leverage, and efficiency. On each criterion, a firm can either get one or zero points – pass or fail.

I limit my universe of tech stocks with paid dividend growth to just two to three with the highest scores on the Piotroski checklist.

Using this simple method for picking tech stock winners has crushed the S&P 500 over the past decade and even edged at the tech-heavy NASDAQ 100.

Texas Instruments (TXN) makes the current list of technology companies with high dividend growth and outstanding fundamentals and prospects. The company makes most of its revenues from semiconductors, but it does still have some revenues from its calculators and other business machines. (I have had one of these, a Texas BAII calculator, within arm’s reach for most of my career.)

Texas Instruments had a solid second quarter and increased its guidance for the third quarter. The company has not suffered the China slowdown problems that have plagued some of their competitors so far. The brightest spot in the recent report was semiconductors being sold to the automobile industry, which were up 20%.

Although we have seen some slowdown in semiconductors due to the supply chain issues created by the pandemic, Texas Instruments has powerful tailwinds from all the developments we see in technology over the next decade.

Every one of the hottest trends in the economy—from renewable energy to artificial intelligence and everything in between—is going to increase demand for semiconductor chips. There are thousands of semiconductors in every electric vehicle, which will be another massive source of demand for the industry.

Texas Instruments has a yield of 2.5% right now, and has been growing that payout by 20.5% annually.

Another semiconductor company, Broadcom (AVGO) has the fastest-growing payout on our list right now. The company makes chips for smartphones, networking, broadband, and wireless connectivity. Broadcom’s recent purchase of Symantec’s Enterprise Business also puts it in the cybersecurity business.

Broadcom’s shares currently yield 2.97% and the payment has risen by an average of 49% annually for the past five years.

Most investors will never think of using dividends as part of the stock selection process. Rigorous testing shows that dividend growth is actually an important part of identifying companies with the potential to be huge winners.

My favorite way to invest in those companies isn’t to buy their stock, though. Instead, I like to use a special, little-known investment that lets me invest in these companies for up to 18% less than what others pay…

While collecting twice or more the dividend yield!

All without any more risk. I’m tracking 5 opportunities like that right now, and I lay them all out right here.

Only 3% of investors even know these funds exist

But using them, I can beat the market 2-to-1 while collecting 2-10X MORE yield from regular dividend stocks.

I learned this trick while I was rubbing elbows with some of the biggest fund managers in US history.

They too are buying these little known funds, cashing in huge discounts and collecting income while they do it.

Click here to learn the secret yourself.

 

How to Use Dividends to Find the Best Tech Stock
Tim Melvin

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Where Carnival, Norwegian, Royal Caribbean Sit on Covid Vaccines

Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

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Do You still need to be vaccinated to go on a Royal Caribbean, Carnival, or Norwegian Cruise?

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board in some ports if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

There is, however, a major exception, at least for now, which is obvious when you look at the specific wording shared by the cruise line:

"Starting with September 5 departures, all travelers regardless of vaccination status can cruise on the following itineraries, as long as they meet any testing requirements to board.

  • Cruises from Los Angeles, California.
  • Cruises from Galveston, Texas.
  • Cruises from New Orleans, Louisiana.
  • Cruises from a European homeport.

Notice that Florida, a major port for the cruise line, is not currently on the list.

In the U.S. aside from Florida, any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid test for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests traveling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to traveling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

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Here’s Where Carnival, Norwegian, Royal Caribbean Stand on Covid Vax Rules

The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won’t.)

Published

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The three major cruise line have all made big changes to their vaccine policies and some passengers may be very happy (while some won't.)

Cruise line covid-19 vaccination and testing rules, which were imposed by the Centers for Disease Control and Prevention at the beginning of the pandemic, have been stricter than most. After the pandemic started in early 2020, the CDC signed a No Sail Order on March 14, 2020, which was finally lifted after nearly eight months on Oct. 30, 2020.

After the No Sail Order was lifted, the CDC enacted extremely restrictive rules and regulations to help keep passengers safe with the covid pandemic still raging throughout the world. The rules and regulations were set forth to begin to return cruise lines to operational status.

The cruise lines first had to be staffed accordingly and set up with the ability to test, treat and quarantine for covid medical emergencies. Testing for crew and passengers before embarkment and before dis-embarkment was required. The testing at pre-embarkment was a measure to protect those boarding, while the post-trip testing was for determining if an infection started on the cruise line itself. Being able to track the virus was very important in the prevention of spreading the virus and protecting patrons.

Image source: Shutterstock

Vaccination Still Not a Free Pass to Board

Once the vaccination was developed and approved, it became part of the CDC guidelines for cruise line adult passengers to have their vaccination before boarding. Even with a vaccination, guests still needed to test before they boarded the cruise lines. As the vaccine was approved for younger age groups, those age groups were then also required to have the vaccine to travel. Passengers were required to be fully vaccinated unless they are exempt by some status.

Before boarding, cruise line passengers who tested positive, as well as their travel companions, were not allowed to board, depending on the cruise line and how long the cruise may be. Some passengers were allowed to board and then isolate, others would have to reschedule their trip. Trip insurance is a good buy these days.

Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images

Cruise Lines Letting Loose on Vaccine Policies

Carnival Cruise Line  (CCL) - Get Carnival Corporation Report has now removed pre-cruise testing for vaccinated guests and also welcomes unvaccinated guests to travel. Fully vaccinated guests traveling less than 16 nights with the cruise line will no longer be subjected to testing, but still must provide proof of their vaccination status. Unvaccinated travelers will only need to provide a negative covid test result to board the ships. All rules and regulations are still subject to the destination country’s guidelines.

According to the Healthy Sail Center for Royal Caribbean  (RCL) - Get Royal Caribbean Group Report, the cruise line has updated its covid vaccination protocol. The cruise line will now allow passengers regardless of vaccination status to board if the travelers meet the testing requirements. Testing requirements vary by cruise departure and destination. Check the cruise lines port departure for updated information on requirements.

In the U.S., any guest with a valid negative covid test within the last three days will be able to board. These guests will also not be required to take a second test at the boarding terminal. Fully vaccinated guests do not need to provide proof of a negative covid tests for shorter cruises. See the cruise line website for all updated information as it is subject to change.

Beginning Sept. 3, Norwegian Cruise Line  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report is dropping its covid vaccine requirements for all its cruises. The cruise line stated that it is continuing to follow requirements for all destination countries, so guests travelling will want to check on destination vaccine and testing requirements. All guests 12 and older regardless of vaccination need to show proof of a negative test within 72 hours. Check NCL online for further instructions prior to travel.

The CDC has taken the stance that travelers are now well informed enough to make their own decisions when it comes to travelling on cruise lines. The travelers are taking their own assumed risk for their health and well-being. Cruise lines are now welcoming this new freedom for their passengers. 

Read More

Continue Reading

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