And The Verdict Is In, Kinda

It has been twelve months since investing was turned on its head. There were the immediate effects, along with ramifications that will be felt for years. We have seen the benefits of the investment decisions taken during these challenging times when we took advantage of ultra pessimism and forced selling. We purchased Safe Bulkers and Tsakos Prefs aggressively in March 2020 with approximate twelve-month returns of 166% and 199%. The opportunities are not over. There has been accelerated deal making as Companies take positions for the post pandemic world across industries. In our space, on March 31, International Seaways (INSW) announced a stock for stock merger with Diamond S Shipping (DSSI) that will create a powerhouse in Crude and Product Tankers when dirty and clean product volumes return.

As the US and UK move to normalcy, we do see potholes for shipping along the way. Aggressive container ship ordering of the largest vessels by Liner Companies will end in tears, especially since many of them will have conventional propulsion systems that are not grandfathered post 2030. As we wrote two weeks ago, we are concerned about the course of activity in China. Then there are the management teams who seized defeat from the jaws of victory. One sold their dry-bulk fleet at near the bottom of the best cycle in the last ten years, and another, a containership operator needlessly cut their dividend, limiting the upside in their stock as markets returned.

On the other hand, due to the overly generous $1.9 trillion stimulus program, we continue to maintain our exposure to companies that will benefit from higher US lower income consumer spending and increasing interest rates. These include container ship assets (Feeder) and tankers. We already see pockets of asset inflation, from housing to used cars. Real assets, such as ships, should continue to outperform. The ratio of asset prices between global commodity producers and the S&P 500 is 50% lower than its lowest point in the last 50 years. In an environment that some have called “the bull market of everything” real assets are the rare pockets where relative valuations are attractive. What in retrospect looked easy twelve months ago wasn’t at the time. There is still upside to come, depending on the shipping segment. It won’t be a straight line either.