As contrarians we could not help but to be drawn to an article in the New York Post regarding ships at anchor just out of Singapore. The article titled “Recession Anchors Trade” is rather amusing. The first bit of the article goes as follows:
In a faraway corner of the Pacific is anchored the world’s ghost fleet of cargo ships as far as the eye can see, with no cargo, no crews — and no place to go.
The out-of-work fleet — larger than the combined navies of the US and Britain — stretches for 20 miles off the coast of Malaysia as an eerie symbol of the recession’s wipe-out of world commerce.
Economists say that normally these 500-plus container vessels, oil tankers and merchant ships would be steaming between the ports of Asia and the US laden with cameras, jeans and all sorts of goods for retail shelves this Christmas. Instead, the mammoth ships have been moored for months, with only a guard or two on decks to watch for marauding pirates.
The article then pastes the picture below of ships at anchor.
As contrarians we are guided in everything we do from an investing perspective by the following infamous words of John M. Templeton
“Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell”.
Experience tells us that articles of this nature tend to mark the peak of pessimism for a market or sector and afford the best time to start to go against the grain!
We get the feeling that this article highlights the general unwillingness of the average investor to accept that the world economy is improving and moving out of recession. Yes there are a lot of ships parked up but one must take into account that even in boom times for shipping companies (like 18 months ago) there are still a flotilla of ships parked up on the outskirts of Singapore that rival the number of ships in the US and Royal Navies. We wonder where the author of the article gets his facts. He claims that “By 2012, one in four commercial ships will be idle, analysts predict”. We suspect that this last statement embodies current valuations of shipping companies in the US where the median price to book ratio is just over 1x. Perhaps all the bad news is currently priced into shipping stocks and that there is now only room for positive surprises, albeit less-than-bad surprises. Of course only time will tell.
From a technical perspective it appears that shipping stocks are getting ready to move higher. The global shipping ETF “SEA” is only a few percent away from a breaking to a multi-week high. 
With a P/Book ratio of 0.90 and a current dividend yield of 6.66%, this ETF must rank as one of the top value plays globally.
As they say in the extreme value investing game, good things take time. It may take some time for shipping stocks to gain traction but when they do there will be little warning. We are willing wait it out and to be a little wrong before ultimately being very right.
