We live in an Age of Chaos. You know it… and I know it. And one of the defining characteristics of this Age of Chaos is the constant barrage of noise. 

As investors, it’s not always easy to separate real signals from noise. But that’s exactly what my Freeport Society friend John Pangere has done today. 

Deglobalization is a major, durable trend for the remainder of this decade and likely far beyond. But even in a world of higher tariffs, less free trade, and more protectionism, international trade doesn’t go to zero. That didn’t happen even in the Great Depression, yet that’s more or less what the shipping industry seems to be pricing in. 

Well, the actual data tells a different story… and it’s led John to a potentially fantastic trading opportunity.

Over to you, John… 

To life, liberty, and the pursuit of wealth,

Charles Sizemore

Chief Investment Strategist, The Freeport Society

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This Cyclical Industry Is in the Early Stages of a Bull Market

By John Pangere, Senior Analyst, Rogue Strategic Trader

It was his savvy, eclectic approach that made Sir John Templeton “arguably the greatest stock picker of the century,” as Money magazine so aptly wrote in 1999.

He was a pioneer of the mutual fund industry. His Templeton Growth Fund – started in 1954 – was one of the first to invest in places like Japan. While at the helm, he averaged 15% annual returns for 38 years.

But his success started much earlier than that.

In 1939, as the first shots were being fired in World War II, Templeton told his broker to buy him 100 shares of each of the 104 companies listed on the New York Stock Exchange selling for less than $1 per share. 

By the time he sold, he’d made many times his money.

As he famously said, “Bull markets are born in pessimism… grow on skepticism… mature on optimism… and die on euphoria.”

It’s a pattern we see in the markets, in industries and sectors, and even in individual stocks.

But, to profit from that pattern, Templeton had a powerful strategy: Be positive… avoid anxiety… stay disciplined.

These are all things we try to emulate for my readers and subscribers… and that Charles and the team at The Freeport Society apply for their members as well.

Investing and trading aren’t easy. There’s no exact science… no Holy Grail system that will pick winners every time.

All any of us can do is stack the odds in our favor. Ignore the short-term noise. And position ourselves for huge potential payoffs while managing risk and being patient.

Which is why, today, we’re taking a page out of Sir John’s book. 

We’re diving into an industry that most investors ignore, despite (maybe because of?) its fair share of booms and busts. Right now, it’s in the early stages of its next bull market… making now the perfect time to strike.

The Perfect Storm

As Charles writes about often, deglobalization is underway. But this process is slow. You can’t untangle the supply chain snarl that took a century to create.

So, despite the geopolitical tensions, saber rattling, and tariff punches being thrown almost carelessly, global trade remains robust. The amount of cargo shipped has nearly tripled since 1990, climbing from 4 billion tons to almost 11 billion tons today.

And the only way to move 80% of that stuff around is on cargo ships. 

To handle that volume, the shipping industry has grown tremendously. Since 2013, the capacity of the worldwide merchant fleet is up 43%.

That includes ships for transporting oil and gas… vehicles… clothes and smartphones… raw materials like iron ore or coal… you name it.

That’s good news for companies that own and operate fleets of dry bulk carriers. 

But it’s never a straight shot up in this cyclical industry. 

From Boom to Bust to Boom

The shipping industry tends to go through phases of boom and bust.

Remember that Templeton quote from above?

When times are good, shipping companies print money. Then they tend to order far more ships than they need. They mature on optimism.

That eventually leads to a bust. Ship capacity overwhelms the market. And the stocks of shipping companies tank. Many of them end up in bankruptcy. They die on euphoria.

And the cycle starts all over again.

The good news is, we have ways to spot these inflection points. 

For starters, we look at the dry bulk order book. It shows how many dry bulk ships are on order as a percent of the current fleet. 

Today, it’s at a 20-year low, as you can see in this first chart.

At 8.5%, there are about nine new ships on order for every 100 currently active in the water. A decade ago, the order book was close to 80% of the entire fleet.

Until recently, fundamentals in the shipping industry were rough. Many companies could barely turn a profit. So they couldn’t order new ships to replace their existing fleets.

You can see this with the Baltic Dry Index. It measures the changes in costs for transporting dry bulk goods.   

When the index heads higher, it means shippers are making more money. When it falls, they’re usually making less money… or even losing it.

Right now, the index is in an uptrend after coming down from its pandemic highs. That’s a good sign.

When we see shipping companies start to earn more but investors are still shy to jump in, that’s typically a good time to speculate. And a good way to find trades in this space is with Freeport Alpha’s MoneyFlow Indicator (Charles explains how it works in this video.) 

But it’s a delicate balance. 

The supply of dry bulk carriers depends on the delivery of new vessels and the removal of old ones from the global fleet. That happens through either a ship lost at sea or scrapping an old ship.

Dry bulk ships tend to last 20-30 years. Last year, the average age of ships scrapped was 29. 

These numbers are important because it takes years for a “newbuild” ship to set sail. That lag time can be just enough to swing the balance of existing supply. 

So when the order book is low, that can cause a deficit of available ship capacity. And that can cause shipping rates to go up. 

And guess what…?

That’s exactly what we’re seeing happen now…

Put it all together and it looks like the next boom is right around the corner.

Therein lies untold opportunities for investors and traders alike. It’s what Templeton lived for: Buy something so cheap and out of favor that every other investor will pass it by… and wait until the tide turns.

Regards, 

John Pangere
Senior Analyst, Rogue Strategic Trader