If You're Drawing a Blank, Just Look Around

 | Dec 23, 2013 | 6:30 AM EST  | Comments
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Over the years I have developed my own school of economics and analysis that I call the Tim Melvin School of Looking Around. It has been about as accurate as the information released by the folks in all the offices with computer and spreadsheets and has also developed a few investable observations. I recently had a chance to deploy this analysis once again with a fair bit of recent travel. The weekend before last I was up in Detroit to meet with some folks and take in the Monday night football game, and this weekend I drove from Orlando all the way across the country to Rockport, Texas, in order to spend Christmas with the in-laws.

My first observation was in Detroit. Beyond the obvious facts that the city is incredibly cold, and that I will never again go back outside the months of June to September, Detroit is doing better than I think the press may indicate. The downtown revival, led by Dan Gilbert of Quicken Loans, Mike Ilitch of Little Caesars and Roger Penske appears to be working. That area of the city was brightly lit for the holidays and, in spite of bone-chilling cold, folks were out at the restaurants, bars and casinos while I was there. The problems the city will face are outside of downtown, where there are tens of thousands of empty properties -- but the city is off to a good start in rebuilding.

There are no banks headquartered in Detroit, but one of my projects for the weeks ahead is to research the smaller banks in the areas right around the Motor City. I said earlier this year that the first Detroit bank initial public offering is bound to make a fortune for early investors, and I stand by that idea. If I had the resources, I would raise a real estate investment trust right now in order to buy the A and B office properties outside the immediate downtown area, as they are cheap and will appreciate substantially over the next decade as Detroit works out its problems.

My next observation is that, for the week before Christmas, travel was not as bad as I have seen -- but it was much heavier than the last couple of years. The north was heavy with traffic, but that's to be expected, given the number of folks form the Northeast and Midwest who wised up and moved south. I'd describe the east-west traffic between Florida and Texas as "moderate" for the week before a holiday. Gas prices seem to be falling across the country, and we saw several stations with sub-$3-per-gallon gas in the lower-tax states. Lower gasoline prices are one of the best forms of fiscal stimulus that can be provided for those who do not work on Wall Street, so that's a hopeful sign ahead of the new year.

I have been invested in hotel REITs, and from what I saw on my journey, there is no reason for me to sell them just yet. The business is performing much better now that it had done when we started buying, but it still has a long way to go in order to be fully recovered. Prices have recovered, but room rates are still very reasonable and occupancy rates are just OK. We broke up the trip and stopped along the way, and had a very nice hotel with a big room-service dinner -- and the bill for everything was lower than what we have spent for dinner on special occasions.

We also passed through and took short side trips around the ports in both Mobile, Ala., and Houston. I came up with two concrete conclusions from this excursion. First, young female children do not think ports and ships are very interesting and, second, I am more thrilled than ever with my shipping investments. Mobile handles forestry products, coal and other dry cargoes. Meanwhile, most of what's coming in and out of Houston is petroleum-related, but most Volkswagens sold in the U.S. pass though there as well.

Both ports were remarkably active for the week before a major holiday. There was plenty of traffic in tankers and containers alike, and the yards appeared to be busy as well. My portfolio is loaded with shippers right now. However, after having passed through the port areas, I feel better than ever about stocks like International Shipholding (ISH), Tsakos Energy (TNP), Star Bulk (SBLK) and Global Ship Leasing (GSL). They all still trade well below book value and look like fantastic long-term opportunities.

So, once again, you can observe a lot just by looking around. Who knew Yogi Berra would turn out to be such a brilliant economics and markets analyst?

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