Don't Give Baltic Dry Index Too Much Credit

 | Aug 17, 2017 | 3:50 PM EDT
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As Groundhog Day prepares to close its run on Broadway, I am sitting about a mile away from the theater having a deja vu moment of my own. Today's pullback feels so much like last Thursday's that I just set a reminder to buy some volatility ETNs -- I use Barclays Bank (VXX) and VIX Short-Term ETN (TVIX) -- on Wednesday at 3:55 p.m. ET. Add the specter of another Islamic terror attack in Europe, this one on Barcelona's famed La Rambla, and this weekly case of agita may be, as the kids like to say, "a thing." Those volatility ETNs have a shelf life of a few trading days at most, however, as this market seems to have a centrifugal pull in the up direction. 

Of course, the key in investing is to find undervalued securities and buy them at opportunistic times. As I look at my screen today, I am seeing a splotch of green among the red. This is the corner of my portfolios that is composed of shares of Navios Maritime (NM) . Navios announced this morning an earnings conference call for Tuesday morning. The company really does take its time in reporting earnings -- as a foreign issuer, it is not beholden to U.S. filing deadlines -- but that's not what is goosing NM shares today. No, even on a down day for the U.S. equity market, there is -- as Real Money frontman Jim Cramer likes to say -- a bull market somewhere. 

That roar is coming from the market for dry bulk shipping cargos. The Baltic Dry Index has risen by nearly 50% since Independence Day, and fixed this afternoon in London at 1,247. Cash fixtures in the spot market have recovered nicely from their summer swoon with Capesize freight rates quoted at above $19,000 per day and Panamaxes clearing the psychologically important $10,000-per-day barrier. One year ago today, Capes were quoted at $5,962 and Panamaxes at $5,819, so the scope of the recovery is truly impressive. 

You have probably read -- not on Real Money -- these terribly hackneyed articles that call the Baltic Dry Index "the best indicator you've never heard of" or some tripe like that. Real Money readers have heard about it, because in addition to my research -- which informed my RM Best Idea, Navios' Series G Preferreds, up a cool 375% since I recommended them here -- Cramer talks about the BDI frequently. 

So even though the BDI is, directionally, a good indicator of the level of transocean trade for commodities such as iron ore, coal and grains, on a day-to-day basis it is simply horrible as a predictive factor. I have no idea what ship brokers do in their free time, but during work hours they charge a 5% commission to fix charters at rates that vary so much that it is hard to see these brokers' value-add, if it truly does exist. 

But, as a shipping investor, you have to ride the waves, and I have been buying NM for my and my clients' accounts this week. The last time the BDI broke through the 1,200 mark, in early April, NM shares were quoted near $2. Today they are trading at $1.30. There has been no change in fundamentals at any of the Navios Group entities that would explain such a diminution in value, and Navios' benchmark bond (8.125% coupon due Feb. 15, 2019 ) is quoted today at 93 cents on the dollar, equal to its price in April and nearly three times the price quoted on those bonds during the depths of the shipping funk last August. 

So the market is allowing me to buy Navios' common shares on the cheap, and I've been doing just that. I'll have more on NM after earnings next week. 



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