Bananas Index – JP Morgan get’s a whole plantation of them

I TRULY HONESTLY CANNOT BELIEVE THIS ARTICLE. LET ME SAY THAT AGAIN. I TRULY HONESTLY CANNOT BELIEVE THIS ARTICLE. IT APPEARED IN TRADEWINDS ONLINE A COUPLE OF DAYS AGO. IN TERMS OF BANANAS, THIS IS RIGHT UP THERE WITH THE BEST EVER. PLEASE READ THIS SLOWLY AND TAKE IN ALL ITS GLORY. I HAVE ADDED NO OPINION OF MY OWN – JUST THE WORDS OF AN ANALYST FROM JP MORGAN.

THE SUMMARY IS THIS: DRY BULK IS KNACKERED (ALTHOUGH JP MORGAN DIDN’T ACTUALLY CORRECTLY EVEN GET CLOSE TO PREDICTING THE MAGNITUDE OF THIS DOWNFALL). IT REMAINS AS HAVING NO CONTROL ON DEMAND (WHICH OPTIMISTIC OUTLOOKS RELY ON CHINA REVERSING ITS CURRENT POLICIES AND HEADING BACK TO THOSE OF NEARLY A DECADE AGO); COAL, ONE OF THE MARKET’S MAIN DRIVERS IS SEEMINGLY ON A TERMINAL SLIDE IN DEMAND AS ALTERNATIVE ENERGY STARTS TO BITE (HEY MR COAL, ARE YOU NOT WATCHING HOW DUMB MR OIL LOOKS IN HIS HOPE OF EVERYTHING GOING BACK TO WHERE IT WAS BEFORE?); OH AND DON’T FORGET MR PARQUETTE’S SOMEWHAT CASUAL WARNING THAT DEMAND IS ACTUALLY SLOWING.

THE SECTOR IS CHRONICALLY OVER-SUPPLIED WITH SHIPS, WITH HUGE CAPACITY TO ADD MORE TONNAGE; AND SCRAPPING IS ACTUALLY SLOWING DOWN (WITH JP MORGAN ADMITTING THAT ITS OWN FORECAST WAS TOO HIGH); AND UTILISATION WILL ‘CREEP’ HIGHER IN 2018. YEP, YOU READ IT, 2018! CREEP HIGHER! OH, AND THE DOWNTURN APPARENTLY HASN’T LASTED LONG ENOUGH TO CUT OUT OVER-CAPACITY QUICKLY ENOUGH.

RETURNS HAVE BEEN ZERO AT BEST FOR A YEAR NOW. WHAT MORE DO YOU WANT? SO WHAT’S THE CONCLUSION? WELL OBVIOUSLY IT IS TO BUY MORE STOCK IN STAR BULK, A COMPANY THAT HAS DIFFICULT DEBT NEGOTIATIONS AHEAD, AND AN UNEXPLAINED ‘POTENTIAL EQUITY ISSUE’. NOW LET ME READ THAT BACK TO YOU SLOWLY. THIS GUY IS SAYING BUY STAR BULK. SLOWLY NOW . . . BUY . . . STAR . . . BULK.

HERE’S YOUR BANANA INDEX RATING MATE:

Bananas as far as the eye can see.
Bananas as far as the eye can see.

FROM TRADEWINDS 19TH JULY 2016:

JP Morgan has upgraded shares in Star Bulk while warning that the dry cargo market is taking the slow road to recovery. Analyst Noah Parquette shifted the Petros Pappas-backed company from neutral to overweight in a second quarter results preview.

While the analyst concedes the stock still carries risks relating to debt negotiations and a potential equity issue, he says potential upsides more than counter the headwinds. It came as JP Morgan told investors the bulk market is in an awkward position between the worst being over and the future looking bright.

“While the dark days of January/February are fading liking a bad dream, we still see serious risks to the story,” he said. “Namely: the over-reliance on China, the uncertain future of coal, and the large amount of dry bulk shipyard capacity in the world. We would have preferred if the hopelessness lasted longer, as that helped cleanse oversupply and was better in the long run, but somebody once said you can’t always get what you want.”

JP Morgan’s numbers show scrapping has slowed and will miss previous forecasts while demand was better than projected in the first half of 2016 but may now pull back.

“The market remains substantially oversupplied, and we think it will stay that way for all of 2016 and 2017, before utilization begins to creep higher in 2018,” he said. “We believe the recovery will be slow and gradual, given the extent of oversupply, and a recovery is still vulnerable to shifts in scrapping levels, new vessel orders and deterioration in demand.”

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