Sunday, 27 March 2016

Low oil price - Bubbles of Tankers, Liftboats and LNG carriers?

This post is in response to SMK comment in my previous article querying if Tanker market is overheating. Thank you SMK.  


Indeed, the number of tankers has been increasing since oil price had headed in the opposite direction. The oil glut has led to on-land oil inventories rising to record levels. More and more ships are required not just to transport but also store oil. The rates are not fantastically high, but still one of the highest since year 2009. From the ground in which I met people in events, and also heard from friends, this fact has been ascertain. 2016 is expected to be a fantastic year for tanker industry, but is this sustainable?

Liftboats aka Self-Elevating Units (SEU)

Likewise, because of the oil price plunge resulting in lower Capital Expenditure (CAPEX) from oil companies in exploring green oilfields, many are betting that the money will be spent instead on existing fields especially in the area of maintenance. This is where the more optimal Liftboat will come into play. And according to statistics, the penetration rate of liftboats in Asia pacific is still relatively low compare to US, GoM and West Africa. Therefore since the stop of newbuilding projects for rigs, various types of offshore vessels etc, there has been a rise of new players building liftboats. For more about liftboats read:

Prior to oil price plunged

Ezion is one of the largest liftboat owners around in this region. Beside Ezion, there have been new players entering this market since few years ago. Triyards is also one of the largest builders of liftboats with units for US-based and South-East Asia-based operators. Swissco is one who is building liftboat in Triyards. Baker Tech also announced in late 2014 the construction of its first liftboat using in-housed design. China Tianjin-based De-sail also had several liftboats design in-house built in 2014. Malaysia-based Vahana Offshore also awarded the constructing of two liftboats to UAE-based Eversendai's yard in UAE, due for delivery in 2016. Another Singapore listed company Atlantic Navigation ordered in May 2014 a newbuild liftboat with a Chinese shipyard for US$46 mil.

After oil price plunged

Jun 15: China Mekers Machinery ordered two liftboats at Shanghai Bestway, a design company for US$58 mil each, with expected delivery in 2017-18.
Jun15: Tianjin Haiheng Ship Engineering ordered four liftboat with China Merchants Heavy
Industry in July 2015, with delivery for all units before September 2017.
Jul 15: Keppel FELS wins $85m liftboat contract from Crystal Heights (Crystal Heights is associated to Falcon Energy)

LNG Carriers

LNG  has definitely performed better compared to crude. But LNG has a lag behind crude. It is a matter of time where supply will be abundant to drag the prices down as many experts predicted. This is when there will be overheating in the shipbuilding of LNG vessels as well. In Korea, there are also many LNG vessels on order since 2014, followed by Japan and China. As of end Jun 2015, there are 119 units backlog for delivery till 2020.

Rolf’s Thoughts

So question is will tankers, liftboats or LNG carriers’ bubbles burst eventually, following the footsteps of drilling rigs and offshore support vessels?

Saturday, 26 March 2016

Is now the right time to dive into Oil and Gas stocks? Let’s hear from market sentiments!

Oil price has climbed from a low of $30 per barrel early this year to $40 now. It is a more than 30% rise and share prices of Keppel Corp and Sembcorp have climbed in quite a similar fashion.

So the questions really are:

“Has oil price bottomed out? Is now the right time to dive into Oil and Gas shares?

Bad sentiments – good time for entry?

I was in Kuala Lumpur this week to visit clients and also to attend the bi-annual Offshore Technology Centre “OTC” exhibition. The exhibition is buzzing with more than 15,000 delegates and trade visitors and close to 18,000 registrants from over 80 countries. For me, I met so many familiar faces from the industry as well as new faces as young as fresh graduates. It was great!

Many mentioned that the exhibition was so busy because people just do not have much work to do. Others said that this is best time for people who already sense that they are on the brink of losing their jobs to bring along their CVs and distribute to potential employers.

Needless to say, everyone commented that O&G business is very bad! This is in contrast to one year ago when many are still feeling a bit of indifferent and hopeful despite that oil price already began the plunge in 3Q2014.

So…when sentiments are already this bad, meaning a sign of entry to O&G stocks? In contrast, when everybody is talking how good the industry is, typically it is the time to sell!

From the horse mouth

From Keppel, I heard that business is bad but they are actively diversifying into other sectors for the long term. How about the share price I asked. A Keppel staff who had been in the in the company for more than a decade said, it is unlikely that for a long time that share price will go back to the hay days of above $10! As for jobs retrenchments, I have not heard anyone I know in Keppel who is retrenched. I was told that till now, axing is mostly laid on contract staffs and most overseas staffs.

Earlier this month, Petronas also announced restructuring that will affect under 1,000 jobs. Malaysian Prime Minister Najib who also attended the inaugural OTC show and added some confidence saying that Petronas is still very strong and going to do well. Refer to article here. Yet, I heard from rumours that Petronas is actually slashing more jobs than the media has reported in order to protect the state-owned company’s image.

Far away in Brazil and Mexico, Petrobras and PEMEX respectively are also still in situation of disarray with billions of losses announced coupled with massive debts! Many suppliers claimed that they already stopped receiving payments from these oil majors. While it appears that there is some good news that PEMEX has a new CEO lately and promise to reorganize and start clearing bills, it will normally take a while for a new chief to settle down and exert his influence.   

For major EPC contractors, such as Malaysia listed Sapurakencana and Bumi Armada, International players such as Technip, Saipem, Subsea 7, McDermott etc, backlog orders are drying up.

What I heard is for most of these companies, contract staffs are hearing no confirmation of contracts extension. Even many permanent staffs are unsure of their employment future! Morale is low, but still busy with work though as of now.

Malaysia’s Bumi Armada, Keppel's client for FPSO conversion projects isn’t doing that good. Bumi is embroiled in a legal suit with Australian Woodside’s Petroleum subsidiary company for the termination of her FPSO contract. To offset the bad news, Bumi had recently appointed a new CEO having without a permanent one already for more than a year now. SapuraKencana is said to have many offshore construction and pipelay vessels with no firm jobs next year.

The common term of warm stacked is used, meaning vessels being lay up with no jobs and with few crews onboard.

Singapore listed Swiber are still having lots of backlog jobs particularly in India, and anticipating more to comes! Nonetheless it was rumoured from the industry that these jobs were awarded at an extremely low price with marginal or no profits? Despite the huge number of jobs for Swiber, the thorny problem is the huge debt problem she is facing and staffs being overloaded with duties leading to inefficiency.

Likewise Ezra/EMAS is also seeing jobs but she too, is struggling with high leverage problems having to repay massive debts. EMAS had already let go many expat staffs and are aggressively cutting cost. However, it seems like they had possibly received a lifeline when Japanese company Chioyada bought a stake into the company. 

If Oil companies and EPC contractors are doing badly, indirectly it means that OSV companies who depend on the former for jobs, will fared badly if not worst! OSV companies in Singapore includes the likes of Pacific Radiance, Nam Cheong, Marco Polo, POSH, Falcon Energy etc will all still be facing some tough times ahead.

Not good for Singapore

More worrying for Singapore is McDermott, Subsea 7 and Technip who used to have sizeable operations in Singapore are all almost entirely shutting their operations here and relocating to KL. This is definitely bad for Singapore as many lament that Singapore is really getting ridiculously expensive for expats. Having been to Perth, Netherlands, Kuala Lumpur and Singapore in the last month or so, I think this is genuinely true, especially when it comes to goods and services that are more catered for expats – not hawker food nor HDB though which is still very affordable.

Rolf’s Thoughts

If you ask me if oil price has already bottomed out, I seriously don’t know and will not predict! What I know is compare to last year, this is definitely a better time for entry into O&G stocks. Overall, I still think that oil price at $30 or even $40 is seriously not sustainable in the longer term.

That said, while oil price directly impact Oil companies’ revenue and have a faster effect to her top and bottom lines, this is not the same for companies further down the supply chain. Even if oil price increases, Oil companies still need time to invest, and it is going to take time before new projects will be seen. This means many companies will see fundamental problems of lack of revenue and thinner margins.

The recent rebound of share prices in tandem to oil price is supposedly just market reaction. Market in the short term at most times does not care about the fundamentals. So if you think that just because the Oil and Gas companies’ share prices have rebounded in the last two weeks, the companies are going to report strong figures in coming quarters?  Then I will beg to differ. I suspect, in terms of company performance, the worst have yet to come. Many people I know are still having their jobs intact having to finish the backlog project in 2016 and early 2017. The sentiments are not exactly that bad yet!

I believe beginning or mid of 2017 should be the time with most pain felt!

And since there is normally a lag in share pricing relative to company’s fundamentals with pessimism or optimism embedded into the share price, if I really need to predict when to invest into Oil and Gas stocks, I will think that it is better to wait until the end of this year or early next year before we have better visibility to make the correct decision. I could be wrong!

Sunday, 20 March 2016

Ray Dalio’s Exceptional Insight!

One of my favourite investors is Ray Dalio. I had reproduced his recent interview with Bloomberg in words as follows. Hope it helps in your investment decision. 

Recap of Ray Dalio Economic Machine

Productivity Matters in the Long Run – What you earn is what you get to spend.

Short term debt cycle – aka business cycle 5-8 years allows us to spend more than what we earn over a short period of time, but when you pay back, you have to spend less

Long term debt cycle - 50-75 years (1930s and 2008) i.e. when you have too much debt relative to income that you cannot service anymore and when rate of interest goes to zero, there cannot be stimulation anymore, we run out of usual monetary policy, then you have to go to monetary policy 2 which is QE. This happens in Great Depression and GFC.

Current Situation – Pushing on a string

QE which means purchase of financial assets by the central bank and the sellers of those financial assets then buy other financial assets and cause the price of these assets to increase, which have the effect of diminishing returns eventually. And when expected returns are low in relationship to cash, one is almost indifferent. So when you buy that bond, when the fed put that money in the system, that person is going to be indifferent. This is called “pushing on a string!”.

Pushing on a string begins in 1935 and are now going in a situation which is somewhat worldwide analogous to that. We approaching it countries by countries.

Countries analysis

Japan were the first for couple of decades because they put interest rate at zero and they are trying to get 2% inflation but it is not working.

Europe is there also. Across the curve, we have interest rate at zero and likely negative depending on where and it is certainly not going to work and the purchase of these financial assets is getting transmitted to currency movement. Then the effectiveness of raising those financial assets is limited.

In USA there is little more room. She is close to zero interest rate, and then if you take the spread, the spread are relatively low, little less than 2% bond yield and equity expected return is approx. 4%, so there are some spread there, some ability. The issue is asymmetric risk to the downside.

Monetary Policy 3 – putting money directly in the hands of spenders

For upside, tightening is always going to be effective to raise interest rate. Things are going to slow down because everybody has lots of debts, so not a problem.

The situation is the risk to the downside. This is risky. Then you need other forms of stimulation which is monetary policy 3. This is not QE because money is in financial community and has little effect anymore. This is towards mainly to put money directly into the hands of spenders! E.g. print money and hand money to consumers.

And with combination of fiscal and monetary policy, Fed government run deficit where central bankers can monetize it by lending the money. Continuum one i.e. “Helicopter Money” process of putting money into people legally to spend it and it can bypass the financial market.  

History happens before but just that it does not happen in our lifetime, so it goes unnoticed.

Next Big Move

Ray Dalio mentioned the next big move will be QE! It is not the 25 basis points type of hike, which is not the big move he meant. By then, it will be a serious mistake. Circumstances now have surprised the Fed because they have not pay attention to the long term debt cycle. Our risk is not inflation and not overheating of the economy but long term debt cycle.

Asset Prices

It will correct to a point where the risk premium (or spread) comes back.

Ray Dalio is not bearish on the stock market!

Expect stock to return 4% which is long term return and this is a problem for savers e.g. pension fund. It is like a slow growing cancer, because it will not happen overnight but it means we will have not enough to fund those return.

Investors have choice of 1) Cash – zero % return 2) Bond – 2% return and 3) Equity – 4% return.

When assets sell off, it becomes attractive, and then it draws investor in. The issue is the possibility effect of negative feedback loop that comes from the ineffectiveness of monetary policy, so when stocks go down and have a negative wealth effect, this transmit to negative effects on economy and if you don’t have the ability to ease, that is worrying. E.g. USA and like Japan.

Investment Strategy

Good strategic asset allocation
This means balance portfolio and not go to table and bet against active investors like Ray Dalio. It is not easy to win in the market. Ray Dalio’s Bridgewater fund does not just go systematic long everything. It can go either way. E.g. in 2008 they return is 10%.

“I am so scare about being wrong, that it helps to reduce my chances of being wrong and I don’t take bets that I don’t feel good about and we diversify our portfolio!”

A balanced portfolio is a well-diversified one. Remember asset class always outperforms cash! The only exception is during Depression.

Have gold in the portfolio 5-10%

“Prudence is important thing to do!”

Don’t make tactical bets
Don’t compete against the professional and do not try to move around in the market and you probably are going to lose. E.g. you have a strategy which is good, and then you change your mind which is not helpful.

On Oil
Cannot tell

On China
Very similar to the situation that USA use to go through in the past. The issue is you cannot have debt cannot rise faster than income. And this is happening in China now.

China needs to have a slower rate of debt and they need to restructure that. USA has 3 major debt restructuring and done that successfully. It is going to be a different kind of industry. E.g. steel industry in USA changing into consumption then to digital technology.

China needs to restructure their economy which is a difficult thing to do, and they also have a balance of payment issues. (i.e. outflows).

Leadership to manage it matters! According to Ray Dalio’s contact in China, he claimed that China has very capable people in leadership. But not the stock market handling recently. That is not capable. Dalio thinks that China leadership capability is equal to the best in the world.

Heart Transplant
It is like China is going through a Heart Transplant! You need to right execution but it is going to be fine in the long term after the operation but it weakens you. But you will get through it and be better than before.

Balance of payment issues
It is difficult because money is leaving the country. China has lots of control because many enterprises are state-owned-enterprises (SOE). China can open the bond market to have greater control over it.

Devalue currency
Will China devalue its currency? Ray Dalio does not know and he said it is too close to call.

Market in general

In general we will have slow growth, and sees up and down. This presents difficulty for monetary policy. We will see currency volatility.  

Ray Dalio is not expecting the 2008 type of crisis. Definitely not a big bang type of crisis in the near term. It will be stagnation and choppy!

In a zero interest rate environment, when there is a market sell-off, there will be risk premiums, and money will flow back into the system. They will change from cash to assets and so on a so forth

He is more concern about the negative feedback loop. E.g. stocks decline and dollar increase and USA becomes less competitive i.e. essentially tightening of monetary policy. Then how exactly this effect is passed into the economy is the asymmetrical risk that is of concern.

On Politics and Donald Trump

Ray Dalio mentioned that there is a part in his youtube “Economic Machine” video that pointed out this. During a part of the economic cycle, there will be tension between the “haves” and “have not” and people are frustrated at the government. This is no different in Spain.

The emotionally charged individual who may not be well-informed in choosing leaders might select leaders who are not capable and as emotion themselves. And if that happens and normally prone to happening, which means a type of leadership that handle the situation can be worse than a capable and moderate type of leader who understand how the machine works!

If we have one group fighting against another, it is bad. If a moderate leader can bring together and work together, that is good!

Rolf’s Summary
  • Next big move – QE3 or even Monetary policy 3 where money is put directly into the hands of spenders. 
  • The biggest concern is asymmetrical risks to the downside or negative wealth feedback loop.
  • Not bearish on stock market. Predict long term equity expected return of 4%.
  • Strategic over tactical allocation. This means have a balanced portfolio and well diversified
  • Have gold in the portfolio 5-10% 
  • Always be very prudent. 
  • Cannot forecast oil
  • China is going to be fine in the long term. 
  • Bet on consumption and digital technology companies.
  • Slow growth environment and choppy market with volatile currency.
  • Do not expect major crisis in the near term.
  • Politics and the selection of leader matters to the economy.

Saturday, 19 March 2016

What am I doing during the recent STI rally?

Since the start of the year, it has been like a roller coaster ride for STI Index. See above diagram. It was 2883 points from start of year 2016, then the panicky slide to trough at 2532 points (late Jan to Mid Feb) before the recent raging rally above 2900 points.

In a recent interview of Bloomberg with Ray Dalio, he mentioned that it is unlikely that the world economy will go into a recession like what we encountered in 2008-09, but it is likely that the market will be volatile up and down in a low growth global environment for some time.  

Busy in work and quiet in stocks

While I am aware of the recent rally, I have hardly any time to pay too much attention on it. In other words, no action in my stock trades. It has been an extremely busy last month for me with travels to Australia, Europe and then this week with overseas visitors followed by upcoming Malaysia trip.

A big piece of news for me in work is my boss for only the past year, whom I had excellent relationship with, has tendered resignation. I was hence tasked with more responsibility on my shoulder by the higher management.

Wait a minute… Nope, this is neither a promotion nor a pay rise! Instead, just added responsibility and yet with higher expectation to do well.

Definitely not good news for me!

Moreover, I will now need to accustom to a new superior, someone who I does not know well at all. Apparently my current new boss is already the fifth one in the last 3 years for me. Crazy right?

This explains why I am pretty quiet in the blogosphere and stock market lately and expects somewhat the same going forward.

Get the mentality right

Meanwhile, in the depressed oil and gas environment which already see many people being shown the door, anything can happen to me as well.

No iron rice bowl!

I am always mentally prepared so that if the big axe is waved down on me, I will still survive the chop both financially and mentally! Which is why I am being very prudent in my expenses and stock-cash position since last year. Read:

Sell into the rally

In fact it is not a bad thing to be dormant especially in “purchasing” new shares during this STI rally. More so, I reckon that now is a good time to sell the rally for stocks that is mainly meant for trading purposes! For me, I had sold quite early when STI surpassed 2800 points in early March. Refer to my earlier post here.

Did I sell too early? Yes I did!

Did I regret it? No, I didn’t.

This is because you simply cannot time the market. Moreover, I will be too busy always not in office to properly execute the sale of shares. This is also an issue that if you are busy in work, you should not be doing too much trading, and focus in long term investing!

What should I do now?

For now, I will be patient to wait for the next downtrend to pick up more shares, if there are any!
If the rally continues, it will be good for my existing portfolio in terms of paper value. Similarly I may be prompted to sell more shares.

Alternatively, I can also spend more time focusing on work, which I expect to be very hectic going forward. That is if I still stay employable!

Most important of all is to spend more time with my kids and wife which I has been guilty of spending so little time with lately. 

How about you? What are you doing in the stock market right now? 

Sunday, 6 March 2016

My Portfolio – Recent Actions

STI Index, from its low of 2,532 points on 21 Jan 2016, has climbed lightning quick to 2,837 recently. This jump is mainly within the last week or so. I grab the opportunity to take profits for some of the stocks I own.  

As mentioned in my last few Portfolio updates, I had been pretty active acquiring shares when STI first dropped below 2800 and later below 2630 since the start of the year.  

My Portfolio – Recent Actions
Bought DBS and OCBC today! How I hedge my bets!
STI goes below 2630 - Second benchmark breached, Scoop Again!
STI goes below 2,800 - Eat Slowly, Be Patient, and Don't Get Indigestion

My Recent “Sell” 

Since 2016
Price bought
(incl. fees)
Price Sold
(incl. fees)
% change
Valuetronics (BN2)
DBS (D05)
OCBC (O39)
SGX (S68)
Singpost (S08)
Wingtai (W05)
Global Logistic (MC0)

Still reasonably tasty profits within a short time, considering brokerage fees inclusive!

My way of managing both the up and downside

For GLP, the above table only show the sale of shares bought during 2016, which I profited. Last year, my average bought price for GLP is 2.10. I am pretty sceptical about the recent rally of GLP from a low of 1.60 to high above 1.90 (~16% increase). Therefore, I did another partial sold down at 1.905 for those units bought in 2015 as well. 

This is my strategy of risk management. If GLP were to next drop below 1.905, I will buyback more shares. If it is to continue rally, my existing holdings will benefit. In this way, I manage both the upside and the downside.

The same strategy will apply for Super Group. I had sold minor stakes in Super at 1.01 this week to incur lesser losses (compared to Super when its share price was 0.7-0.8) for those shares I acquired in 2014 at a high price of above 1.40. When price were to fall back to the 0.7-0.8, I will acquire more!

Final Thoughts

I actually feel that the recent rally has NO strong correlation to the foreseeable improvement in the forward outlook of the economy. It can possibly be overbought in a manner too fast! Possibly some doings of larger fund institution, I do not know?

Did I sell at the right time? I do not know either!

All I know is I am comfortable now to take some profits and to use it to mitigate my paper losses for those shares acquired in 2015 and 2014 at a much higher pricing. This is also a good way to pare down holdings of certain shares which has been otherwise too high in its percentage of the total portfolio. 

Overall, I am not very convinced that the recently announced stimulus package of China or Europe is going to help too much the current state of global economy.

Moreover, this current action for me is more for stocks I am employing for short term trading. I still own quite a handful of stocks that are mainly for long term which I do not intend to sell. Two good examples of a quality stocks I owned in my opinion, are Raffles Medical and Coca Cola Amatil (ASX).  

Hence, overall, I am still a long term investor, but will employ short term tactics when I see the need for myself. 

I am now >65% cash (i.e. for equity-cash portfolio) and my watchlists are already carefully crafted in advance, waiting patiently before the opportunity to pounce! 

Tuesday, 1 March 2016

“Everest” and Perfectly “Burnt”!

I watched two movies on the plane last week - Everest and Burnt. Both are good movies.


Everest is a true life story that portrays the strength of humans in the toughest conditions. The 1996 Everest tragedy lost 12 lives. What is worth mentioning is one of the climbers Dr Beck Weathers who miraculously survived being mentally spurred on by vision of his family members on his mind.

Weathers said this in an interview here:

Then came my epiphany.

My family appeared in my mind’s eye. I knew with absolute clarity that if I did not stand up, I would die there. I struggled to my feet, almost completely blind. I told myself, ‘You cannot sweat the small stuff,’ and began to move across uneven ground.

Each time I fell – blam! – I got up and started again.

I knew when the sun was gone, I was gone, too. I felt overwhelming melancholy that I would never again say I love you to my wife, or hold my children.

If you knew and believed that in one hour you would be dead, what would you think about? What would those last moments hold for you?

It was no surprise that at that point that I could see before me my wife and my two children. In my mind’s eye, they were clear as if they were standing next to me.”


Burnt caught my attention as much, even though it is no extravagant setup.

It's about the life of a chef, Adam Jones. Jones is a top Michelin chef but struggled with his life being brought up in tough conditions, and later got into a series of drugs and alcohol problems and stopped being a chef. He reflected his life and made a comeback three years later. 

During the journey of his comeback to become a 3-star Michelin Chef, there were many setbacks as a result of his uncanny character. When Adam failed to achieve his own standards of flawlessness, he threw tantrums at everyone and even more to himself, trying to commit suicide.Adam asked for perfection in life and was aloof and arrogant, but he was one of the best cooks around.

What he does not understand is there isn't perfection in life!

The people around Adam showered unconditional concern to him. At the lowest point of his comeback journey, even his enemy showed concern! Eventually the care, concern and love of people around him make him realized that :

"PERFECTION is when we accept flaws and do it together!"

Nearing to the end of the show, when the Michelin inspectors randomly visited the restaurant for the "third star" test, Adam did not behave any different from his normal day at work. He said :

“We do what we do and we do it together!”

The show ended when Adam joined the rest of the chefs in a routine family meal with laughters filling the air, something Adam had never done before with his chef mates together. 

This is happiness!