WEST PALM BEACH, FLORIDA – Kate and I drove across America – from Idaho to Florida – this week. (We’re spending Thanksgiving with Kate’s parents.)
The drive took two days. After Thanksgiving, we’ll hit the road again, and drive straight back to Idaho…
While I was at the wheel, I had a lot of time to think…
Greetings from West Palm Beach…
Three years ago, I had a mental breakdown. I lost my kids, my job, my friends, my home, and my ability to sleep.
I tried all sorts of cures, including antipsychotic medication. Luckily, Kate, my ex-wife, came to my rescue. She picked me up and took me on a two-year, around-the-world trip with our three children.
We had a great time and I completely recovered from my illness.
We’re currently living in an Airbnb apartment in an isolated mountain town in Idaho, called Driggs. We’re going to spend the winter there, learning to ski.
And Kate and I are going to marry again, as soon as we can figure out the details.
Escaped the Rat Race
Kate and I have a small nest egg. Now that we’ve escaped the rat race, I spend most of my time thinking about how to invest our nest egg so that I can provide for my family while staying “retired.”
I invested 80% of this nest egg in physical gold, physical silver, and mining stocks. I think there’s a big paper currency devaluation coming that’s going to send gold over $10,000 an ounce.
I’ve set up the gold portfolio with a high percentage in physical metals. That way I can sleep well at night, and I don’t feel any temptation to trade or sell.
As we’ve said many times in these Postcards, the big profits in a bull market come from sitting tight.
I plan to leave this gold portfolio untouched until my favorite investment – world-dominating, dividend-raising stocks, which I call “corporate aristocrats” – are cheap again. At that point, I’ll trade our gold for them.
I’m using the Dow-to-Gold ratio as my primary indicator for telling me when to switch. As longtime Postcards readers know, the important number is 5.
A Controversial Decision
With the other 20% of our nest egg, I invested in shipping stocks…
Cargo shipping might seem like an odd choice, especially as it has all the hallmarks of a terrible business. No moat, no barriers to entry, VERY capital-intensive, and polluting.
But you can’t analyze shipping investments like other businesses… because they’re not like other businesses.
No other industry destroys assets faster than shippers.
Ships are infrastructure investments. Consider other infrastructure investments like dams, pipelines, power plants, coal mines, or toll roads.
As with an oil tanker or a bulk carrier, you spend a fortune upfront to build the asset. Then you have a payback period to make your money back.
Pipelines, toll roads, and dams have long payback periods. Once you’ve built them, they basically run forever, spitting off dividends…
Other infrastructure projects have shorter payback periods. But with plenty of capex spending and maintenance, they can keep paying dividends for decades. Oil refineries, power plants, and mines are examples.
Then, you have shipping. You might spend $100 million to build a new oil tanker. For the next 20 years, your ship will be battered by the ocean to the point where it can’t safely function anymore and needs to be sent to the scrap heap.
When you invest in an oil tanker or bulker, you’re basically investing in a slow-motion shipwreck. No other industry destroys capital so fast.
To make up for the brutal depreciation of their assets, shipping companies have to charge extremely high rates to the charterers of their ships.
The largest crude oil tankers can occasionally earn over $300,000 a day for transporting oil.
To analyze an investment in a shipping company, here’s what you do…
First, you take the cost of buying the ships. Then, you compare that with the expected payback from operating the fleet over the remaining life of the ships.
It’s simple. Here’s an example…
If you can buy a fleet of ships for $500 million, and they’ll spin off a billion in income over their remaining lifespans, you’ll double your money. But if they only spin off $400 million in income, you’ll lose 20% of your investment.
But it’s not easy…
Shipping rates are notoriously volatile. It’s very hard to predict how much money a ship might earn over, say, the next decade…
High Payback Potential
Right now, shipping stocks are trading at their lowest valuations in modern history.
I’ve spent the last six months educating myself on the shipping business. And although I’m not able to forecast ship earnings, I know what the worst-case scenario for earnings looks like.
Ships are so cheap right now, that even if ship earnings come in at a worst-case scenario, our shipping stocks will still make money.
But if things do better than the worst case, or even the average case, we’ll make a very high payback.
And that’s exactly what I expect to happen. Here’s why…
Government regulations are coming that are going to limit how much pollution ship engines are allowed to emit.
Until those rules are published – which could take several years – shipping companies will not order new ships, and the shortage of capacity is going to keep rates high.
Gratitude for Greta Thunberg
Hamish Norton – the president of Star Bulk Carriers, one of the largest shipping companies in the world – said this last week…
I think this is something that is really not well appreciated by people in the United States. Outside the United States, focus on global warming has never been higher.
And the shipping industry is looking at a political situation in which older ships burning fuel oil may not be able to keep trading for their full life. And if you ordered a ship that was legal this year… there is great worry that it may not meet regulations in five or 10 years from now.
So people are terrified about ordering ships. And that’s a really good thing.
Because we think that even if we have an excellent market in the next 1, 2, 3, 4 years – which, in fact, we expect – we think that people will not be ordering ships until it becomes clear what kinds of ships they’ll be allowed to operate.
Remember, no new ships means there will be a shortage of capacity.
With the supply of ships going down but demand staying steady, tanker rates will remain high… which will be a boon for tanker companies.
“The truth is,” Norton says, “the shipping industry owes a debt of gratitude to Greta Thunberg.”
– Tom Dyson
P.S. Holed up in a hotel room, I recorded this urgent video briefing. America is at a tipping point from which it may never recover. Saving your retirement and your family is the single best thing you can do right now. How? Watch this.
Reader comment: Tom, please tell Penny she looks sensational in her new glasses! She picked the perfect color for framing her cute face. Now that she can see, maybe she’ll catch up – or surpass – her brothers academically… not that it matters. Every child learns when given opportunities such as you and Kate have given yours. And for their future, armed with a few good guitar chords, a boy can often snag the girl of his dreams.
I love your postcards. I don’t care what you think about bitcoin because I don’t understand it, but my son (who is coming for Thanksgiving) owns some, so we will be discussing bitcoin. I agree with the precautions noted about tunnels. Build snowmen, forts, and igloos.
Reader comment: Loved the picture of Penny with her new glasses! Getting glasses can be an amazing experience as the distant becomes clear.
I’m a reader living across from you in central Wyoming. The people of the Rockies can be unrefined, but to us, the typical urbanite seems very soft. Living in Driggs and dealing with weather and remote living can teach great survival skills and self-sufficiency.
I recently read Peter Zeihan’s Disunited Nations. It is a great trip around the world looking at the geopolitical situation. Unlike you and Jim Rogers, Zeihan is not optimistic about China. Have you read this? I’d love to hear your take on it.
Reader comment: I must admit I am on Tom’s side on the bitcoin debate but for a simple, fundamental reason. People seem to think that they can find the Internet on the periodic table, like it is a naturally occurring element. Every government has the ability to turn the Internet off. So think, just for a moment: As your screen dims, what is the value now of your bitcoin? Hmmm?
The good news is that gold, AU, is on the table of reality. Think hard… connect the dots. Now that said, blockchain technology is remarkable and will greatly impact and improve our world, but not as a currency or store of value.
Reader comment: China cannot feed itself and has to import 50% of its calories and 80% of its energy and metals. Yes, they have some rare earths. Yes, they are in South America, Africa, and Iran (as is Russia). They are corrupt from local communities to the national government.
The USA can feed itself, and has enough energy in natural gas to power us and Mexico for cheap. We are energy independent in crude oil, natural gas, and nuclear. Best in the world for sun and wind power. Both still need subsidies, 11 supercarriers, and 10 jump carriers.
The USA can project power anywhere in the world. China is living on borrowed time, courtesy of the USA. Half their military is for internal security. They are having big problems. The 21st century will not be a Chinese century. In 10 years, China may be seven or 10 countries, not one. Amazing potential if it’s free, but the Chinese Communist Party will not let that happen. So sad.
Reader comment: Love your travel stories. I’ve been traveling the world my whole adult life. Now, retired from my traveling job, I took up Camino hiking. Check out The Way starring Martin Sheen. That is filmed on the famous Francis Camino.
I took up snowboarding at age 58. My instructor was 77. Still on the board at 73, with two new hips. I highly suggest No Fall Snowboarding by Danny Martin. Cheap on Amazon. It instantly upped my game and I turned into a speed freak on the mountain. Winter sports are great. Love the family life you’re living. Keep on writing.
Reader comment: I suggest watching a few videos or taking an online class to learn about some of the dangers of skiing (anything counts as schoolwork!). Educate yourselves on the dangers of tree wells while skiing.
In general, what happens is that large holes form around the trunks of evergreen trees, creating a perfect place to fall into while skiing. Once inside one of these wells, it is nearly impossible to escape.
With 500 inches of snow, this will definitely be a concern for you and your family, unless you are sticking to the groomed trails. Best of luck. Skiing is a great sport the entire family can enjoy for a lifetime. Stay safe and have fun!
Reader comment: Fish are smart. They can see you. Stay low and back away from the edge of the water. Don’t let your shadow give your presence away. Load sounds and heavy feet cause vibrations they can feel. Growing up fly-fishing, the headwaters of the Santiam river in Oregon with my Dad are some of my best memories.
Tom’s note: Thank you for your kind messages. Please keep your questions coming to [email protected] and I’ll try to answer them in Friday’s mailbag edition.