This Industry Is Set to Hit New Highs

ITASCA LAKE, MINNESOTA – Kate and I sold some of our gold a couple of months ago and bought tanker stocks. We’ve lost about 30% so far. (Meanwhile, gold has gone up.)

But I’m not selling these stocks.

In fact, I’ve resolved to keep holding, even if it means losing 100% of the investment. Or as they say, I’m going down with the ship.

But I don’t think it’ll come to that…

In yesterday’s postcard, I explained that shipping is a “feast or famine” business. My job as a shipping analyst is to capture the feasts and avoid the famines.

Today I’ll explain why I think we’re entering a period of “feast” in the oil tanker business.

But first, greetings from Lake Itasca…

Exploring America by Road

Two months ago, my family and I set out to explore America by road.

We homeschool our kids, and we thought the COVID lockdowns would be a great opportunity to show them the most beautiful country in the world.

Our international travel plans had been ruined and summer was coming, so we hit the road with a pop-up camper…

Besides, I remember the road trips my Dad took me on when I was a kid.

The campgrounds… the national parks… the fast food… the freight trains… the spectacular scenery…

They were a blast.

Camping is hard work and we’re driving a lot, but I doubt there’s a better family vacation than an American road trip.

So far, we’ve seen alligators in Florida and drank Bourbon in Kentucky…

…we’ve rafted down rapids in Georgia and toured Detroit…

…we’ve watched Great Lakes freighters navigate the locks of Lake Superior, and we’ve eaten cheese curds in Wisconsin…

…we even caught our own dinner out of a lake in Minnesota.

Today we’re at Lake Itasca, the source of the Mississippi River.

Here are Miles and Dusty…

It may not look like much, but that’s where the Mississippi starts.

Here’s the video I filmed while we were there…

Tomorrow, we head deeper into the Great Plains. Next stop: Iowa.

Last Feast

Turning back to tankers… The last feast in the oil tanker business was between 2002 and 2008.

The Chinese had just entered the World Trade Organization, and they were importing huge quantities of raw materials including oil. (China is, by far, the world’s largest importer of oil.)

But there were too few ships.

Shipping investors made astonishing profits during this time. Famous value investor Mohnish Pabrai says he made a 50-bagger in Frontline Tankers.

Here’s a video of him explaining his trade…

Two things ended the feast.

First, shipping investors thought the boom would never end. So they built far too many new ships in 2006, 2007 and 2008. It was the greatest shipbuilding period, perhaps, in seafaring history.

Second, the global financial crisis caused a global recession and popped rates.

Now, there were too many ships in the fleet.

A famine ensued in the oil tanker business. It lasted 11 years, from 2009 to 2018. (There was one brief pricing surge in 2015, but other than that, rates were terrible. The industry lost billions of dollars. Many firms went bankrupt.)

Keep in mind, a tanker has a working life of about 20 years. When it hits 20 years old, it gets pulled from the fleet and sent to the scrap yard.

In other words, all those ships built in 2006-2008 are now in the twilight of their careers.

Oldest Fleet

Right now, the oil tanker fleet has the highest average vessel age in decades. 26% of the fleet is over 15 years old.

Meanwhile, because the industry has been losing so much money and burning investors since 2008, no one’s been investing in new ships.

The oil tanker industry also has the lowest order book for new ships, as a percentage of the fleet, that it’s had in 23 years.

In other words, the oil tanker fleet is going to be shrinking fast over the next few years.

It takes two years to build a new tanker. So we can be certain the fleet will keep shrinking for at least two more years.

Plus, with COVID closing down shipyards… and the markets not being forthcoming with capital for ships right now… I doubt there’s going to be a sudden spike in orders over the next 12 months.

So the earliest we could see new ships hit the market is July 2023. And that means the industry will probably be “tight” until at least 2024.

Tight Industry

The industry is already tight.

By that, I mean there aren’t enough ships, generally speaking. And any disturbance to the delicate balance of supply and demand causes a jump or “surge” in rates.

We’ve already started seeing evidence of this tightness in the way rates have been so sensitive to the COVID, Cosco, and IMO 2020 disruptions over the last nine months…

Yesterday, I explained why COVID and Cosco sanctions caused rates to surge. IMO 2020 is another big one.

In short, IMO is an environmental regulation that came into effect at the beginning of this year. It requires ships to emit less pollution in their exhaust. Compliance with this regulation is expensive (you must either install a scrubber or burn expensive fuel).

IMO 2020 has two important effects.

One, it accelerates the scrapping of old and marginally profitable vessels. And two, it delays the ordering of new vessels due to the uncertainty over new regulations they might enact.

Given the current tightness in the fleet and the steep reduction in the fleet we’ll see over the next three years, I believe we’ve entered a feast period in the tanker industry…

Tomorrow, we’ll get into recent developments and the valuations of tanker stocks (they’re very cheap).

To be continued…

– Tom Dyson

P.S. Here’s the next episode of the Dyson Family Ramble Videos, where we answer your questions and comments… (We filmed this one over the Fourth of July holiday weekend.)

Like what you’re reading? Send your thoughts to [email protected].

In today’s mailbag, one reader is concerned about coronavirus… While others inquire more about Tom’s Dow-to-Gold trade, and the best ways to invest in gold without buying the physical metal…

Reader question: Do you ever get concerned with COVID-19 catching up with you or any of your family? I am concerned for my wife and myself, and as a result we find ourselves stressed out – and we are in a relatively safe area (Vancouver, BC). Good travels and be safe.

Tom’s response: I was concerned about COVID in February and March, especially as we didn’t have health insurance. Then I stopped watching the news and reading the newspapers, and we started traveling around America, and my concerns completely evaporated. I hardly think about it now. Nor, it seems, do most people we come across in our campsites and in the small towns we visit. So it hasn’t been much of an issue.

I’ve noticed that Florida is having an explosion in cases recently. That worries me, because Kate’s parents live there. But still, I feel so confused by all the different arguments about coronavirus that I don’t know what to believe anymore…

Reader question: On thinking down the line – once gold goes up and the switch happens, we all will need money, whether it is to purchase land, live life, or move; what have you. Any concern on the dollar down the line? And if, in January 2021, the global reset decision is to have a digital monetary system, will the profits go into land, Bitcoin, or a foreign currency?

Tom’s response: Once the Dow-to-Gold ratio goes to 5, I’m buying stocks. The best stocks in the world, like Coca-Cola, Disney, etc. The sort of stocks Warren Buffett likes that are really good for compounding dividends and interest. (Compounding is the royal road to riches. It’s the only investment method I’d consider for the bulk of my savings over the long run.)

Then I’m going to stick with those stocks – and collect their dividends – until one of two things happen: a) I die, or b) The Dow-to-Gold ratio rises to its upper band, valuations get expensive, and I have to seek shelter in gold again.

If I need cash to support my family’s lifestyle, then I’ll just collect the dividends these stocks will pay me. If I can buy these great stocks at a Dow-to-Gold ratio below 5, the dividends should be more than enough for us to live off. I’m not interested in anything else. No foreign currency. No crypto. No property.

Reader question: What happens if both the Dow and gold rally and hit your magic number of 5? Let’s say gold is at $10000. That puts the Dow near 50,000. Many stocks could be at multiples higher than where they are now. We could be trading an inflated gold asset for an inflated financial one. Just a thought!

Tom’s response: The Dow’s nominal price isn’t important. It’s the valuation of the stock market and the stock market’s price relative to gold that I care about.

Reader question: I am trying to retire and I’m almost 68. Physical gold is out of my reach. I’m trying to get on your “gold” wagon after listening to your lengthy presentation. I’m not able to purchase your discounted $2,000 program you represented. Can you let me know if gold stocks mining and royalty companies are a good investment?

Enjoy your family and your travels during COVID. I appreciate any consideration to my plight.

Tom’s response: Why is gold out of your reach but you have money to buy gold mining stocks? I don’t understand. You can buy gold with as little as $50, especially if you go through your broker and buy a gold ETF commission free.

You could also use the app OneGold. It’s a partnership between two of the planet’s largest gold traders. They store the gold for you, and you can trade it from your phone anytime you want with very low fees. They even offer a direct debit feature where you auto-invest in gold and silver every month directly from your bank account.

Gold stocks are a good investment, but in my opinion, only if purchased as “kickers” to a much larger investment in physical gold and silver.

Reader comment: Thanks for your postcards. I am very happy that you have the opportunity to restore your family and make them a priority.

Just a suggestion, but there are a lot of dads out there like me who wanted to keep their family together but who ended up getting divorced and kicked out of the house, and had their finances go down the tubes and, consequently, any retirement programs they had worked many years to build.

With a lot of hard work and determination I have moved on from that and I’m back on my feet, but I don’t have a huge chunk of money to take advantage of your general theme of investing in gold.

You seem to ignore us small guys who cannot scrounge together $1,000 a month and are starving for someone to provide actionable advice for that without having to watch a bunch of videos or reading a bunch of charts. Maybe you could help me out with that?

Tom’s response: From your letter it sounds as if you don’t have any savings. Your first job should be building savings. Once you’ve got some savings, then you can begin to consider how to store those savings. But in your current position, it’s no wonder you find investment and macroeconomic advice to be useless.

Meanwhile, others share their joys with the Dyson family videos… and make suggestions for future ones…

Reader comment: Been really enjoying your travels and the videos add a more personal dimension – Penny is a hoot!

Reader comment: I love the video chats from the campsite.

Reader comment: I missed seeing Kate today. It is honorable to be shy. I always was in my youth. The kids tickle me tremendously. Enjoy the cabin. The journeys I have taken on the back roads and the people I have met are my fondest vacation memories. Hope to see you ALL on the video tomorrow.

Reader comment: Just watched your family video for the first time. Love seeing you all live!! Really cute kids! MN is our home. Happy to know you are enjoying up north! I’ve never caught a fish that big! Congrats! Love the accent, too! We have a place near the cities and would love to host you and yours for a stay. Be safe! Hugs.

Reader comment: Love the videos. I watch them at night before I go to bed. Nice to see Kate in them – she is a very important part of the Dyson clan and she is beautiful. I would love to hear from each of the children in their words what they studied/learned each day. Children have such an honest and simple perspective of the world they see. Thanks for sharing!

Tom’s response: This is a great idea. I will incorporate this into our future videos. (Did you see today’s video? I filmed it at the source of the Mississippi River.)

We often study the things we see.

So, for example, when we were in India, Kate made sure they learned about India… its economy, its culture, its history, its languages, etc. When we were camping next to Lake Superior, Kate made sure they learned about the Great Lakes. Today, we learned about the Mississippi River…

Reader comment: Tom, I can’t tell you how much I’m enjoying your adventures on the road. I would love to do the same thing – just back road through America. I also appreciated your comments about how generous and welcoming Americans are…

My parents emigrated after World War II from Hungary, and at that time (and still now) America was a beacon to the world. In so many other countries, how and where you’re born dictates the rest of your life. And that is what appealed, at that time, to my parents. The “only” American ideal is that you can STILL do what you want, and people won’t judge you by your parents or upbringing or where you’re from. We have our problems, but as you’re seeing off the interstates, the old America still survives – even if it has taken a punch to the gut from this coronavirus.

And by the way – I share your fascination and love of trains – I would have stopped to take a picture by that same engine! Best to you and the family!

Reader comment: Tom and family. You’re adorable and human. I am getting closer to selling my positions and buying gold! Bless you the Dyson family.

Reader comment: Since day one of your adventures, I have followed along and now I just sit and wait for the next update. It’s truly refreshing to hear from someone who truly opens his mind and his heart to the world. I wish I could. Perhaps someday. I have traveled to some of your stays around the world and just the story and the spirit you put into each of them is really remarkable.

I have been long-time retired (I’m 77 now and not in the best of health) but stories bring back the days when I was there more than anything else! I am, of course, interested in your concept of the Dow-to-Gold ratio and it renews my faith in hanging on to my bullion. I have been a long-time investor in it, and some of the miners, but I was starting to wane after some big losses.

Reader comment: Hi Tom, Kate, and the family. I’ve enjoyed reading your postcards for many months and now think the videos are a great addition to the pics. Admire your values to travel and homeschool. The experiences are priceless!! Having lived overseas in the past for a number of years, I agree with you, Tom, about the kindness you meet here traveling around the country. What a fantastic family you are!

Tom’s response: Please keep your messages coming. We read them all. Even if your message doesn’t appear in the mailbag, we still received it and read it.

I’ve said this many times before, but your well wishes and encouraging messages have spurred us on to keep traveling and keep writing…

As always, write us at [email protected].