In International Shipping News 18/11/2016
The Trump shipping-stock boom is in full bloom. Trump has promised to rebuild the infrastructure in America. The narrative behind the shipping-stock boom is that these companies will see a huge jump in business as the materials for Trump infrastructure are shipped to America from overseas.
The height of insanity
It is true that Trump wants to build a wall on the Mexican border and improve our roads, bridges and airports.
Trump has also promised to revive the American steel industry. There are formidable American steel companies such as United States Steel Corp X, +0.10% AK Steel Holding Corporation AKS, -0.62% Nucor Corporation NUE, -0.67% TimkenSteel Corporation TMST, +0.07% and Steel Dynamics STLD, +0.01% prepared to supply steel and related components.
China has the most steel overcapacity in the world. However, Trump has talked about putting up to a 45% tariffs on Chinese imports. Can anyone in his or her right mind see Trump importing steel from China to build American infrastructure?
America has gravel
It is true that all the infrastructure projects will consume a large amount of gravel and related construction materials. However, plenty of gravel already exists in America. American companies such as Martin Marietta Materials MLM, -0.68% , Vulcan Materials VMC, -0.76% and Summit Materials SUM, +0.04% are fully capable of meeting the needs.
Can anyone in his or her right mind see loading gravel from China on Chinese ships to export to America?
Short squeeze
Many gurus have pronounced a short squeeze as the main reason behind these huge moves. It is true that these stocks have become hard to short now, but that is not the same as a short squeeze. Gurus claiming there is a short squeeze simply are not long-time traders with lots of experience. I have not only seen, but have profited handsomely from many short squeezes in my 30-plus years in the markets. In my opinion, a short squeeze is not the real reason behind these big moves.
Daytraders run amok
Take a look at the social media. From here, I think the real reason behind these moves is daytraders run amok. Since many of these stocks have very low floats as shown in the table referenced above, moves have become highly exaggerated.
What to do now
Certainly do not buy these stocks. If you happen to own them, take advantage of the strength and sell them. Trump’s policies of making America great again will kill the rally in these stocks. For those who have significant experience in short-selling and strong discipline of managing trades, tactically shorting very small quantities of these stocks provides excellent opportunities for handsome gains.
As of this writing they are very hard to borrow to short. Based on my experience, daytraders are weak hands. When the momentum breaks, it will become easier to borrow and short these stocks. As a caution, those without significant prior experience in short-selling should not even try to short these stocks, and those with experience must keep position sizes extremely small while taking a basket approach.
Source: The Arora Report
