Veteran Hong Kong trade flow observer Charles de Trenck highlights how the price of ships has collapsed to record lows… in terms of gold.
We are still in a bottoming process on valuing ship prices in non‐dollar terms. But current entry levels are not bad from a long term perspective. And we have to bear in mind that construction costs for ships provide a certain level of price support. Take for instance that raw material costs for ship construction are still near all time highs in dollar terms. Capacity for vessel construction has been too high, as has easy money from low cost financing, ex a hiatus end‐08 and early‐09. These issues do weigh on ship prices and supply longer term. And yet, not all yards are doing as well in the current rebound. A positive in 2010 despite the pickup in orders, is that mostly the stronger yards have received orders. And other small positives have been that most orderbooks (bulk, containers, etc…) have been rolling over and declining somewhat, even if not fast enough.
So, stripping out the noise in dollar movements – or at least taking a fresh non‐dollar perspective look – gold shows that: 1) prices are lower than we might think, but that 2) “real” prices are open to risk of some flat‐ lining in value in gold terms due to central bank currency flooding, even as 3) commodity price supports may put a floor on ship construction costs.
You can actually perform his kind of analysis with a whole host of hard assets out there, since we should remember that currencies are just methods for measuring the value of assets, rather than true investment assets in and of themselves. For example, today the S&P 500 trades for less than one ounce of gold, whereas in 2005 it traded for just under 3 ounces. Which says alot about the relative performance between the two… but if gold’s a currency then it buys nearly three times the amount of shares these days.
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