MARKETS FINANCE
Why I’m holding onto my gold Dagfinn Lunde is horrified with all the money printing taking place by central bankers across the globe
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hen I finished my time as a full-time banker at the end of 2013, I put pretty much everything I had into gold and property. I was simply overwhelmed with how much money was being printed by central banks everywhere - it made no sense to me as an economist. Little did I know the madness was set to accelerate to the point where now rainforests are being turned to cash to paper over the cracks of the creaking Covid-19hit global economy. The world is printing money left, right and center but the system has turned very sour indeed, with 90% of what comes out of the central banks going to the 3% of the richest people. The structure of the world economy is wrong, scary, and plain strange, even for us economists. From a ship finance point of view, I expect things will get a whole lot more expensive post-Covid-19.
ISSUE TWO 2020
Banks had tight capital issues before the pandemic struck. With the losses they see in all the industries they are involved in, they are now panicking, their own share prices are tanking. So, I’d say it is highly unlikely banks will be willing to fund much new businesses, especially shipping. Bear in mind too, banks have a huge offshore issue on top of coronavirus - the cheap price of oil is hurting them massively. Yes, there are lots of smaller regional banks who have emerged in recent years, but they can offer only small amounts and often more to local customers. With the outlook for global trade and shipping so uncertain - not helped by so limited S&P deals - it’s very hard for financiers to tell real asset values and it is hard to be able to judge the risks. Chinese leasing has also taken a step back in recent months and is unlikely to throw as much cash into shipping as in previous years. The irony is, like a decade ago, it is the private equity guys who are now back on the stage. They have a space all to themselves that they have not had before, but bear in mind, they are inexperienced and expensive, although there are a few who came into the market about 10 years ago and they have learned shipping
the hard way. Of the newcomers, one PE fellow the other day quoted me a loan with 36% yield! But to be fair the normal pricing in this market tends to be in the 7% to 14% region, rather tough in shipping when average returns are not above 8%. However, contrary to the banks who today hardly quote any loan over 45-50% of market values, the alternative financiers tend to be willing to quote up to 60-65% to “justify” the higher pricing. At least there is money available, however shipping has a bad name in the capital markets with a number of banks still writing stuff off and too many shipping companies lacking decent corporate governance. To end on a positive note, there is always a comeback however perilous the cycle looks. If I had investment money to hand, I would hoover up offshore assets fast. An OSV built for $40m can be bought for $5m today. There are bargains to be had even with the outlay for layups. And as we all know, shipping is cyclical. ●
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