2007

Extraordinary or Ordinary?

It’s earnings season once again and along with announcements of earnings, companies are declaring the latest quarterly dividends. It is easy to get lulled into a false sense of security as dividends continue and companies report percentage days contracted for the current as well as future years. The latter, of course, shows earnings visibility, steady cash flow and downside protection in difficult markets. In a nutshell, shareholders are thinking, “what me worry.”

Based on recent events, a couple of owners, on the other hand, may be asking why do bad things happen to good people? First, Navios reported strong 4th quarter and year-end results that however were impacted by a one-time charge of $5.4 million relating to a writeoff of a doubtful receivable. The company described this as a counter party problem in its investor conference call. It appears that Navios may have been a victim, like many others, of the default by Canada’s North American Steamship Line (“NASL”) under its FFA agreements in November. Apparently, NASL was shorting the market in anticipation of a rate decline that never came and unfortunately these were not hedges but were speculative bets. And with no gains on the physical side, substantial losses were incurred.

This is only an excerpt of Market Commentary – 03/15/2007

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