I think this is my first letter from Guam, although I did once get one from an associate in Nuku'alofa, Kingdom of Tonga, to say he was headed to Guam on a teaching job.

Anyway, here's the non-personal part of the letter:

"Hi, Bill; I currently own some stock in an oil shipping company Frontline (FRO) which along with Teekay (TK), has been hammered lately. I was attracted to Frontline because of the whopping dividend. I have earned about 10% back on my initial purchase via dividends but the stock has lost 25% of it's value during the same period, so I am net -15%.

My question for you is what is the best way to evaluate the oil shippers? They clearly do not move in tandem with oil prices. All of the RSI indicators for Frontline seem to pointing to oversold but my gut is telling me to wait. But yesterday, JP Morgan downgraded both FRO and TK so perhaps now is the time to start buying?

weekly

daily

30 minutes

15 minutes

Thanks in advance for any insight you can provide and have a great Thursday.

/C

ps " if you are ever looking for a beautiful sleepy little paradise to build a trading mecca for Asia you should check out Guam (time zone, GMT +10); although Saipan (island 100 miles north of Guam) has no income tax so it would probably be better."

This reader even sent me the chart links to the group he is studying. Thanks.

Frontline is based in Bermuda and TK in Bahamas, for reasons they operate truly global transport businesses, and wish to avail themselves of maximum tax advantages. And, you can't beat zero tax.

My well-informed fly on the Bermuda/Bahamas wall is telling me that these are well managed companies that are "doing very well. However, the bulk rates have taken a bit of a hit;".

According to another quite knowledgeable source, "TK is simply suffering from the U.S. Fuel Inventory being the highest ever, so charters are limited. The charter rates in the Caribbean have dropped;"

So, there you have it; it's a question of top line growth and pricing power.

But these things may get worse if a recession unfolds in the U.S. and Europe. At some point, in that event, one would expect to see softening in the Crude Oil futures, so Chris and others ought to keep watching those prices. The RSI, while now down to about 30 for some of the data series, could go lower.

Should broad market prices drop, I don't see any reason why there would be a counter-cyclical event with the bulk oil shippers. But when the global economy does go into an inevitable recession, these stocks will become viable Accumulation Zone candidates. They do have sufficient earnings power as well as very low PE's to be stocks that will likely rebound early in the next stock bull cycle.

In fact, if there is a reader out there who works in an office that monitors bulk carrier shipping volumes and rates, I'd like you to keep in touch. We, the Little People, don't need the big Wall Street sell-side firms telling their best clients first. If the info is public, we need to share it with the public.

That's what I mean about helping society.

Another important point: as I have been saying, the driver for higher commodity prices (oil as well as precious metals) is little more than speculation today. Supply-demand fundamentals kicked in a couple years ago, but the price is still gaining strength, even with a global economy that is growing at about a third the rate of money supply growth.

The very fact that oil is at $70 but the bulk oil carriers (FRO, TK and others) have such a slowdown in bulk shipments that they have to drop their rates is confirmation of a speculative squeeze in the commodities markets.