I document that future returns on dry-bulk ships are strongly predictable and negatively related to current ship earnings, prices, and investment during recessions, but are not forecastable otherwise. Empirical evidence points against standard behavioural and risk-based explanations of return predictability. I argue that predictability in recessions arises due to liquidity constraints. When cash flows evaporate, distressed firms are forced to sell assets to their liquidity-constrained peers, resulting in falling prices and rising expected returns for buyers. This theory is consistent with narratives from industry practitioners, and the observation that auction sales of distressed ships are significantly more frequent in recessions.