Archive for

Aug 10

One for the Books

So you end up with a day that has some gold and energy stocks up as much as 10%+ while the Dow and S&P sink almost 4%. Huh? I haven’t seen a day like this before. And I mean that definitively – I don’t think there has been a day like this before. I really think that today represented something unique. Its like the correlations that have held strong for years have gone out the window today.

First of all, when stocks go down hard oil ALWAYS goes down. Always. Today it didn’t.

Second, when stocks go down, gold stocks go down. Especially speculative gold stocks. Speculative gold stocks are liquidity trackers first, gold price trackers second. Not today.

On the one hand I don’t want to read too much into one day. Its one day. On the other hand, it really did seem like something very different was emerging today.

What? I can only guess. But if I were to guess I would speculate that someone thinks that the stagflation trade is emerging, and someone else is realizing that the ECB really will begin to print money to get the EU out of debt, and maybe a bunch of others are starting to worry that the gold bugs are right and that paper currency really is nothing but paper.

Or maybe it was just a one day fluke.

What I do know is that this was quite a day for the stocks I own. My bet on gold stocks earlier this week (I bought AR.to, OGC.to, and added to JAG.to and LYD.to) started to look quite right today. And the oils didn’t do too bad either.

Coastal Energy +11%
Arcan +8%
Lydian International +14%
Argonaut Gold +10%
Jaguar +5% and up another 11% after releasing some very good cash flow and earnings numbers after the bell

These are 5 of my top 6 holdings. The only one that didn’t react strongly was Equal Energy. Some day the investment world will realize that Equal is in the Mississippian in Oklahoma too. But not today.

5 out of 6 isn’t bad.

Aug 9

Selling into Uncertainty

I don’t have much time for a longer post. Things were moving so fast today that I didn’t get all my trades in for the practice account, but this is what I did today for my actual account:

I sold out of SCS.to
I sold all of my regional banks except for 2 (ONFC, GKK)
I sold out of MERC
I add to shorts of JOE, WFT, JNK and long of HSD (double short S&P)
I bought more CEN.to
I bought some gold stocks primarily AR.to, OGC.to, JAG.to
I stuck with all my other oils and golds

Now I’m 25% cash, 20% short and the rest long, almost entirely gold and oil (with the exception of the two regionals I mentioned). I don’t know if this was the right thing to do. But here’s my thinking. The one advantage I have is that I am small enough that I can jump into and out of some of the small stocks with the best upside without making a ripple in the liquidity. The best way to take advantage of that is to get even smaller and wait for the opportunity. Today I really think I had that opportunity in CEN. This stock could be 20+ if the dust settles. But that’s the only one I would I was willing to take a chance on.

My suspicion is that there is some part of the bond or structured production market that is tied to this downgrade and it is blowing up. But what? We probably won’t know until after the fact. At any rate, something is blowing up; this has gotten out of hand.

Aug 7

What I am going to do Tomorrow

Well first, let me just say, that I don’t know what I am going to do tomorrow. There are so many moving parts this weekend that it is confusing at best and impossible at worst.

We all know about the S&P downgrade. There are a lot of predictions that the market will open down big on Monday because of the downgrade. Maybe it will. The thing is, nothing that I have read so far has described how an S&P downgrade would lead to systemic problems. One article I read pointed out that there are very few structured deals or convenants that refer specifically to the ratings of one agency. According to the article, almost all rely on a consensus downgrade among all rating agencies.

The fallout from the S&P downgrade appears to be mostly psychological. Now no doubt that the market could go down on that psychological hit. But it would be foolish I think to sell on that alone.

What makes things confusing is that the S&P downgrade is not the only question mark out there. What I pointed to Friday with regard to Italy and Spain, has not been settled. While the ECB has appeared to agree to buy Italian and Spanish bonds in the short term, there was a report from the German paper der Spiegel on Saturday that said that the Germans were balking at using the EFSF (European Stabilization Fund) to buy Italian debt. What this highlights is that there is really no longer term solution yet for dealing with the European problems. Markets aren’t going to like that.

What is going on in Europe is bad because it has potential real consequences. If Italy or Spain blows up, banks that hold their debt will blow up. Then banks will pull back on loans, cash will be raised, and the knock on effects will likely be much like what happened in 2008.

So its all about Europe in my opinion.

Even if the market does open down big on Monday, you will have to try to sort out why before you can act accordingly. It will be important to watch what Italian and Spanish CDS does on Monday. If they are not falling, I think its worth continuing to pare back. You could also buy some HSD.to to help hedge. However, if it appears that there has been some at least short term resolution to the problems in Europe, I would be tempted to hold on through a slip in stocks that was due to the S&P downgrade. I don’t think that it will last.

Aug 6

Community Bankers Trust: Gives a Little Bit of Green in the Sea of Red

In a week where most stocks I own (and most stocks period) went down, there were a few bright spots in my portfolio. Almost all of those bright spots were regional banks. The best of the bunch, by far, was Community Bankers Trust (BTC). Community bankers trust reported its second quarter earnings last week. Evidence of a nascent turnaround in their operations are likely responsible for the interest in the stock.

I only have a small position in BTC because, to be honest, they are a bit of a flyer. Unlike my other bank holdings (ONFC, HFBL, and recently XBKS) has some nonperforming loan issues.

Still there are some signs that the bank is turning things around. First of all, there has been a lot of insider buying going on in the last couple of months.

Second, delinquent loans have been coming down, as have charge-offs. On the Q2 conference call management talked of definitively turning the corner on their nonperforming loan issues. They also suggested that new loan growth would begin to kick in soon.

(note that the 30-89 day number for Q2 won’t come out until the 10-Q is filed. This is an important number and something to watch for when the 10-Q comes out).

Finally, the company is trading at a severe discount to book value. Tangible Book value is $3.57, meaning that the stock is trading at about 39% of tangible book. Moreover, unlike some banks, tangible book hasn’t proven to be a continuously shrinking metric. Book value has remained relatively constant for over a year now.

BTC is one to keep an eye on. If there is continued progress on their non-performing loans, and charge-offs continue to fall, I think this is the sort of stock that could easily triple from here. I will watching closely for their 10-Q. Confirmation that loans past due fell further in Q2 would likely lead me to buy more.