by Addison Wiggin & Ian Mathias
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So much for decoupling… OECD releases surprising global growth forecast
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One little-covered story that’s slamming the oil and gas market
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Dollar still up, resources still down… Dan Amoss with a short sell now priced at attractive levels
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Chris Mayer on the acid dissolving mining shares
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The latest target of Middle Eastern investment… they must be gluttons for punishment
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Plus, a quick-and-dirty wrap-up of The 5’s favorite investments
Hmnn… so here’s another reason why forecasting is a dubious enterprise, at best:
The Organization for Economic Cooperation and Development (OECD) essentially reversed course today. Not so much because the U.S. is surging ahead, but because the eurozone is looking rather weak. Phrases like “particularly unclear” and “still uncertain” permeate the report when referring to I.O.U.S.A.
Still, several European nations are in serious danger of recession. And, say OECD officials, the U.K. will face recession before year’s end.
Note: The OECD does not consider China, India, Russia or Brazil among its constituents.
According to its own statistics, GDP contracted in the second quarter for the first time in the history of the European Union. The zone’s economy shrank 0.2% in the second quarter, the worst performance since at least 1995.
And so the currencies of the world continue their latest trend: Buy dollars, sell almost everything else. The dollar index is up a few ticks from yesterday, at 78.4. Likewise, the euro is down a full cent again today, to $1.44. The British pound fell even further, to $1.77.
We told you about the yen yesterday … still holding strong today at 108.
Crude oil plummeted to a five-month low of $107 yesterday. We’re seeing buyers swoop in this morning, as the light, sweet stuff has added on a few bucks. But in the face of a stronger greenback and Gustav’s not-so-bad aftermath, “sell” is a word increasingly in favor in the pits. Again, we expect that trend to continue over the short term… at least through the November election. And just long enough for some firms to get crushed. For example…
The hedge fund Ospraie Management, with a heavily leveraged $3.8 billion in the commodities markets and related equities, is finished. Done. Shuttering like a virgin on prom night.
The fund lost nearly 30% in August alone, which triggered a provision that allowed investors to pull out as much money as they desired. Pull out they did — in droves. Ospraie is liquidating at fire sale prices.
Major indexes in the U.S., on the other hand, soared yesterday morning. But they were unable to stay in the black. The Dow surged 240 points out of the gate on lower oil prices and word Hurricane Gustav failed to wash away the Mississippi Delta.
When the buzz wore off by early afternoon, the Dow dropped back and closed down 0.2%. The S&P 500 fell a bit further, 0.4%. The Nasdaq dropped 0.7%.
Despite more “reasonable” prices at the pump, “U.S. trucking still faces huge challenges,” writes our short side specialist Dan Amoss.
“Aside from fuel costs, this industry is very fragmented and very competitive. In the U.S., the trucking industry generates roughly $600 billion in annual sales. Strategic Short Report readers are shorting a stock that holds less than 1% market share, despite its position as a Top 5 carrier. That’s extremely fragmented, which means it’s very difficult for industry players to gain pricing power over customers.
“Trucking capacity has grown tighter in recent months, but not because of demand. Rather, the recent surge in diesel fuel prices pushed many smaller players over the edge into bankruptcy. This temporarily helps the competitive position of the survivors, but not for long. The barriers to entering the business are simply too low, and competition can re-emerge from bankruptcy in much better shape.
“The market is rightfully concerned about fuel costs, but I think the stock market is not concerned enough about competitive threats in the trucking business.” If you’d like to learn more, Dan just told his readers to short a struggling leader in the trucking industry with “management that abuses its shareholders.” Get the details, here.
Gold is showing signs of buoyancy this week. After its latest sell-off, the spot price has flat lined around $805.
“Sulfuric acid is dissolving mining profits,” reports Chris Mayer. You might recall Chris’ coverage of rising acid costs back in April. Prices have continued to soar. The mining industry is feeling the pinch.
“Sulfuric acid is critical in mining nickel, copper and uranium. It’s also used in the fertilizer business and in making ethanol. We also use it in refining oil and in treating wastewater. In fact, it’s used in a whole bunch of things.
“And it doesn’t look like prices will slow down any time soon. ‘After a period when you could hardly give it away,’ writes The Wall Street Journal, ‘sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.’
“It’s an amazing turn of events for the mining industry,” says Mayer. “Metal prices were high, and companies were making good money. Costs are now catching up to and passing suddenly plunging metal prices. Oil is up nearly 60% since a year ago, and mining companies burn lots of it. The price of coking coal has tripled, and the mining companies burn lots of that, too.
“At the margin, the higher-cost producers of these metals are losing money. Seems relief must be on the way soon, in the form of higher prices for base metals, for the simple reason that parts of the industry are not going to supply the stuff at current prices. They won’t have a choice — they’ll go bankrupt if they don’t.”
Chris has several miners in his Special Situations portfolio, now priced at an attractive discount. Get the details, here.
The UAE government-controlled investment fund announced today the creation of Imagenation Abu Dhabi. The cleverly named SWF will invest over $1 billion in up to eight Warner Brothers feature-length films each year over the next five years.
We know from experience, Hollywood welcomes foreign investment (heck, investment of any kind) with open arms. Now that heavily leveraged private equity firms are a scant sight on the boulevard, even the empire’s culture industry is up for grabs.
“I saw I.O.U.S.A. in Myrtle Beach, S.C., and loved it,” says a reader. “I have read with interest the feedback published in The 5. One question has not been published yet: If we know this disaster is coming… how (other than with the debt-free CD offered from EverBank) do we profit from it?
“It seems like the only real answer is to keep your debt balance very low and invest in short maturity bonds, because higher yields are coming once liquidity is removed from the worldwide financial system and creditors charge the U.S. taxpayer more for newly borrowed money. Are there any smart equity plays?”
The 5: Hmmmn… seems like we cover all kinds of equity plays, daily.
In essence: Buy stocks that develop, transport or help conserve natural resources, and short the ones that depend on them excessively. Buy infrastructure. Buy businesses that don’t require massive amounts of credit and leverage, and short the ones that do. Buy “green” tech… until the bubble bursts. Investigate emerging markets… but be careful. Buy precious metals and miners of such. Invest in the serially successful, avoid the fly-by-night charlatans. Live within your means, look into foreign real estate and, by all means, avoid U.S. politics and politicians whenever possible.
Here’s why we think a crisis is virtually inevitable. This opinion was published in Ann Arbor:
“The far-right fiscal mongers are using the film I.O.U.S.A. to manipulate people and conjure up an extreme entitlement crisis of Social Security and Medicare/Medicaid. They lie about the experiment with privatization of social security in Chile, labeling it as a success where it was actually a dismal failure.
“Peter Peterson, a longtime foe of entitlements, as are William Niskanen and David Walker, are on the panel discussion film that follows the pseudodocumentary that appears first on the program. Warren Buffett and Bill Novelli are misused to imply legitimacy to the program.
“Audiences in Ann Arbor deserve better than this deliberate deception and rip-off of $12.50 in the ticket price. Who gets the profit?”
Profit? Obviously, this dimwit doesn’t know anything about the independent film business… or basic finance, for that matter.
“Given the number of people (not) reflected in the mirror at the bar,” writes a reader reacting to the photo we shared yesterday , “it appears that Patrick was about the only guy at the party. Was everyone else at the convention, or have they all thrown up their hands regarding Ms. Palin’s load of baggage and gone home to ponder their next move?”
“Pat Creadon giving his all at the piano bar,” writes another, “in the mirror behind him, I see absolutely nobody sitting in any of the chairs. Gives new meaning to ‘private party,’ eh?”
The 5: Heh. That’s funny. Yeah, there were still a bunch of Wisconsin delegates at the bar on the other side of the room. But the party had been over for some time. Still, who knew Patrick could sing?
Cheers,
Addison Wiggin
The 5 Min. Forecast