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Dr. Fly

18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.

New iBank Theme: Rip off the Koreans

Yesterday Lehman was selling a part of their bank to the Koreans, today it’s Merrill.

I guess there aren’t anymore Chinese, European and Middle Eastern men to con. Also, in an odd twist of fate, the Korean won is getting bludgeoned on a daily basis.

“We have yet to reach an agreement because of differences in assessing the value of assets,” Lee Chol Hwi said yesterday in an interview in Seoul. “We have been seeking to buy a significant amount, but a deal may be difficult at this rate.”

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All very odd, no?

I can see the sales pitch now: “Take your filthy Korean wons see. Take them, see, and buy part of our bank see. We’ll sell it to you real cheap, see. Hey, Johnny, how cheap can we sell it?

Johnny: “We can sell it for 5 billion bux [sic].”

“See, 5 billion bucks for a piece of America, see. Do it and I’ll throw in a commodity fund too, see. They’re cheap too, right.”

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U.S. Equities: The Great Destroyer of Wealth

You thought today’s tape was benign, with a slightly bullish bias for the banks?

Look again.

The commodity/infrastructure plays were manhandled, yet again.

Look at the losses in Joy Global Inc. [[JOYG]] , Bucyrus International, Inc. [[BUCY]] , Foster Wheeler Ltd. [[FWLT]] , Fluor Corporation (NEW) [[FLR]] , Caterpillar Inc. [[CAT]] , Terex Corporation [[TEX]] , McDermott International [[MDR]] , amongst others. And how about the dry bulk shippers? Boy, they were great, right.

Look again.

Shares of DryShips Inc. [[DRYS]] , TBS International Limited [[TBSI]] and Genco Shipping & Trading Limited Genco Shipping & Trading Limited [[GNK]] have been oven stuffed and eaten.

The ongoing theme is destruction. One sector at a time—everything is burning. Albeit, from time to time, you will get an oasis sector, like ag, oils and banks; but for the most part this market has been the greatest destroyer of wealth EVER.

I have never seen anything like it, yet the vix is still in the low 20’s and ‘tards on the tube keep talking like everything is honkey dory.

Hello, anyone home?

Aside from the great commodity crash, today is D-Day for tech. Ooh, everyone said money would roll out of oil into Research In Motion Limited (USA) [[RIMM]] , Apple Inc. [[AAPL]] and Intel Corporation [[INTC]] .

How’s that working for you?

The semi’s, led by Lam Research Corporation [[LRCX]] , Intel Corporation Cypress Semiconductor Corporation [[CY]] , Marvell Technology Group Ltd. [[MRVL]] , [[WRF]] and Altera Corporation [[ALTR]] , are dead and buried too. Don’t even get me started on the solars.

Basically, pick a strong sector and short it. You like how healthcare or biotech is trading?

Short them.

You know they will be taken to the woodshed, eventually, by some “unforeseen event.”

With my money, I am prepared to buy more [[SKF]] at $105. And, I will continue to buy the dips in [[DIG]] , [[IEO]] , Freeport-McMoRan Copper & Gold Inc. [[FCX]] , Southern Copper Corporation (USA) [[PCU]] and National-Oilwell Varco, Inc. [[NOV]] .

Also, I still like the refiners, particularly Western Refining, Inc. [[WNR]] , for a trade. Don’t even get me started on Legg Mason, Inc. [[LM]] . Bill Miller is making a comeback. Hurry up, get long.

Get back to me in two months and tell me how that worked for you.

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Refiners Are Smoking Crack; Get Some

Just a quick note, since I have work to do.

Thirteen gulf refineries are still offline, causing gasoline to spike, while oil eats dirt—mainly for liquidation reasons.

In short, the profit margins for the refiners are rocking and rolling (sorry for the corny broker phrase), as the “crack spread” widens. Moreover, with Hurricane Ike on his way to slap around a few rigs named Tina, I bet the refiners will continue to run here.

Here is a list, courtesy of “The PPT,” of publicly traded refiners with a large percentage of shares sold short:

Western Refining, Inc. [[WNR]]: 29%

Tesoro Corporation [[TSO]]: 19.8%

Sunoco, Inc. [[SUN]]: 16.1%

Frontier Oil Corporation [[FTO]]: 11%

Alon USA Energy, Inc. [[ALJ]]: 7%

Valero Energy Corporation [[VLO]]: 2.6%

Delek US Holdings, Inc. [[DK]]: 2.6%

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What a Bloody Mess

Commodity stocks are being unraveled here. They are gapping lower, as bids dry up and losers head for the exits.

Stocks like Freeport-McMoRan Copper & Gold Inc. [[FCX]] , United States Steel Corporation [[X]] , Southern Copper Corporation (USA) [[PCU]] , Century Aluminum Company [[CENX]] and all of the oils are dropping in fantastical fashion.

At the same time, banks are up.

This makes no sense and cannot/will not continue.

I must say, it’s very tempting to jump in here, on the material names. However, it’s hard to pin down a good cost basis, when the bottom drops out. Just yesterday, I initiated a position in FCX. Look where that got me.

The market is hardly down. Yet, if you are long commodities, you feel like it’s down 500.

To hedge the commodity debacle, take a look at ethanol plays, like VeraSun Energy Corporation [[VSE]] and Aventine Renewable Energy Holdings, Inc. [[AVR]] . Also, take a closer look at the refiners—like Western Refining, Inc. [[WNR]] , Valero Energy Corporation [[VLO]] and Tesoro Corporation [[TSO]] .

Or, take down an oil down etf, [[DTO]] .

In short, if you are looking to buy the blood, do it in small increments.

For example: if you want to own 1,000 FCX—buy 200 share increments, every 3 points.

I cannot stress this point enough. Dollar cost averaging into stocks is the most important aspect to swing trading or investing, especially in volatile markets. Never deploy all of your capital at once. Instead, stagger your buys over days and weeks, until your target position is reached.

Try to trade without hubris. Trading with your balls will make you a very poor person. Your wife will leave you and your health will go downhill; then you will die.

How’s that sound?

UPDATE: I bought 2,000 FCX @ $79.60. My next buy will be in the $75 range.

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A Mustache-less Market

My Clean Energy Fuels Corp. [[CLNE]] is rolling downhill now. With Proposition 10 looming, I think it makes perfect sense to be long CLNE—at least until Congress is set to vote on it. If President Obama is really intent on “greening up,” he will go with the “Pickens plan” and give incentives to our trucking fleets to switch over to natural gas. Plus, it will save many of the land based trannies lots of money on fuel. At the present, with the low prices of natty, it will cost $1.55 a gallon to fill up. Compared to the insane prices of diesel, it’s a no brainer.

Oil just can’t catch a bid here, effectively annihilating those who are unlucky enough to be short Vulcan Materials Company [[VMC]] . Also, all of the banks are starting spring higher, due to the nonsensical notion that they benefit off of cheap oil, or something. At the end of the day, the banks trade lower. Write it down.

Nonetheless, the energy sector is bouncing today, as investors realize how gay it was to sell them “fire sale style,” yesterday.

With my money, I like [[DIG]] , [[IEO]] , but love the refiners, especially Western Refining, Inc. [[WNR]] .

The short position is monstrous (29%). With all of the storms (4) in the Atlantic now, you have to be mentally ill to be short refiners.

Finally, on the long side, I like Barnes & Noble, Inc. [[BKS]] , VeraSun Energy Corporation [[VSE]] , Southern Copper Corporation (USA) [[PCU]] and Freeport-McMoRan Copper & Gold Inc. [[FCX]] , while loathing Legg Mason, Inc. [[LM]] and Pzena Investment Management, Inc. [[PZN]] . Oh, and I also like to bet against Chinese stocks, via [[FXP]] , with impunity, based upon egregious valuations.

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Lehman is Garbagio

The Koreans laughed at Dick Fuld’s asking price.

Negotiations have been “difficult because of differences over price,” Korea Development Bank CEO Min Euoo Sung said today.

And, the first of many hedge funds, with GIANT expsoure to commodities, calls it quits.

The Ospraie Fund lost 26.7 percent in August, after a “substantial sell-off in a number of our energy, mining and resource equity holdings,” Anderson, 41, wrote in the letter today.

Ospraie’s top 10 holdings:

International Paper Company [[IP]]

Cytec Industries Inc. [[CYT]]

XTO Energy Inc. [[XTO]]

WESCO International, Inc. [[WCC]]

Alcoa Inc. [[AA]]

[[SEB]]

Arch Coal, Inc. [[ACI]]

Lennar Corporation [[LEN]]

Calpine Corporation [[CPN]]

E-House (China) Holdings Limited [[EJ]]

Damn they got rolled on.

Clarification Update: Some of you must be scratching your heads wondering, “hmmm, what the hell is Fly talking about?”

Well, just so you know, the retards at Lehman owned 28% of the Ospraie fund.

Now, I know many of you are appalled by the ridiculous one month loss posted (27%) by the fund. However, you need to remember, this was a commodity focus fund. Therefore, it’s the nature of the beast, to a small degree. I am sure the investors of that fund had some pretty good months, prior to the recent collapse.

Commodities are for people who wear bow ties and do lines of blow off of cows.

This failure is the canary in the coal mine; mark my words.

All of the i-banks were lauding their commodity desk gains, over the last 6 months, especially Goldman Sachs Group, Inc. [[GS]] and Morgan Stanley [[MS]] . They were pounding their chest, as “Santa Claus of the corn fields” brought them great fortune, from his evil bag of rapid inflation and whorish dollars.

Oh, well, that trade is dead and so are its participants.

Watch very closely as the i-bankers begin to report massive trading desk losses.

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There is Always a Price to Pay

When the dot com bubble burst, we all paid, in spades.

When the banks crapped out on the treadmill, we all paid, in spades.

As sure as I am sitting here, the disaster unfolding in the commodity markets will come home to roost, in spades mind you, effectively dragging everything lower.

Now, it is my personal belief that oil will not take the elevator straight down. I’m looking for a few good trades, via Hurricanes and other similar natural disasters.

Remember, 90%+ of all successful money managers have HUGE exposure to oil. Everyone took out the financials and plugged in energy. Now, with the bottom falling out, expect to see widespread panic, as funds close and people scramble to get out of underperforming funds.

There is no leadership, unless you call Ambac Financial Group, Inc. [[ABK]] and MBIA Inc. [[MBI]] leaders.

For the day, I averaged down on my [[DIG]] and [[IEO]] positions. However, I sold out of Ultra Petroleum Corp. [[UPL]] and Global Industries, Ltd. [[GLBL]] . Basically, when things get sporty, I like to focus on a few items. UPL and GLBL were just in my way.

Also, I added to my [[SKF]] , [[SRS]] and [[FXP]] positions. It is my belief that the market will get mud stomped in September. However, do not misconstrue my motives. I am not selling because it’s September, per se. I am selling because I believe multiple funds will close down, causing a selling ripple effect across Wall Street.

It’s been too tough. If you are up this year, bravo. You are good.

It is not easy to navigate markets like this. To do so, you need a “calculator brain,” no doubt.

Finally, I bought some Freeport-McMoRan Copper & Gold Inc. [[FCX]] today, only because I promised I would—if it reached the low 80’s again. The sell off in National-Oilwell Varco, Inc. [[NOV]] is mind boggling. Despite all the weakness, military stocks keep shooting higher. There, my favorites are Lockheed Martin Corporation [[LMT]] , General Dynamics Corporation [[GD]] , AeroVironment, Inc. [[AVAV]] and National-Oilwell Varco, Inc. Northrop Grumman Corporation [[NOC]] .

NOTE: My refiner play, Western Refining, Inc. [[WNR]] , held up well—considering.

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