The BG Trade Is Back On

For those of you who have missed it, Bunge Ltd. (BG) is back on a run, rushing past $73 in the last few days of trading.

It took a while, but my portfolio was not deterred for long. Let the overpriced grain spectacle commence.

Last night, after a meeting and an accompanying trip to the bar (which itself was accompanied by a late night meal from a rather talented fry cook and a dark beer), I decided to swing over the MGM Detroit, to test just how business was doing.

The place was uncomfortably crowded, on a Wednesday night. Money was flowing freely, and I won a hundred bucks or so at the tables.

Two weekends ago, I went to MGM Detroit with an entourage of friends. The place was absolutely packed.

Look, if people in Detroit are able to carry on like this, how can you think the Vegas downturn will last for much longer? Albeit, Vegas is far more ritzy than Detroit, but it is also far more popular; if Detroit’s outer city destitute can afford to throw dice on a Wednesday night, I cannot imagine that Vegas is not in a similar boat.

Why, our own Checklist was commenting on that just a few days ago. I’ve been pulling the reports from MGM for the past five years, and putting the numbers into a spreadsheet. It’s taking a while, because I don’t have a plethora of time to work on it, but when it’s done, I’ll try to show you their debt story and why I’m a shareholder.

There are a few basic powerful events here which you should remember, when making decisions in this market:

1. Europe is melting down again, with governments getting their crediting ratings cut on an almost weekly basis.

2. The ability of the U.S. government to sell treasuries without Fed assistance is in question.

3. The U.S. budget battle is largely being influenced by ideologically driven forces who aren’t beholden to the status quo.

4. There is a massive carry trade taking place on top of the Yen; but with Europe sucking horse cock, who’s debt are these traders buying?

Massive cross currents are always difficult to navigate, but by ignoring point 2, I’m betting the dollar strengthens substantially, because of the Europe/Japan/Congress trio, which last time I checked means the U.S. stock market is going to get hit hard. This whole situation reminds me of summer 2010.

I was on the beach in Texas, sipping Gin & Tonic, which was a very good thing; I was entirely too drunk to feel fear when I did take the time to look at the numbers coming in.

Except this time, we also have a budget battle taking place in Congress, with freshmen Tea Party members dead set on cutting spending substantially. Fuck whatever the Fed are doing, if our government actually cuts spending, that’s a dollar strengthening exercise in and of itself. It also can’t be accomplished without implementing some form of austerity on us U.S. citizens.

Altogether, the U.S. dollar is definitely the low cost / high reward trade here. Nobody wants to admit that our currency can be anything but garbage. However, all the forces are working back to U.S. supremacy, even after everything that’s happened.

You’ll notice I’m all long, with no notes on my books, other than what I need. Needless to say, I’m not a fan of the dollar. But I tip my hat to the realities of the world by having covered all my debt. I will not fight the U.S. dollar here, if it wants to be king once more. And all that needs to happen for that, really, is the U.S. government to go into a shutdown. It’s as easy as nothing getting accomplished, and if the other world events keep pressure up, then that event would be multiplied substantially.

Just keep an eye out; things haven’t changed substantially yet, but the underlying conditions have. Rewards shall be blessed on those who exercise constraint.

Look, between you and I, I think petroleum products are awesome, and don’t believe in man-made global warming. These two things, by themselves, are enough to qualify me as a “nuclear renaissance” skeptic. Especially with the rest of the planet starting to fall in lockstep with my “who gives a shit about polar bears?” mentality, before the Japan tsunami, I wouldn’t have been caught dead holding uranium fuel and parts suppliers.

After my 20%-in-three-days jamboree, I got cocky. But after they found Plutonium today, I decided to back off and take profits in UEC. Those profits had been reduced to about 7% gains on a 5% portfolio position.

Cava…

As you’ll recall, alpha emitting core material leaking was sort of a pet peeve of mine. The real limiting issue of nuclear power has always been cleaning up after it, not the time during which it runs itself. If Japan is suddenly looking at huge land reclamation issues, those will spill over. So, I guess what I’m saying is that if they were just finding radioactive iodine and shit…oh well. But, there was already some growth prospects baked into that cake, which are going to be pressured much harder if this Japan thing becomes more difficult to clean up.

I still think nuclear companies are way undervalued here, but I’m not willing to dedicate 10% of my position sizing towards an industry I was never that excited about to begin with. In slashing UEC, I’m back to a 5% position, completely dedicated to CCJ.

CCJ is a company I can get behind anyway. Their balance sheets are squeaky clean and highly elaborate. They go in depth both with finances as well as the state of operations. If you want to know how long one of their mining tunnels is, you can find out from their filing. I’m usually not big on Canadian companies, but if any one does well, it will be this miner. They radiate intelligence like their product radiates particles.

Surprise, ladies and gentlemen. While you may have forgotten my promise to record my performance, I have not.

Here is the Talir Index, updated from my first appearance on this site, through year end 2010.

I’ll go through and give a Q1 update midway through April. While I would like to do so immediately after March, I’m afraid I will be in the Caribbean starting April 8, until the 15th. And, while I’ll likely bounce on now and again to throw some smart ass remark, I will not be all that interested in playing around in spreadsheets…I’m sure you understand.

Now, I hope your weekend has been agreeable. I’ll see you back at it tomorrow.

CLP announced today that they acquired another class A apartment complex, this one in Nevada, no less, for $341 million. They bought it at 95% occupancy.

Hurray.

That’s the third major acquisition they’ve made this month.

Update:

I’m back in MGM for $12.80 a share. I used my 10% cash position to repurchase; it’s not quite the 15% position I held before now. I’m not messing with margin right here, but with CLP buying up real estate in Nevada, and reports from one of our own regular on this site that Las Vegas is not the desperate shit hole it was two years ago, I’m not risking missing out on the Sin City recovery.

I have no cash, which is stupid with one of our largest debtors and trading partners on the table; however, I believe in each of the companies I have allocated resources to enough that it doesn’t matter to me. If the market should fall, in tandem, then I will deploy credit.

One year into the life of the healthcare overhaul bill passed by President Obama and the Democrats in Congress, and really I think you would be hard pressed to find too many people screaming for the bill to be stricken down (other than Tea Party members, of course).

The reality of the thing is that, while Republicans have frequently called for skyrocketing healthcare costs and denial of services, it would be disingenuous to say that these things have yet to materialize.

That’s not to say the bill is broadly popular, by any means. Just that it is not experiencing any sort of backlash, visible to the common beholder. A recent Gallop poll shows 46% of Americans in support of the measure, while 40% are opposed to it. Juan Williams for Fox News wrote about the subject today, calling the situation “sunny.”

Kirsten Powers, on the same news site, came out calling for a public acceptance of the bill for all of its qualities (and shifting blame for its vices on the age old causes of skyrocketing healthcare costs; remind me, what was this bill supposed to be doing again?).

However, beneath the surface is a torrent of activity which, if revealed, would likely surprise the average citizen.

The best way to see this activity is through the eyes of one of the benefits consultants currently involved with the companies that are dealing with the new costs and regulation. For instance, Towers Watson has been aggressively interpreting information as it has materialized, putting much of that on the front of their website. I know of a few other consultant groups who are providing similar fast paced advisement services.

Healthcare overhaul is going to be the big thing this year; and that’s saying a lot, as it wasn’t exactly a small thing last year.

Going into last year, only 14% of respondents in a Towers Watson survey said they thought the Patient Protection and Affordable Care Act would help keep costs down, although 96% said that was a high priority to them.

Only 20% thought that the reforms would improve quality of care.

These numbers are quite significant, as they represent the general mood of business towards the act. Keep in mind, health costs are a large portion of any responsible corporations budget; business owners have been very tepid about spending money and budgeting over the last year.

Still, despite the concern of HR departments and management the country over, it appears as though their worries were blown out of proportion, doesn’t it?

Unfortunately, no.

You see, last year, carriers (most notably the big ones, like Blue Cross Blue Shield) went and did exactly what you would expect from savvy corporations.

Facing uncertainty and understanding that most provisions would not be fully understood for some time thereafter, they knew that reacting at the moment was pointless. And they also understood that if they rushed to raise rates when everyone was looking at the issue they would be painted as opportunistic, greedy, bloodsucking monsters. So many of these carriers moved to conform to the new law immediately, despite being grandfathered in for a couple years more.

And they ate the costs.

However, those happy days are done. These companies have been taking losses, giving out services for less than free. They did so for the purpose of expediency. However, the changes are coming.

And the unfortunate reality is that, this year, employers who were already scrambling from needing to implement the legislation themselves are about to get hit hard; a cost increase likely double to what they’re used to. One part of that increase is for going forward. One part is retroactive pricing for the free six months – one year that the carriers were giving out.

That’s if they’re lucky. Plenty are getting nailed to the tune of 20% cost increases or greater.

If you’re in an HR group, you probably already know this. But if you’re an employee, let me give you an intro to some new terminology you’ll be getting to know intricately very soon.

• Copay – this will bring new meaning to the word. The only thing that can’t be touched under Obamacare is preventative services. But that leaves a lot that can be touched.

• Deductibles – I bet every plan in the next five years will have a deductible; carriers will not be offering any plan that doesn’t have one. No more effortless services; they want you to share the pain, so you think twice about whether you need that pain medication (did you catch the irony?).

• Consumer Driven Health Plans – this one is probably new to most of you. Just understand, it functions as a series of accounts where your cost depends on your usage; much like everything else in life. You will be required to put away money into a tax free account that pays no interest and gets wiped clean every year. It will be an immense headache to most of you, and you will hate these plans very much.

• Generic Drugs – Rx costs are the number one growing segment in healthcare, already accounting for something like one third of gross expenses. Guess what? Purchases of brand name drugs will be paid for in blood, for you certainly will not be paying for them in dollars. Preferred brand names will cost as much as 8x more than generics. Non-preferred will…well, just don’t ask.

• Spousal De-coverage – guess whose significant other won’t be getting under your plan if they have coverage elsewhere? Did you guess, “mine?”

• Benefit Cuts – Even if it looks like nothing has changed…it probably has. Small tweaks, like in the definition of what constitutes “necessary” or an “accident” will probably floor you the first time you get stuck with a $700 bill after an unapproved visit to the ER.

• Per Member Costs – Up until now, a group of three or more has been billed as a family, regardless of whether that meant a man, a woman, and a child, or a man and his six illegitimate offspring. Now, many plans will start forcing you to pay for your children’s coverage, since they will be responsible for your offspring for much longer. Just remember, just because coverage can’t be denied, doesn’t mean coverage is free.

You see, friends, nothing is free. There are always trade offs – yours just got delayed a bit. Renewal dates for health plans will come as a nasty surprise for many of you, as you get socked with deep cuts to things you took for granted. These cuts will most likely be the equivalent of a 10-12% decrease in the cost of your health plan to your company. To you, that would likely translate to an increase of somewhere between 80-200% in fees from what you are paying now. Whether you actually pay that much more, or just have value secretly denied you, remains up to your employer. However, the necessity to trim does not.

Folks like Mr. Williams and Mrs. Powers have been asking, “where is all the suffering that everyone was screaming about?” The answer is:

It’s coming.