DRI has been scrubbed from my holdings at a quick 7% loss.

Let it be known that this company, scourge of the restaurant industry, couldn’t increase profit margins in the middle of a flipping commodity sell off.

They can go to hell, led by their retiring executive.

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I have a smaller cash position than the 50% I was holding this summer. My current cash level stand around 20%, with purchases of HCLP, NRP, DRI, RMCF, SCO and a handful of dips in my current assets eating up the 30% cash position.

I sold EUO weeks ago.

I’m not sure if I chose exactly the moment to lever up into the firestorm but I’d say we’re about to find out.

What I do believe, though, is that feminism has seized Ben Bernanke’s chair, and Janet Yellen can smoke blunts with the best of them.

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It’s a Friday, and my heart isn’t in this right now. Rather, my imagination keeps running away outside to whatever’s left of Summer slipping away. This is most inopportune, since work is a runaway train.

So, here’s a brief list of things going through my mind right now.

1) War is overrated and oil is begging to get taken down a notch. Tell me when these geopolitical type scares have actually panned out? The last time was under what, Carter? The oil market is well supplied; a few oil traders are just gaming the system to make their year’s. Meanwhile, a US energy revolution is sweeping accross America.

2) Multifamily REITs selling off alongside broader REITs is as careless an act as I can think of. These companies are all 95% plus occupied with rising rates and numerous projects in the pipeline. Tell me who was forecasting that two years ago, other than myself and a handful of others? Yields are only a problem on a case by case basis. Sellers slamming the whole space here are irresponsible.

3) Coal prices and associated companies are unnecessarily low. Natural gas prices have come back nicely from the death throes they were convulsing in last year. The EPA can only do so much to legitimate, legal owners of coal producing assets. There’s this power grid we have that demands base load, after all. And even the most eco-friendly of Californian millionaires will not tolerate their precious Tesla batteries running dry. Even with natural gas transitioning taking place, there’s a price point where coal comes back online Everyone hates coal, making it pretty attractive right now.

4) I still fear for the wellbeing of Tesla longs, but I can only care so much. On a different note, there was a Seeking Alpha article about battery supply problems that made no sense. It was trying to argue that batteries will constrain Tesla production, but it pointed out that Tesla’s primary competitors are transitioning away from using the kinds of batteries that make up Tesla’s product. At most, I could see competition for batteries pushing up Tesla’s costs, keeping their vision of an affordable mainstream electric vehicle at bay (for longer than longs could survive, I might add). But at some point, Tesla forcing helping to force battery prices higher causes the electronics manufacturers to convert to the newer battery options, freeing up capacity. Besides 100,000 vehicles a year for Tesla isn’t exactly a plague of rats.

5) The natural gas and fracking boom will run further than any of you can possibly fathom. There is no reason not to buy into this. The go to corporations are the specialists who make the backbone of the extraction process (like BAS) and coporations or partnerships supplying the materials that make it all possible (I like HCLP). Risks that the frackers will saturate the market with so much gas and oil that it will collapse profits have blown over. Chesapeake energy was last year. Aubrey McClendon’s ass has been fired.

6) I’m not sure I can like this DRI position if prices for commodities keep pushing higher. But there was plenty of opportunity for the resturant business to line up cheap access to the raw foodstuffs they need for any number of months into the future. So I’m going to hope for the unexpected. Meanwhile, the job market is humming along. Now go eat at Red Lobster tonight.

7) The uranium market disgusts me. I knew it would blow out again. So far CCJ is taking the damage in stride. There’s a major fuel supply issue looming, but reactors just use up fuel so slowly, it takes forever for it all to wind its way through the system. It would be nice if the Japanese could get off their culturally slow-as-shit asses and maybe do something expediently for once in their lives. No, no, please, by all means continue to import oil and coal to your resource depleted island for sky high prices. Who needs an economy, especially with the egregious demographics problems of a nation like Japan?

8) I would rather lick an ant hill than let the sequal to the Catholic Church circa 12th century France come back to power – whether it’s crosses painted on the walls or crescents. To hell with both sides of the Syria civil war. If we’re going to let loose the arsenal, we should at least do it indiscriminately.

9) We are going higher.

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For a while now, I’ve been painfully aware that my portfolio is too focused on commodity prices. I have a fat position in silver, and my two largest positions are a uranium miner and a fracking services company, respectively. While I think there’s good justification that both of those should do well in any sort of market that we might see, because of supply/demand issues and long term necessity to maintain the power grid, at some point you watch competitive coal prices disintegrate and ask “Has the world changed that much?”

Most the rest of my account is distributed to the multifamily “Death Of Home Ownership Rates” thesis, which is working splendidly and has been well documented before now.

And I have a hedge position against the euro, and generally hate everything about the EU. That position theoretically hedges the commodities, a little, but has a mind of its own most of the time.

But in between those things, there’s basically nothing. And in many respects, my strategies are open to certain…weaknesses…that can be leveraged in the wrong sort of outcome.

Watching commodity prices just crater this spring and summer, like they are today, it was clear that I needed a backup play; something that would so benefit in a deflationary vortex that it could dull the pain.

Naturally, the low margin, godless work of the restaurant industry is ripe for such a role.

I’ve spent some hours peering over numbers and feel most comfortable with Darden Restaurants (DRI). Owners of such mainstay, middle class eateries as Olive Garden, Longhorn Steakhouse, and Red Lobster, this company is big and boring, priced modestly with low expectations that, in the event of any noticeable depreciation or positive developments, it will leap over.

I added DRI today for $49.72

Consider that the stock has barely performed over the last year, but sales have grown steadily. Meanwhile cash flows have the cash balance up 16% year over year, and the company pumped over a billion dollars into acquisitions and developments in the last 9 months.

The cost for the book is a little high, but more importantly the price per earnings and sales are low. And the dividend payout stands over 4%, well supported by their high cash levels. Depreciation is very high in the restaurant business, but much of it is tied up in land and buildings, from the acquisitions, so real cash and earnings are realistically greater.

The company appears to me to be cleaning up and simplifying their operations. Financial derivatives were largely unwound over the last year.

Obviously, I am not that excited about DRI. I’m buying up a single digits margin restaurant company. I mean…come on. But, with input prices falling as fast as they are, especially gasoline and fuel, DRI should come out ahead.

31% of DRI’s sales are eaten up in the cost of food and beverage. Another 15% are absorbed in general restaurant expenses. Every 1% move lower in broad commodity prices will expand DRI’s profit margin by about half a percent. And, with gasoline costs coming down, the consumer is set to have more money to splurge on a nice evening out with the family. This will push up profit margins as less food gets thrown out.

You can see DRI’s profit margins fluctuate wildly – for example, in the February quarterly report, the margin is everywhere from as low as 4.5% to as high as 7.6%. Think about how much commodities have fallen since February, then realize that a pressure spike could (and maybe already has) jack those margins above 10%, with minimal risk.

I’ll hold DRI for a few quarters, likely, then liquidate it for whatever is left. This is a play on input costs. But long term, I hate restaurants and will burn this thing at the first sign of trouble.

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