I’m Up Almost 1% Today

HCLP just cracked a move from its “pullback” to $48. Currently trading for $54 again.

Sorry, I’m out in client meetings this afternoon.

I pray you all had a wonderful Father’s Day, relishing in the perfect weather we had. It was one of quiet reflection and cheer amongst the Thaler brood, as the various Patriarch’s of our branches met to be doted upon. A small feast of a quarter hecatomb was made (one cannot be too exorbitant) out in the garden’s; well kept. Although no one was inside, the floors were well polished and the wood was oiled. Incense was burned in every room, and the 9th Floor was a spectacle of good form.

With the guests setting out back to their respective halls, Cain sat in one of his quiet places outside and enjoyed a nice book (on ring homomorphisms).

Today, the sublime weather carried over for another day, my treasury is up another .45%. Be sure to make good of these small blessings.

Resting from the moist heat in a leather chair, I look out from the 9th floor window with nothing but quiet apathy for the weeks of summer. It is my prerogative to enjoy myself in comfort and relaxation; thus I will do little or nothing this summer, opting instead to roam about my countryside, engaging in the luxuries befitting me; sniffing flowers, swimming in cold springs, drinking dew and honey, tending to my garden.

I shall find it quite difficult to care for much else at all.

But you can rest easy knowing that I will be here, with you, in near silence. Making small trades. Pretending summer news stories matter. Why, I might even make a mountain out of some yet to be precisely labelled mole hill? The possibilities are endless.

But as I am not paid to be sensational, my primary occupation will be leisure. My second occupation will be trading. And I suppose I’ll fit my occupation in there somewhere if there’s time.

Throwing you a bone, I made another small round of purchases of ETP, closing in on a full position.

You’re welcome.

We’ve been churning nowhere for months now. It’s getting real boring. BAS and HCLP clobbered me on Monday but they were up so much, I’m still – still – ahead. That’s almost unbelievable, but it’s true.

So I’m doing what I always do when I’m bored and trying to avoid getting real work done. I’m running around Twitter throwing things at various political groups, because it’s entertaining.

Naturally, the 9th floor is a good ol’ boys club, replete with both whiskey and hunting rifles (best combination ever). Reading some of the flagrantly unfair “studies” being published by Bloomberg’s sprawling anti-gun fetish, I can completely see why the NRA opposed any gun studies being published with taxpayer money. Having nothing would still be more useful to the public than what’s coming out right now.

How do you squeeze 70+ school shootings in one year onto a map? Simple: just pretend like things that obviously aren’t school shootings are actually school shootings.

Thankfully, the disinformation campaign seems to be having zero effect. American’s have never been more opposed to treating violent crime as an excuse to restrict gun liberties, and I frankly couldn’t be happier about it.

Basic Energy Services is down 5% on me after they announced a secondary offering good for about a 5% dilution.

This pain is never welcome, but I’m not necessarily concerned. I have a long standing policy of not getting puffy over equity raises so long as they are put to good use. What I want to see is what BAS intends to do with the money.

So long as they aren’t hoarding cash or using it to pay existing expenses, there’s no problem here. I want payrolls to grow, lines of business to expand, revenues to increase (and it better be above current per share growth rates)…I want to make money.

If that means selling a little stock, what’s the issue?

I’m not sure I’m a buyer of this drop, because I own a lot. But I’ll be taking a look at the numbers later.

(Interestingly, HCLP is also getting hooked today, probably because automated correlation programs lack subtlety)

What is working for me is pretty obvious to anyone following. HCLP and BAS are setting my year, single handedly. Even factoring in my biggest misses so far, my gains stand back above 10% YTD.

But I’m not going to just steadily publish a slew of feel good pieces, brushing my ugly ducklings under the mat. So this post will focus on them, why they aren’t performing, and what I intend to do about it.

First up is NRP. NRP is a debt ridden resource MLP whose largest assets are comprised of metallurgical coal deposits. The partnership has been hammered since I bought in at $20, currently standing just below $14. Back in January, I cut a lot of this position for around $16, but recently added back above $15. The position stands at around 6% of assets and I have a big loss attached to it.

As for why NRP is down more than 40% this year, there are two big factors driving the outcome. The first is the obvious hatred of all things coal, based on falling global demand and unfriendly domestic politics. The second is that people generally mistrust this position specifically and are betting they’ll have to raise cash through dilutions. The company has a lot of debt coming due.

My opinion is that NRP has already suffered enough to justify the prices at $20, and my opinion hasn’t changed much at $14. I’m not knee jerk afraid of shareholder dilutions and like the steps NRP has taken to diversify their assets away from a pure coal play. I also think coal is set to rebound. In the meantime, even if they slash their distribution by 25%, that would leave it paying out 7% annually, which is far above market yield. However, I will not be adding more until I see market sentiment shift, preferring instead to add other coal related investments and keeping company specific risk low – building my coal thesis out of many smaller parts. BTU is my first secondary choice, and I’ll probably follow up with a third play next year if coal names are still depressed then.

My second ugly child is CCJ. This is kind of amusing, as I really haven’t lost money on CCJ this year. Cameco and related names rallied hard starting around February helping press my gains to 15% early on, and CCJ’s unceremonious relapse was one of the biggest contributors to those gains sliding back below 10% a month ago. CCJ stands at $19, 5-10% below my average cost per share.

CCJ’s problem is also bicausal. The market for uranium remains abysmal, and spot prices have plunged another 20% this year. That’s the pricing for when there are uranium trades at all. My smaller, half scaled position, UEC, made ZERO sales in the first quarter of this year. The market for uranium is near-totally dead. CCJ has largely fended off impact from this pricing issue through their long term supply agreements. However, that can only get you so far.

But CCJ has a second big problem, which is a very large (and growing) deferred (some may say dodged) tax liability to the Canadian government. The price tag is set to cross $1 billion shortly and will probably be almost three years worth of earnings when we’re set and done here. This is why CCJ’s stock is performing so much worse than its dumber, small peers this year.

And I am not at all concerned about CCJ. I’m electing to sit back and do nothing. The tax bill is a non issue. Without question, Canadian corporate governance is much harsher than the US, and there will be consequences for CCJ. They will be made to pay up, and someone will probably get punished. However, even given the magnitude of the bill, it’s hard to see how this changes the stock dynamics.

To put this into perspective, consider APC back when the oil well blew up. People freaked out at the billions of dollars they would owe in damages and bid the stock down an absurd amount. And then, it no longer mattered. The company made a full recovery in a hurry. As then, CCJ’s market prospects look bright on the horizon. They will be made to pay past owed taxes and that hit will sting, but it’s a one time issue and when you consider how stock multiples are priced into shares, the truth is CCJ’s larger problems (business) when worked through will more than totally swallow this blip on the radar. From the perspective of shareholders, at this point and at this price, CCJ’s only problem is the uranium market. The tax liability will be worked through and take care of itself shortly, if only the damn uranium market can recover.