The Beat Down Goes On

I have bad news for you, which is that if we’re going to judge this on the level, the market is pricing in recession.

I know it sounds bad, but that is just the way things are. This is no longer about the Eurozone; even Greek debt has come back in. The EURUSD is back above where it was. Greece has been bailed out again. The entirety of the Eurozone crisis fears that were occurring at the beginning of this meltdown have subsided…but the meltdown endures.

China took that baton and is running with it. And I am sure there’s a Brazil or Vietnam in the wings waiting for their turn next.

Energy pricing is – collapsing is too weak of a word – I don’t know how to call it. Oil is gone. Coal is gone. Nuclear is gone. Solar is gone. If you’re looking for a leading indicator, that may not be an optimistic one.

I don’t know. For the moment I’ve got enough cash to be composed about this, but these are tremors we haven’t felt since 2011 at least.

We are soon to enter the next phase of the oil price collapse, which will take the form of industry wide mergers and acquisitions, stitching together failed businesses where the cash rich emerge on top.

Although I have been perhaps loyal to a fault with this industry, I have also warned of being on the wrong receiving end of just this very development from the start. Following BAS’ latest earnings report, management talked about this looming reality at some length.

The entire industry is failing and some are on the cusp of insolvency. Although the Saudi’s are failing in their alleged goal of destroying the US space, there will be no dawn for many of these highly leveraged and small players. BAS and others are preparing to pick through the carnage and buy out their assets for pennies on the dollar.

Those who have not maintained their asset rollover plans will be discarded via hard default; no savior come for them.

Prepare yourselves…

So far for 2015, it has proceeded very much like the end of 2014 in both scope and suffering endured by my person. Summer is coming to a close and it is time to make some preparations.

I wanted more cash; watching everything that is unfolding, and knowing the frequency of recessions in the United States, I have this horrible fear that we are not done going lower yet. China is teetering on the edge of ruin; a silly place that encourages a 5:4 male to female ratio, that likes to build huge train transit systems to everywhere but where they need to be, and that loves constructing entire Potemkin cities utterly devoid of people.

So I sold entirely out of ALDW. This is exactly what it looks like; selling winners and holding on to losers. I took my almost 40% gain and walked.

The trouble is that this 40% is counterbalancing some pretty ruinous action on the other half of my portfolio. HCLP has sunk lower that I ever believed HCLP could sink. BAS is a smoldering pile of ruin. VOC…don’t even talk about it.

The oil trade is dead, brought to the end in a most severe fashion. It is hardly the only tale of sorrow, but it is perhaps the worst.

And if we see Recession 2015: Welcome The Fuck Back materialize (trademark), well then…

Oil would stay down and ALDW and all fuel ventures would join them overnight. No thank you.

At this junction, betting we don’t go into a recession is equivalent to just betting on oil. I don’t need complicated hedges, thank you very much. They’re more likely to strangle me at inconvenient moments than actually help here.

If the recession fears don’t pan out, then make no mistake everything will be going much higher very soon.

I have been very cautious but at these prices, I can’t not move. I added to HCLP for $17.00; a couple percent of my cash position.

The wind rushes through the curtains, which cloak my 9th Floor office from direct light outside. The summer air is fresh and warm.

So here’s my review of the week; it was strange and fit perfectly in line with the year we’ve been having.

A Bloomberg article speculating on the looming bankruptcy of Saudi Arabia touched off a fierce rally in oil names, while oil itself continued to have the icy hand of death caressing its forehead.

I’m not exactly sure why you would speculate that a country which has no national debt to speak of would be at risk of going bankrupt any time soon. Certainly, the perseverance of US oil drilling is a thorn in the side of the Saudi’s. But those of us here in the 9th Floor had already worked out that might be the case.

The Saudi target was either their other OPEC members or else they just wanted to hang up future well development. In either case, that mission seems accomplished, and what we are seeing – finally – in media is some resistance to the idea that oil prices should go any lower.

Sure we’re all manic depressive now, but these are good signs. Oil will be back to $80 just as soon as we figure out where to put it.

I know I’ve had been in a black mood all year; but not all is going wrong with Cain Hammond Thaler, have no fear of that.

OMAB continues to experience traffic growth of about 16% per year. It’s come down a little from earlier but that is still strong and the stock should continue to outperform.

TIS was a newer position which took a bit of a 30% spill when I bought it – oops – but I liked to the name so I held on. We’re back above $26, reaching for break even and the company just announced sales increased by 45%. Income per share is up 37.5% year over year and unless I’m misreading something, that is coming straight from product sales – no financial gimmicks to speak of. I need to dig in to the numbers a little deeper to be absolutely sure of that, but for the moment I’m pretty pleased.

TIS is one of those names no one has heard of with a really boring business that is going to make me a lot of money. They make toiletry paper products, something South America is going to be in high demand for as their banana republics keep folding.

And ALDW is playing the part of the faithful hedge, now up 32% since I bought it elevated by lower oil prices and stable gas prices at the pumps.

I was hopeful earlier this week that when Saudi Arabia announced they intended to start reining in their above average pumping activity with the sunset of summer, we might see some relative strength in the price of oil.

The market reaction has been to mostly shrug off the new and keep the price of crude oil sliding, so far. The oversupply of oil is a more pressing and immediate weight on the price per volume which is going to have to be alleviated before any pricing strength can take hold.

Despite the continued weakness in oil prices, oil stocks are staging a small relief rally into the weekend, although I cannot say if it will last much longer.

Outside of oil (which for obvious reasons is something of a point of focus for me), my other positions are doing alright. TIS, OMAB, and ALDW are all staging some strength which is taking some of the edge off.

Now, we are in the midst of one of the more beautiful summers we have had of late; turn your screen off and go outside.