August 2006

If you don’t have too much too look at and think about yet, add the Baltic Dry Index to your list of things to watch. The index is a representation of dry freight rates for ocean going shipments of things like coal, grain, or cement.

The BDI is good to watch because it acts as a leading indicator of economic activity. It can’t be manipulated like official Government statistics, and it isn’t subject to speculative over-buying or selling like the futures markets. We might see “conundrums” regarding the price of bonds or their rates, but it would be very difficult to misunderstand a change in the price of bulk shipping.

Right now you can look at the index and see that it is still climbing since mid-2005. That’s either economic growth or inflation… or both.

They also have the individual Capesize, Supramax, and Panamax rates which are the ingredients of the BDI shipping rates. For example, Panamax rates would be the shipping rates for the largest ships that can still fit through the Panama Canal.

There are good articles on the BDI here, here, and here.

In a fairly odd turn of corporate governance, Horizon Lines (HRZ) has declared its first ever dividend and is also issuing new shares — both announced within two weeks of each other. The news of the new shares has pushed the price down 3.3% today and 11% from its recent high.

Now, if you know you’re going to raise cash by issuing new shares (a 15% dilution, no less!), why would you bother declaring a dividend at all? The point of a dividend is to return cash to shareholders… There is a catch-22 in there somewhere…

HRZ has a nice position as a mid-cap in the transportation sector. It has a strong balance sheet and operates as a Jones Act shipper which basically limits their competition as a shipper to Alaska, Hawaii, Guam and Puerto Rico.

Chicken producers got slammed last year in the wake of the Avian Bird Flu Health-Crisis. The sales for Sanderson Farms and Tyson Foods all dipped a bit, but it looks like demand could be picking back up as people start going back to chicken.

I like Gold Kist as a smaller player with strong fundamentals and a decent technical position. It looks like a bottom was put in back in April, and there was buying strength even as the broad market turned down in May.

You can see what other companies produce chicken, many are diversified into other food production as well (like Hormel).

“The stock market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.”

“You don?t know who?s swimming naked until the tide goes out.”

“…holding cash is uncomfortable, but not as uncomfortable as doing something stupid.”

There are many more if you like reading pages full of quotes.

So there is talk of removing some or all tax on gas now that prices are getting high again.? Sounds reasonable enough: lower taxes and gas is magically cheaper.? Assuming for the moment that the US doesn’t rely on this revenue, why should be pay all of this extra money on top of the true value of gasoline?? Simple math states that $3 – $1 = $2.

But for the life of me, I can’t get that answer from my trusty Econo-Calc 3000.? Every time I punch in $3 – $1, I get…$3.? WTF!?? Well, when technology fails, go back to good ol’ pen and paper.? Where’s a good envelope when you need one?? Ah, here’s one.

Scene: Somewhere on the back of an envelope. (more…)

It’s probably too soon to post this, but if I wait to finish my other REIT post then the moment will pass. REIT’s peaked this week and I sold 50% of my REIT holdings on 8/9 (my Tasgall post on the 10th covered this decision). Since then REIT’s have been really hammered and are starting to go what will be a correction at best and a “recession” in the REITs at worst. Their 4+ year run up that at least doubled the REIT market’s value (while halving it’s yield) is likely at an end. I believe that it lasted almost a year longer than it should have. Last Sept I halved my REIT position after things looked just as bad as they do today, only to see things get startlingly better by Dec, so I beefed my position back up again. Now, things are just turning south and I believe that they will continue to do so.

My recent 50% sale was based on the belief that I am right about REITs, and the 50% that I’m still holding is based on the fact that I’m still unaware of all the factors that influence REITs. Plus, it’s nice to have some REITs mixed into my asset allocation and I’ll be purchasing more REITs via dollar-cost-averaging over the next several months to slowly buy back up on the way down. I still like REITs for the long term, but right now they have hit a very rough patch.

I think we’ve mentioned it before in spoken conversations, but here is a definative source. TaxProf Blog: Gas Taxes Exceed Oil Companies’ Profits.

The government collects more in tax revenues applied to gas and oil than oil companies make in profits.

The next time Congress is pandering and trying to buy your vote, ask them to remove some of their legislated taxes instead.

It makes me wonder again why the CPI exclude taxes

As individual investors, we have a unique advantage that most institutional investors don’t have… the ability to staand aside when the market is not favorable. That means either not trading, or getting out of your buy-and-hold investments and moving to cash or cash equivalent investments. (more…)

It was obvious when Enron went bankrupt in December 2001 that it’s stock was to be avoided.? It wasn’t just because of the details of the scandal, but because Enron didn’t really have much in the way of assets.? Enron sold it’s ideas, it’s concepts, it’s people.

When WorldCom went bankrupt 6 months later due to their spectacular scandals, the stock price plummetted to pennies per share.? After the company entered into Chapter 11, I was fascinated that the stock was still active and actively traded as a penny stock for weeks.? When a few weeks went by with no indication that the stock was going to be delisted, I was influenced by various naive things that I read online that the stock still had value thanks to WorldCom’s extensive assets and MCI division. (more…)

After this morning’s news about a foiled terrorist plot, one would certainly expect some spasmodic behavior in the markets.? When I looked just now, I was surprised at what I found…

Not so surprising, the airline stocks are down, but not by much (down less than 2% each).

I’m not a big believer in one-day price moves based on news, but the weakness in these commodities makes me wonder what is behind the moves.? My guess is that some speculative money wanted to take profits in these areas and re-deploy their capital based on today’s news? Maybe just people scaling back speculative positions to see what happens over the next few days?

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