The Falling Dollar

December 11th 2008 might be a date to remember in our nation's economic history. That is because it looks like the U.S. dollar index may have begun its fall from grace. A huge rally in the past few months finally stalled. Between October 21st and December 10th, the dollar traded in a narrow trading range vs. the Euro. Between 1.25 and 1.30. But, on Dec 11th, it rocketed up to 1.33. That may not seem like a big deal, but it broke the trend line and it was a huge move for a currency in one day. Plus, although I am no technical expert, the dollar index did form what many technical analysts like to refer to as a "head and shoulders top" that corresponded to the trading range from Oct to this week. In any case, with the Federal Reserve's printing of money, the end of the dollar rally is inevitable. Whether or not it has hit a true top, we won't know for sure for a while. But, like Peter Schiff says, time may be running out on the dollar and actions should be taken to protect yourself before it is too late. Gold has held up very well throughout this market crash and gold stocks have rallied big in the last few weeks. I don't think this is all a coincidence.

Stock Market History

I did a little historical analysis and this is what I found out:

Dow Jones, Oct 1929 - July 1932: down 85% in 2 1/2 years
Nasdaq, Feb 2000 - Oct 2002: down about 80% in 2 1/2 years

Dow Jones, July 1932 - Mar 1937: up about 300% in 5 years
Nasdaq, Oct 2002 - Oct 2007: up a little less than 200% in 5 years

Dow Jones, Mar 1937 - Mar 1938: down almost 50% in just 1 year
Nasdaq, Oct 2007 - Oct 2008: down about 40% in just 1 year

Dow Jones, Mar 1938 - Nov 1938: up about 50% in 7 1/2 months
Nasdaq, Oct 2008 - ?: ????????

Dow Jones re-tested its high in Sep of 1939 and then re-tested its low in April of 1942.

So, if history repeats itself (which it has to this point), we will see a furious rally in the near future followed by a slow re-tracement of the decline back down to where we are today (or wherever the bottom is). If history repeats itself, we will be back down to the current levels 4 years from now.

Not saying that history will be repeated exactly, but the similarities are amazing!

Politics

Back after a long vacation...and into the world of presidential politics and "bailout" schemes. O'Neil made the case in his books that gridlock was best for the markets (usually caused by having different political parties controlling either branch of the government). My first lesson in economics was when my Econ 101 professor made the case that the President has very little to do with the economy and that the Chairman of the Fed (Greenspan at the time) was the most powerful figure in the country with regarding to the economy.

I recently finished reading Peter Schiff's book about the coming economic collapse. While there are a few things in the book that are not well explained or a bit of a stretch, for the most part Schiff makes a strong case for his predictions. It could happen and a lot of it has already happened. Well worth the price tag and I highly recommend it.

When I vote for the President, I vote for national security, leadership, and who I want to be Commander-in-Chief. I don't vote based on the economy. The president never does anything significant in that area (yes, even Clinton for you liberals who think he saved the economy. He (and Gore) had nothing to do with the Internet boom). For an excellent commentary on the irrelevance of this year's election when it comes to the economy, see the blog "Austrian School" that I mentioned in a previous post.

If this "bailout" plan passes, massive inflation could be right around the corner. Nobody seems to realize how the price of oil and the status of the dollar are tied completely together. The dollar drops, oil goes up. The dollar strengthens, oil drops. The problem is that there is no logical reason for the dollar to be strengthening at this point. (Again, read Peter Schiff.) Oil and commodities are due for another run sometime in the near future (I believe Jim Rogers has predicted this). I'd be ready.

Mutual Funds

If I were not interested in the market, I would buy a mutual fund. I would love to own shares in Ken Heebner's CGM Focus Fund, because he is an unbelievable investor. But Mr. Heebner will not be running the fund as I get closer to retirement, so I prefer to look at his reported portfolio, whenever he releases that information, to get some investment ideas, then purchase the stocks themselves. Other than that, I really don't believe in mutual funds. It's too difficult to find ones that beat the market consistently and I don't like being locked into a fund where it's difficult to get out without paying hefty commissions. Plus, the expense ratios and up-front fees. Who needs them? You're better off using ETFs or buying an index fund.

I like to invest my own money. After reading most of William O'Neil's books, I am convinced that the small investor is better off that way. Sure, the "professionals" would like you to believe that the amateur investor has no chance and should leave it up to the experts. If they couldn't convince people of that, then they would be out of a job. But O'Neil, Kiyosaki, and even Cramer all make the case that there are huge benefits to doing it yourself. These are people who did it themselves, not journalists who just know people who did. The self-made millionaires are the ones worth reading and listening to--the journalists and mutual fund managers (other than Heebner) are the ones to ignore.

Bottom Fishing

I don't understand bottom fishing. Why are people so obsessed with finding the bottoms; buying stocks at their absolute lows before they reverse course? What an exercise in futility. I admit I bought and owned Goldman Sachs (on a Cramer recommendation) a few months back, but it was a mistake and it is (apparently) still "best of breed". The "Fast Money" traders kept recommending the XLF; meanwhile I owned the SKF (inverse x2 of the XLF) and made money, although I'm not great at the short game. But, to me, financials = stay away. Why bother? What a waste of an investment when you have oil, coal, shipping, rails, natural gas, fertilizer, infrastructure, and even technology that's working at the moment. The only "financials" worth owning are Mastercard and Visa. Period. All the benefit of people switching from cash to plastic with none of the risks associated with Discover or American Express. Purely transaction plays and they work.

I'm not a professional, but I know what I know and I also know what I don't understand. I don't understand drug, biotech, healthcare, and financial companies, among others, so I stay away. If I don't understand the reason why something should go up, I don't buy. I don't see why the financial stocks are attractive at these levels. For all I know, more could go the route of Bear Stearns. No thanks. I'll keep profiting from the "evil" oil companies while bottom fishers close their eyes and try to pick the perfect entry points into the financial stocks as they continue to lose money. Good luck!

Shipping Part II

Like I said in my previous articles, I am not an expert on Dry Bulk Shipping. But I read the experts and the consensus is that this "crash" is temporary. I hate predictions, but these moves are violent and make no sense. DryShips is holding an "investor day" on Monday. Should be interesting to hear what George Economou has to say. A 4 P/E with the kind of growth that DRYS has, especially since the company apparently locked in rates with some contracts at the highs for the BDI. In addition, a large majority of DryShips' fleet is made up of Panamax and not Capesize ships, which took the brunt of the hit recently. And Natasha Boyden, analyst from Cantor Fitzgerald, mentioned that China only has about 3 or 4 weeks of iron ore to burn through before they have to start importing again. I don't trust the Chinese government (I don't know how anyone could), so I don't own and will never own any Chinese stocks for as long as they remain communist, but shipping is a way to play the boom in China, India and elsewhere.

There's been some dumb commentary out there about Dry Bulk shipping. Jeff Macke on "Fast Money" can't get it out of his head that "Dry Bulk Shipping" refers to Walmart's Chinese imports (I don't think he owns any stocks besides Walmart and Microsoft--that's all he talks about.) Najarian disagrees with him and still owns EXM as of yesterday. He agrees that this is a temporary move. Cramer still likes the oil tankers but can't differentiate between that industry and the dry bulk shipping. Technical analysis (apparently) recently shows a "head & shoulders" (bearish) pattern with DRYS. I admit that the institutional selling is a bad sign, but if these stocks trade in lock-step with the BDI, then how can one rely on a technical chart pattern to determine future movements? I don't think the Chinese government will care what the chart patterns look like when they start running out of iron ore.

"The Perfect Storm"

I keep hearing that term: "The Perfect Storm". On TV, the pundits keep saying that--it's because of Friday's high unemployment number combined with the $10 move in the price of oil. I hate most of the financial shows on TV. "Fast Money" is the only one worth watching, in my opinion. Real traders talking about the market, not broadcasters, reporters, or television personalities (except for Dylan Ratigan, of course--he doesn't bring much to the table.)

Jim Cramer's book, Real Money, is outstanding. Other than that, I've found him difficult to follow. His two most recent books have been disappointing. He's more of a celebrity than an ex-hedge fund trader these days. His TV show, which I watched religiously for about two years, is now a waste of time in my opinion. Too much useless information to filter out in order to get at the good stuff. I've discovered many of my winners by watching his show in the past (Chipotle & Transocean along with ones I didn't buy, but he was right about, like all the agriculture stocks and First Solar). But he tries to do too much and doesn't realize that you can't be an expert at everything, although he tries. Plus, he's an ex-hedge fund trader who is trying to re-invent himself as an investor of the people--a long term guy. He can't do it. I subscribed to his "Acton Alerts Plus" charity stock portfolio and it's generally pretty awful. Cramer seems to want to be in conservative, "blue chip" stocks that either do nothing or get creamed. In addition, he is way too loyal to his "friends", despite proclaiming the opposite on his show. Sears, New York Stock Exchange, Goldman Sachs: all owned or run by friends of Cramer and all recent losers (I've owned and lost money on them all). Yet he is a good stock picker in other cases and doesn't ever put his money where his mouth is when it comes to growth stocks. It doesn't make any sense.

I've learned a lot from Cramer's book and I learn a little from "Fast Money" at times. But I realize that you aren't going to get much out of financial television. Especially when it comes to predictions. Like Ken Heebner said in a recent interview, it's better to have real information. Predictions are useless.

Drilling for Oil

I have to give Jim Cramer credit for one of my biggest winners to date. Transocean (RIG), which also now owns Global SantaFe after a merger (one of my other winners before the deal went through), has had a great run the last few years. However, I think it actually looks more attractive now than it ever did before. I've been buying more of it the past few days as it gets killed by big sellers. I don't see much of a drawback with this company. The largest deep sea driller on the planet and there are not enough offshore rigs to go around. With rigs in high demand and short supply, it doesn't take an economist to figure out the equation. It's kind of like the shipping industry, in a way, but instead of relying on the Baltic Dry Index, Transocean and other drillers rise and fall with the price of oil. This makes no sense since drillers have long term contracts and the daily fluctuation of oil futures should make little difference.

Last weekend, IBD dedicated an entire page to the drilling industry (page A10 of the June 2 issue of IBD) and it confirmed what I'd already read and heard from others like Jim Cramer, but with a little more in-depth analysis and explanation. Oil has had an extraordinary run (to the dismay of many) and the price of oil itself could fall from here. But I don't see how that will end the run of the drillers. Maybe the stock prices will stabilize (Transocean has seen significant institutional selling lately with high volume price drops), but where's it going to go? A forward P/E of 8 - 10 with exceptional revenue growth, ROE, earnings estimates. What's not to like? In the short term, it could face a pullback and continue to sell off with the plummeting price of oil, even though this is a senseless reaction due to the oil drillers' strong economic position. Jim Cramer has said that oil is getting harder to find and the deep sea drillers are finding that hard-to-reach oil. Maybe it's too well known, run up to high--the easy money has been made. Maybe Transocean will trade sideways for the next couple of years. No way to know for sure. But oil is still a finite resource, alternative energy sources haven't replaced it yet, and I definitely wouldn't want to be on the other side of this trade.

DryShips

I recently bought stock in DryShips (DRYS) as a play in dry bulk shipping, in accordance with my previous post, but for more of a trade than an investment. While I hit with Quintana Maritime (luckily, due to a buyout) and Diana Shipping, I've missed on the trades with Genko (sold too early) and DryShips (bought too late). My cost basis is around $90 on DRYS, so I'm only down a little, but the stock has experienced heavy institutional selling recently and the chart, which looked so good from an IBD perspective, now doesn't look so good. I looked into it today and here's what I found:

DryShips' CEO, George Economou, is not well-liked. He has a history of reaping the benefits while his company goes bankrupt (a company called Alpha Shipping in the late 1990's. Forbes has a good article--"Curious George" by Nathan Vardi, 02.25.08--that discusses Economou's checkered past). But DryShips has a trailing P/E ratio of 6.55 with 64% ROE, 195% Quarterly Revenue Growth, and 441% Quarterly Earnings Growth. The numbers are unbelievable, and yet the stock sells at a discount to all others in the industry. Granted, it does not pay the nice dividend that Diana and others pay (and therefore does not meet Kiyosaki's criteria), but as a growth story it is difficult to argue with the numbers.

But it all comes back to the CEO. Apparently, most institutional investors find this company to be un-investible(?), although hedge fund traders will take the profits and sell it off (could be what's been happening for the last week). Economou has other companies (Cardiff, which is private, and he sits on the board of Oceanfreight, run by his son) so there is the possible conflict of interest. There's also the fear that he does not care one bit about his shareholders and actually thinks that American investors are gullible and downright stupid (see the article by Kathryn M. Welling, 2/28/05, entitled "The Golden Fleece?"). The stock itself is extremely volatile (from the low $80s to about $115 and back down to $87 in less than one month). There are a lot of great investing opportunities in this sector and most investors would simply prefer to pass on this one for something less volatile and more reliable. But the numbers are impressive, the company has taken advantage of the recent run in day rates (Baltic Dry Index has been on fire lately), and it was due for a pullback. Just how much further it pulls back remains to be seen.

One last note: Pete Najarian has been on this stock lately and said today that it might be worth a look. Oh, and Cramer has flip-flopped from negative to positive lately but, like I said, I wouldn't trust him in this sector. I don't think he follows it closely enough.

Dry Bulk Shipping

If there is one industry group that I like more than any other, it would be dry bulk shipping. Frankly, I don't know very much about the shipping industry, but I have read a lot about it and a number of intelligent investors have mentioned it as a great place to invest. The first, an investor I have the utmost respect for, is Robert Kiyosaki. He has mentioned more than a few times in his monthly Yahoo articles that dry bulk shipping is a place he has put a lot of his own money. The most recent was in January (go to http://finance.yahoo.com/expert/article/richricher/62341 to read the article). An excellent discussion of the merits of this industry are in a Street.com article by Simon Constable. Check out this article at http://www.thestreet.com/story/10418095/1/three-reasons-to-bet-on-the-shipping-sector.html?puc=quotelh .

I have been following this sector since the fall. Jim Cramer told his viewers to stay away from the sector after he was unimpressed during an interview with the CEO of Diana Shipping at the end of October. He was right in the short term, as the Baltic Dry Index fell and a lot of these stocks sold off from November through January. But, they have since rebounded and anyone who got in at, or close to the bottom, would have a nice profit on their hands. I, personally, have had a nice run with Diana Shipping, which I bought in the mid-20s. Last week saw a violent pullback in the sector after another huge run.

I don't think you can listen to Cramer on this one. His timing has been way off--I guess he's recommending them again now, but he missed the big move. Not to say that there isn't more upside, and if Kiyosaki is putting millions of dollars into the sector, I would have to at least pay attention to that. I don't know which way the sector will go from here, but with low P/E ratios, high dividends, a weak dollar, and the slow rate of shipbuilding that's going on (again, read that Simon Constable article), I wouldn't bet against it.

Recommendations

While this blog will focus exclusively on investing opportunities, I would like to refer you to two other blogs. For an outstanding discussion of macroeconomic trends and the current economic problems in the United States, go to www.austrianschool.blogspot.com . For those who are more interested in short term trading that disregards stock fundamentals but focuses on technical analysis alone, go to www.uptrade.blogspot.com .

Welcome

Welcome to "The Part Time Investor"! The purpose of this blog is to help the average investor sift through all of the investing information that's out there and find the important stuff. I'm no expert, I'm not a professional, I don't have a Series 7 license, and I don't work as a broker, financial advisor, or money manager. I simply enjoy reading about investing, researching companies, and investing my own money without assistance. I don't believe in Mutual Funds; in fact I think that most of them are rip-offs. But there are a number of professionals out there who I think are worth listening to and reading: William O'Neil, Peter Lynch, Robert Kiyosaki, Jim Cramer, and Ken Heebner to name a few. I don't like to get a lot of my information from television, although I do watch "Fast Money" on CNBC when I have the time. I'm not an option trader, but I do find that listening to what the Najarian brothers have to say about unusual option activity is useful. For the most part, I like to buy stocks for the future, but I only hold onto them if their story remains in tact. I use technical analysis based on O'Neil and the IBD method and I only buy stocks that have outstanding fundamentals and future prospects, in my estimation. But, like I said, I am not an expert and I won't make stock recommendations. I simply want to find the good information and filter out the bad. Thanks for reading my blog and I hope it helps.