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.