The Money Map Advantage
Friday, September 22, 2006
By Horacio Marquez
Email – #58
** Keep Playing Energy and Keep the Powder Dry
Last night I noticed an event that had not occurred since the last days of last winter: my heating system turned on. As temperatures dropped in the northeast of the U.S., this event was repeated in millions of homes, consuming some of the excess inventories of natural gas and heating oil. And this is very important in relation to the huge sell off in oil energy and energy stocks, which were left for dead, in that it will help to keep cementing the bottom in preparation of the next strong rally in the sector.
In our last play, Cameco (NYSE: CCJ), we were as much as 3.5% higher in the last week, only to see it soften to about our entry point. Feel free to hear my latest radio interview, where I recommended the stock and gave full details about it here.
Oversold Energy Is Poised To Rally Soon
The oil complex remains very oversold. And the main reason for this has been the massive liquidation of positions in energy by leveraged players, motivated by the huge losses sustained by one of the largest hedge funds in the business: Amaranth.
Amaranth, named after an imaginary flower that never fades, lost some U.S.$5 billion in one month, speculating in natural gas. Its natural gas trader, who had been red hot prior to this loss, made the mistake of increasing their positions immensely as the price of natural gas kept dropping, expecting the reversal that never came…until the losses were too big to bear and had to be taken.
The problem was so big that these positions had to be absorbed, at a huge discount, by both JP MorganChase and a highly regarded and superbly run quantitative hedge fund, Citadel. The problem for the market is that when a leveraged fund of the size of Amaranth is forced take huge losses and capital evaporates suddenly, they are also forced to sell other positions for no reason other than lack of liquidity. And this means that many of Amaranth positions were liquidated regardless of the merits and will take a while to be absorbed by the market.
In the case of energy, where Amaranth was extremely long, the fact that Amaranth positions were bought by extremely capable and solidly-capitalized, means that the distress sale is over.
Hence, in my opinion, much like when Wall Street took over the running of LTCM in 1998, the market bottom in energy was marked and a huge buying opportunity was formed.
The Market Takes a Breather and We Book Profits
We are in that time of the year, with Jewish holidays beginning today (we wish them well) and with the “October selling season” close, where we have to carefully monitor our positions. The market has recovered from the mid-June bottom, especially in the forgotten high tech. And this sector, which has lead the market, should also take a rest and exchange leadership roles with the left-for-dead energy stocks, with winter looming and temperatures dropping and the Amaranth positions resting in strong hands. This could negatively affect the S&P 500, but should benefit commodities in general, as shorts in the sector cover and commodity funds gain liquidity.
Another reason to take profits is the Philly Fed index that came out yesterday, which could be a precursor sign that the economy is weaker than I expected. If this is confirmed, it could lead to downward adjustments in earnings expectations and U.S. stock valuations.
In this scenario, and having seen our Brazilian banks and the iShares Brazil Fund (AMEX: EWZ) rally strongly from the bottom, only to see them soften as some political noise built up in Brazil as we get close to the presidential election, we will exit these positions and wait for better re-entry points. So we will book a 32% profit in Banco Bradesco for the initial entrants, a similar gain for the mid-June buyers and we are about even in Unibanco considering our initial and mid-June entries. In the Brazil iShares we will book a mere 6% profit, but better safe than sorry at this time of the year.
Recommendation:
Sell our shares in iShares Brazil Fund (AMEX: EWZ), Banco Bradesco (NYSE: BBD) and Unibanco (NYSE: UBB) at market.
Enjoy and profit,
Horacio Marquez
P.S. I’ve just confirmed that I’ll be co-hosting, along with Agora Travel Director Barbara Perriello, a fascinating tour to discover real asset investing the lands of Asado and Malbec, November 4-16 in Argentina and Uruguay. Growth has been steady since the 2002 economic crisis, and now it’s really starting to heat up. There is no greater pleasure than mixing breathtaking scenery, a glass of fine wine, and a profitable deal. I hope you join us on this enjoyable – and potentially profitable – insider’s journey. For more details click here or call Agora Travel at 800.926.6575 or 561.243.6276
Stock & Symbol
Current Price
Comments
Banco Bradesco (NYSE: BBD)
SELL
Take Profits
IShares Brazil Fund (Amex: EWZ)
SELL
Take Profits
Unibanco (NYSE: UBB)
SELL
SELL
Cameco (NYSE:CCJ)
$37.78
Buy
Telivisa (NYSE: TV)
$20.49
Buy
Peabody Energy (NYSE: BTU)
$34.95
Buy
BHP Billiton (NYSE: BHP)
$36.72
Buy
Petrobras (NYSE: PBR)
$76.67
Buy
Mitsubishi UFJ Finan. (NYSE: MTU)
$12.45
Buy
iShares Japan Fund (AMEX: EWJ)
$13.23
Buy
Tenaris (NYSE: TS)
$35.60
Buy
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com
