Winners and Losers in Today's Market

Today's market is full of opportunities to make money or rather to lose them. Just remember: The market always makes the biggest group of people lose the largest amount of money to allow a few to get obscenely rich at the same time.

For your own good, you should always avoid the biggest crowd, and go to quiet, secret places few have notice. This is true for making money and for life in general. Imagine you are at a place with hundreds of thousands of people, and a situation of imminent danger arises.There are only two bridges leading to safety - one is narrow and in terrible shape, and another is big and in solid shape. Which one would you choose? I would rather foolishly run to the dangerous one, knowing that all the smart folks will rush to the safer bridge, and collapse the safer bridge due to the sheer weight of the big crowd. That's the philosophy of life.

You can read my previous analogy using Noah's Ark, here. Safe havens, by definition, must be narrow and cannot accommodate too many people. If a perceived safe place can accommodate every one, then it is a death trap! The biggest presumed safe haven today, and hence a death trap, is the U.S. Treasury Bond market. There is an imminent danger in the Treasury bond market. People invested in treasuries have already lost big time, without realizing it. The bridge is perfectly safe, until one last person step onto it, and then, it collapses under the collective weight.

Like the bridge, the Treasury bond market could collapse merely because there are too many investors in Treasury bonds for the perceived safety. The problem is when these people want to unwind their positions, who is going to buy? Whoever want to buy Treasury bonds have already done so! In 10 years, you will be paid back the principal amount, but maybe not the purchase power. I suspect that government of China or Japan may have utilized recent U.S. Treasury Bonds frenzy to quietly unload their overly too large U.S. Treasury Bonds holdings which are otherwise impossible to unload. It's purely just my speculation with no evidence that I know.

Always avoid the big crowds! Last year when I suspected the big crowd had arrived, I called for people in coal stocks like James River Coal Company (JRCC), Arch Coal Inc. (ACI), Alpha Natural Resources, Inc. (ANR), Peabody Energy Corp. (BTU), CONSOL Energy, Inc. (CNX), Massey Energy Co. (MEE), to take their profits. The timing was perfect as JRCC peaked just one day later after my article was published on Seeking Alpha.

Recently I was alerted that the dry bulk shipping stock DryShips Inc. (DRYS) was too crowded with too high a daily volume. My initial entry into the shipping sector was perfectly timed near the bottom, and I picked the best one to buy at that time, DRYS. However, when I became cautious as the sentiment in DRYS was too high, I switched from DRYS to Excel Maritime Carriers Ltd. (EXM), another dry bulk shipper, because I believed that EXM presented a much better valuation now. Also, read David White's take on EXM.

Then, on Jan. 22, DRYS dropped $4.01 on some "bad" news, even as the Baltic Dry Index (BDI) surged up 5% that day. The news was out before the market open, but it turned into a total panic only in the last hour of trading. I think DRYS was overly punished by the news, which isn't so bad after all. DRYS is oversold here, but EXM is still a better buy, from the valuation point of view. Unfortunately, Mr. George Economou, the CEO of DRYS, will continue to disturb investors' perception of the company, regardless whether any of his private dealings are appropriate or not. I would rather stick with a company clean of such doubts.

In a previous article, I recommended shorting three stocks, which are related to discretional consumer spending and hence vulnerable during hard times: Coca Cola (KO), Pepsi (PEP) and Colgate (CL). All three are down from when I recommended the shorts. These stocks are not very volatile, and do not have too much short interests. Therefore, if you hate volatility, these are nice long-term shorts.

Along the thinking of discretional spending, I would now recommend shorting Apple (AAPL), and a recent high flier PALM (PALM). The current valuation of AAPL is just ridiculous. It is based on the hope of the continued, fast growth of AAPL's earnings, which is unrealistic. How many more iPhones can AAPL sell, before the market is saturated? The recent hype of PALM is a joke. They have a nice product, which may be better than iPhone, but so what? I would rather buy a proven and established product, than something un-proven and non-established. Google (GOOG) is probably a good short, too. GOOG's income mostly comes from web advertisements. When companies are struggling to cut cost, they do not have much appetite spending money on advertisements. These three might not be immediate shorts amid recent earnings announcements, but watch closely for good short entries.

Stillwater Mining (SWC) continues to be my most favorite stock to hold. I firmly believe there is an undisputable bullish case for the precious metal palladium, and hence for SWC. I have yet to analyze North American Palladium (PAL)'s recent announcement for a comment, but SWC is a better value with much higher ore grade and a much bigger mineral reserve.

The dry bulk-shipping sector is the best to be in, over the short term. The global trade has not and cannot come to a complete halt. The shipping industry is capable of adjusting to lowered demand quickly. However, think about it: Trillion dollars of government spending is going to be a much bigger demand on physical goods and commodities, than your $200 weekly grocery shopping. There is a chance shipping can even reach new highs.

The unique nature of shipping supply and demand is that when demand is high, it's hard for supply to catch up, because you cannot build new ships fast enough, or make the ship sail fast enough to meet the demand. On the other hand, when the demand is weaker, the industry CAN respond promptly to reduce capacity to meet lower demand, by canceling new ship orders, speed up scrapping of old ships, lay up ships for longer period of maintenance, or simply sail slower to save fuel cost and make fewer port calls. All those adjustments are happening right now so in short term, dry bulk shipping is very bullish. All of these shipping stocks are good buys: EXM, DRYS, Eagle Bulk Shipping Inc. (EGLE), Navios Maritime Holdings Inc. (NM), TBS International Ltd. (TBSI), Genco Shipping & Trading Ltd. (GNK) and OceanFreight Inc. (OCNF).

Full Disclosure: The author is heavily invested in SWC and shipping stocks EXM, EGLE, TBSI, as well as hold PAL and cobalt stock OMG. I have no positions on other stocks mentioned in the article.

Comments

[dieuwer:]

Seems like this article is turning into an apple rant.
The commentaries above remind me of 1999. Back then, the consensus was the the NASDAQ could only go up and internet companies were the new economy with every improving earnings. A year later the NASDAQ crashed.
I have been looking back at some of the pictures of last year when HUGE crowds were pushing in front of apple stores to get inside and buy. To me, it was the first obvious sign of a bubble. Needless to say, a year later and apple stock tanked.

Yes, I do like apple products but not their stock.

Jan 25 06:06 PM

[PeteK:]

Mr. Anthony;
Looks like we are on the same wave length.
I got almost exactly the same stocks as you did.
But one thing, can you find out what happen to NM ?
Seems like NM is lost in the jungle. Agree, SWC will be King someday.
Good Luck to you.

Jan 25 06:46 PM

[Remi 16:]

Mark

As far as Apple is concerned it became the IRolex of the computer industry and only future will tell if this will change , no analysts !!!

Show me one who could have predicted that the silly plastic watch introduced in the early eighties will mature to create the Swatch group one of the biggest of it's industry.

No one know what kind of products the company has in it's pipeline production and neither can predict how and whether it will use it's ca$h , but looking backwards Apple always surprised. Now , you are supoosed to look forward , don't you think that a small glance at the company's history might help ?

Apple is still being analyzed in a narrow angle while disregarding other important parameters this is why most analysts were, until now , WRONG !!!

I mentioned two of the world's leading luxury brands companies who lost money in the last quarter ( and there are more ) while Apple beat record time high. So take good care of your car as most likely you will be in the market for the next Apple product.



Maybe in the future it will change but until you assimilate how Apple differentiated itself in the computer industry I think that most of you will keep on missing it.

Jan 25 07:26 PM

[Oh Blah Dee...:]

RE: "... How many more iPhones can AAPL sell, before the market is saturated? ..."

Billions.

The iPhone is a "netbook" with a phone that fits in your pocket. The iPhone connects via Wi-Fi and cell networks, which is better than netbooks, because Wi-Fi only on netbooks is still has scarce connectivity points.

The iPhone is the new information "computer" for the world's entire population, which at last count is over 6.6 billion people.

Jan 25 10:07 PM

[Compare GM ...:]

Wow...

Reading these comments... Apple share holders really love their AAPL. I've never seen such a dedicated following.

Remind me not to short these guys.

Jan 25 11:13 PM

[igggy:]

There are two kinds of people on SA you don't want to mess with: Apple fans and gold bugs.

I do own AAPL. But the moment it loses strength, I am selling and looking to buy again at $70. You can't fight market sentiment (even if you are an Apple fan).

Jan 26 01:29 AM

[quick:]

Dude, you have been pimping SWC for how many years now, and what have you got to show for it???? Oh I know, you probably sold SWC when it was in the 20's and shorted it all the way down, you just seem to have the most perfect timing, don't you!??!

People beware: all this guy does is talk his own book. No relevant investing advice here.....move on!.

Jan 26 03:08 PM

[henarl:]

Give me an A! - give me a P! - give me a P! - give me an L! - give me an E!
Who do we worship? - A-P-P-L-E !!! Wheeeeeee.

Jan 26 10:45 PM

[jenny:]

I definitely agree with you about Palm. There were pretty much nonexistent in the headlines and they come out with one cool phone and now their a great buy? It just seems like there needs to be a little more homework done on the company.

Jan 27 07:58 PM

[Ian R. Camp...:]

Having read this article, I think people reading this Post might be interested to learn that each trading day they can find tables of mining and oil & gas companies listed for trading on the Toronto and Toronto Venture exchanges whose share prices have gone up or declined the most (expressed in $ terms) and those that are the most active (largest volumes) on the home page of stockresearchportal.co.... The tables are organized by industry and sub-industry, and are updated each trading day on a 20 minute delayed basis. For example, there are separate tables for gold explorers and silver producers. I am entering this comment simply to inform people who read it of something they may not know but be interesting in knowing.

Jan 28 09:00 AM

[User 346454:]

Disclaimer ---More AAPL rant.

Mark says:
'I would rather keep my car, than to keep my iPhone, if I have to choose keeping one of these two.'

I say : I'm 40 uh make that nearly 42. How old R U ?

Just keep in mind that a lot of the people who are driving Apple are not driving a lot of miles on the roads of the world. see #1 below

APPL Rev stream

1) kids in prosperous lands whose mothers drive them
2) slick 30 & 40 & up to 60 somthing people in ther metros
3) more people of the whole spread in developing zones (code for people who are now getting richer (even with the bump) rather than poorer like the declining zones)

Those people aren't deciding between their car or somthing else and a lot of people have already shown that they want the toy more than anything else ---- --Come on,, Xmas 08 has to tell U somthin _____ ?

Jan 28 03:07 PM

[Mark Anthony:]

My warning on DRYS was so timely. DRYS dropped from $12.50 to $6.50 in just two days. The crowd in DRYS is just too crowded.

That said DRYS is now way oversold and must rebounce strongly, as shorts need to cover and longs need to jump back in. The Baltic Dry Index has been up strongly for NINE successive days. The fundamentals of shipping is strong. All shipping stocks are excellent buys at current level.

On precious metals, SWC remains the best as it is the best player on the precious metal with most bullish fundamentals, palladium.

Jan 30 12:36 PM

[Yamsi:]

EXM is down nearly 20% since this article was written (was over 20% at one point so far today. I'm done with EXM. I took my hit with a -20% stop and have suffered enough.

Since your last comment saying "DRYS is now way oversold and must rebound strongly", DRYS is down an additional 23%.

"All shipping stocks are excellent buys at current level" is a dangerous statement to be making here.

Feb 02 01:59 PM

[ramisle:]

DRYS didn't crash because of a crowded trade.
It was the breach of loan covenants,
the self dealing of selling ships to himself, he has been stealing all of DRYS money and giving it to Cardiff, something you deny,
the dilution from needing to offer more shares to cover huge debt,
all things that you said were lies, and DRYS still has more problems to come. DRYS might get another price bounce, but unless the BDI gets above 4000, they will have falling earnings for a long time. How is that a growth stock?
The fundamentals of Dry Bulk shipping are horrible, despite cancelations and scrapping, there is more supply than demand for ships.
China and the Iron Ore Miners are negotiating for a 40% drop in the price of ore because of a DROP in DEMAND. Do you think the Miners are stupid? You think they will ship more than last year on that basis?
Get over yourself, according to your posts you bought DRYS at $10, $7, and loaded up at $4, you said you sold on Dec.29, that would have to be $9-$10. You missed the run to $17, making you a fair trader at best, certainly not someone who should be screaming " I told you so". What are you 12- 13 years old?

Feb 02 02:08 PM

[Mark Anthony:]

The BDI shipping index has been up strongly for 10 consecutive days now. How often do you see something up 10 consecutive days?

This is a clear indication that shipping rate has bottomed and is rebouncing strongly. Once shipping rate recovers, of course the value of ships will also recover and that will make the loan covanent thing no longer relevant shortly.

The shipping remains one of the best sectors to be in. EXM is still a better buy than DRYS. I can not recommend DRYS even though it has dropped a lot, due to the on going share dilution. We will have to wait for the dust to settle on DRYS. But many other shipping stocks are very good buys as BDI continue to go up.

On precious metals, I want to bring attention to recently announced Norilsk Nickel palladium production drop, from 3.10M ounces a year to 2.705M ounces in 2008 and a further drop to 2.5M ounces in 2009. That's very good news for SWC, the world's only remaining producing primary palladium producer. Palladium is the most bullish of all precious metals due to the fundamentals of supply and demand.

www.nornik.ru/_upload/...

Also a strike is looming in South Africa PGM industry. I think the mining companies will WANT a strike to boost prices of PGM metals and hence boost revenue:

www.platinum.matthey.c...

Feb 02 08:42 PM

[JayC:]

the bulk shipping segment has one strike against it that not many people are pointing out- they are largely family owned (mostly Greek) businesses with poor corporate governance. i don't think most of them should have gone public with that type of situation.

Feb 03 09:04 AM

[Conan the B...:]

MikeL: your writing style is very familiar.

quick: you also seem like you have been reading Mr. Anthony's articles for years but only have a few comments in that span.

He owns the stock, of course he is partial to it.

Do your own DD, rant on your own time.

Feb 03 11:19 AM

[Conan the B...:]

Quick: you have been an avid supporter of GEX, buying it since the beginning of 2008, mentioning it every time you bought it.

This is pushing your view, isn't it?

$50+ down to $20 isn't exactly a winning play either.

But it is something you believe in, so you buy more.

In fact, I agree with the selection for NOW. Not at $50, nor $40 or $30 but Now that it has stopped going down and has been going sideways for a while. It has become technically feasible.

SWC's chart is very similar to that of GEX. GEX gets the nod only because there is more interest in these types of trading vehicles.

Feb 03 11:49 AM

[Bigwavedave:]

Mark what do you think of OCNF now after there filing??


On Jan 30 12:36 PM Mark Anthony wrote:

> My warning on DRYS was so timely. DRYS dropped from $12.50 to $6.50
> in just two days. The crowd in DRYS is just too crowded.
>
> That said DRYS is now way oversold and must rebounce strongly, as
> shorts need to cover and longs need to jump back in. The Baltic Dry
> Index has been up strongly for NINE successive days. The fundamentals
> of shipping is strong. All shipping stocks are excellent buys at
> current level.
>
> On precious metals, SWC remains the best as it is the best player
> on the precious metal with most bullish fundamentals, palladium.
>

Feb 03 07:32 PM

[wauthier:]

1.Global industrial activity is on a down trend all over the world. This is not good for shipping stocks.Baltic Dry index will of course come down again.
2.People are afraid of the financial system. They are buying gold, not palladium.

Feb 21 01:59 AM