By Skymist

After a thrilling two-week rally in the stock market during early September, shippers began to fall. They had been enjoying a nice rally on the general premise of economic recovery, market stabilization, and rising materials prices. But suddenly on September 17th, the shipper sector broke, and leading names fell - plummeted, actually, at a much faster rate than the modest pullback in the general market would have implied.

Commodities have performed as well as stocks, as exhibited by the powerful breakout in the Reuters/Jeffries CRB index as of late. The index has about a 30% exposure to energy, while it is also exposed to a number of hard and soft commodities contracts.

Wednesday on CNBC, Jim Rogers insisted that China and Brazil are the only BRIC countries worth investing in. Despite an election conducive to more capitalistic policy, India's ritualistic culture discourages competition, greed and other growth drivers. Russia is still in a newly liberated economic state, in which citizens have so much incentive to enjoy previously denied economic freedoms that they will make frivolous financial decisions until enough time passes or national policy encourages productivity and saving.

China's case is well documented and will not be rehashed here, as I believe Brazil is the only market worth investing in today. Brazil is the only nation with an immediate future of increased production and consumption. Unlike China, Brazil has provided more developed economies things they need, not things they want (sorry if I underestimate the value of your Pokemon cards, Playstations and Beanie Babies). The death of the American consumer only affects Brazil if it is a literal one, meaning Americans no longer need sugar, bananas or oil.

Last Friday, the Baltic Dry Index ended the week on an up note at 2,183, finally. It was the first up day in 10 sessions. In fact, the 7.3% decline for the week was the ninth weekly drop in ten weeks. In the last three months, while global equity markets have rallied on increasing expectations of global recovery, the Baltic Dry Index (BDI) has quietly, steadily declined. Since its peak this year on June 3, 2009 at 4,291, it has declined 49%. The S&P 500 Index in the United States, for example, has increased 13% in the same time frame.

This is important because unlike asset markets, this Baltic Dry Index measures economic activity that is supposed to be at the heart of the economic recovery. The index reflects the demand for, among other things, transporting iron ore and coal from Australia to China that is a direct input to Chinese industrial production topics I have discussed in past articles. Much of justification for a recovery, particularly in commodities prices, is linked to Asia-related trade and consumption. Yet if this trade and consumption was so robust the BDI should be headed up (or at least holding flat) rather than in retreat.

Q2 2009 Earnings Call

August 20, 2009; 8:30 am ET

The inflation vs. deflation debate has heated up again. The debate looks far from being settled, even among professional investors. This may be the single most important debate in the investment world.

Jim Rogers, Peter Schiff, James Sinclair, Gerald Celente, Marc Faber and Congressman Ron Paul are on the inflation camp. The argument is simple: As the US government racks up trillion dollars of deficit spending, the money can come from neither raising tax, nor borrowing. So the only way out is print money out of thin air. In history, any time a government chooses to solve its fiscal problem through massive money printing, it always leads to hyper-inflation at the end. So that is going to happen. It might be postponed a bit but can not be avoided.

Bullish Calls:

Nordic American Tanker (NAT): "I have been in constant contact with the Nordic American Tanker people (who have by the way have helped me to understand the manipulation of the oil market) that yield is safe… NAT is better… I want you to make that swap."

By Julian Murdoch

Unlike, say, gold and oil, it's not often we get a detailed look at the prospects for shipping. When you talk shipping, specifically dry bulk shipping, you're talking about the supply and demand of ships as well as the commodities they carry, China, and finance - all interacting in often-unpredictable ways. Capital Link Shipping hosted a webinar on Friday to educate investors about the state of the shipping industry, and there were a few eye-openers.

• BofA looks to repay TARP this year. After raising $13.5B in a share sale this week, Bank of America (BAC) plans to pay back its $45B in TARP loans by year-end, much earlier than many expected. BofA has already raised more than half of the $34B capital shortfall it needs to cover before the Treasury will allow it to exit TARP; it plans to raise the rest through sales of non-core assets and by converting preferred shares.
• S&P demotes U.K. S&P downgraded the U.K. economy to Negative from Stable, a move that embarrassed the British Treasury and sent sterling reeling. S&P worries the government debt burden could approach 100% of GDP and remain there for some time. Yesterday, IMF concluded its week-long stay in the U.K. by issuing its own blistering report, saying more banks may still be nationalized as "further shocks will lead to an erosion of capital buffers."
• Feds to inject another $7B+ into GMAC. The Treasury is poised to inject another $7B into GMAC, and may invest another $7B over time, a move which could give the government a majority stake in the car lender and its half-parent GM (GM). Earlier this month, stress-test results pegged GMAC's capital shortfall at $11.5B. What began last December as a $20B batch of emergency loans to the auto industry now looks likely to balloon well beyond $50B, and could approach $100B by the end of 2009.
• Fed mulled larger debt buyback. Some officials favored increasing the Fed's $300B program to buy U.S. Treasurys in order to keep interest rates low and capital markets well oiled, minutes from the FOMC's April 28-29 meeting released yesterday showed. The Fed also lowered its outlook for this year (-1.3% to -2% vs. -0.5% to -1.3%) and next, saying GDP would contract more sharply (9.2% to 9.6% vs. 8.5% to 8.8%) and unemployment would be worse than its January projections. The thought of increasing the Treasury buyback plan - which Pimco's Bill Gross thinks is inevitable - sent Treasury futures sharply higher, with yields on the 10-year dropping to 2.5% from 3% earlier in the day.
• Greenspan bearish on banks. Despite the recent drop in borrowing costs, Former Fed chief Alan Greenspan says we're not out in the clear, and worries a lack of capital at banks may choke any economic recovery. Greenspan thinks recent stress tests underestimated banks' capital needs: "There is still a very large unfunded capital requirement in the commercial banking system in the United States and that's got to be funded," he said yesterday, and noted the mortgage crisis will not abate until home prices bottom.
• Geithner sees healing. Testifying before the Senate Banking Committee yesterday, Treasury chief Tim Geithner outlined to lawmakers how TARP money has been allocated and how much is left (see table), and said banks have raised about $56B following the stress tests. But some economists are worried TARP repayments are not the beginning of the end of government crutches, but rather the end of the beginning. Geithner says he sees signs of healing in the financial system, but warned it's still too early to be thinking about an exit. In the Q&A, Democrats called out the Treasury for not being firm enough with aid recipients, while Republicans argued recent steps have become too intrusive. (read Geithner's prepared comments)
• Sony slashes suppliers. In another ominous sign things may not be as rosy as hoped for the tech sector, Sony (SNE) said it will halve its parts suppliers to slash buying costs by $5.3B, or about 20%. Sony will reduce equipment suppliers to about 1,200. On Tuesday, Hewlett-Packard (HPQ) surprised analysts with hefty layoffs and a downbeat outlook.
• Google Times, not. Google (GOOG) did toy with the idea of buying newspapers, and of using its charitable arm to prop up papers seeking non-profit status, but ultimately decided against both, CEO Eric Schmidt says, responding to speculation Google might look to save New York Times (NYT) or others. In an interview with the FT, Schmidt says Google is "trying to avoid crossing the line" between technology and content, but that it's working with Washington Post (WPO) and others to help them improve their online offerings.

Earnings: Before Open

• Barnes & Noble (BKS): Q1 EPS of -$0.04 beats by $0.11. Revenue of $1.1B (-4.4%) in-line. Sees Q2 EPS of $0.05-0.15 vs. $0.03 consensus. Sees full-year EPS of $1.10-1.40 vs. $1.07. (PR)
• Bon-Ton Stores (BONT): Q1 EPS of -$2.67 beats by $0.77. Revenue of $644M (-8%) vs. $1.05B. Reaffirms full-year guidance. (PR)
• Brocade Communications Systems (BRCD): FQ2 EPS of $0.11 beats by $0.02. Revenue of $506M (+42.7%) vs. $476M. (PR)
• Buckle (BKE): Q1 EPS of $0.58 beats by $0.08. Revenue of $200M (+24.6%) vs. $195M. (PR)
• Children's Place (PLCE): Q1 EPS of $0.80 beats by $0.05. Revenue of $402M (+0.4%) in-line. Comps +1%. (PR)
• GameStop (GME): Q1 EPS of $0.42 in-line. Revenue of $1.98B (+9.2%) in-line. Sees Q2 EPS of $0.28-0.33 vs. $0.40 consensus. New software sales -2.8%; used products +31.9%, "illustrating that value is becoming more important to our customers." Shares -9.9% premarket. (PR)
• Hormel Foods (HRL): Q1 EPS of $0.59 beats by $0.09. Revenue of $1.6B vs. $1.68B. Sees full-year EPS at upper end of $2.15-2.25 vs. consensus of $0.24. Says consumers seek value in retail channels while foodservice sales remain soft. (PR)
• MF Global (MF): FQ4 EPS of $0.04 misses by $0.04. Revenue of $257M (-37.1%) vs. $302M. (PR)
• Navios Maritime (NM): Q1 EPS of $0.12 beats by $0.03. Revenue of $147M (+56.5%) vs. $139M. (PR)
• New York & Company (NWY): Q1 EPS of -$0.08 in-line. Revenue of $233M (-13.8%) vs. $240M. Comps -15%. Sees comps down similarly in Q2. (PR)
• Ross Stores (ROST): Q1 EPS of $0.72 in-line. Revenue of $1.69B (+8.7%) in-line. Sees Q2 EPS of $0.60-$0.63 vs. $0.54 consensus, and full-year EPS of $2.62-$2.72 vs. $2.54. Shares +3.9% premarket. (PR)
• Stage Stores (SSI): Q1 EPS of $0.02 beats by $0.01. Revenue of $334M (+5.6%) in-line. Sees Q2 EPS of $0.20-0.27 vs. $0.09. (PR)
• Stein Mart (SMRT): Q1 EPS of $0.38 beats by $0.22. Revenue of $320M (-9.2%) vs. $316M. "Despite a very difficult sales environment, first quarter earnings improved due to tightly controlled inventories that enhanced merchandise margins, and significant expense reductions." (PR)
• Suntech Power (STP): Q1 EPS of $0.01 vs. consensus of -$0.06. Revenue of $316M (-27.4%) vs. $351M. (PR)
• Tech Data (TECD): Q1 EPS of $0.63 beats by $0.29. Revenue of $4.99B (-17.7%) in-line. Gross margin 5.28% vs. 4.86% a year ago. Sees sales down in Q2 due to decline in IT spending and strength of dollar. (PR)
• Toro Company (TTC): FQ2 EPS of $1.00 beats by $0.10. Revenue of $500M (-21.7%) vs. $508M. Sees full-year EPS in line, and revenue down 18%. Shares +0.75% premarket. (PR)

Earnings: Wednesday After Close

• Advance Auto Parts (AAP): Q1 EPS of $1.02 beats by $0.10. Revenue of $1.7B (+10.3%) vs. $1.6B. (PR)
• Computer Sciences (CSC): FQ4 EPS of $1.53 beats by $0.06. Revenue of $4.1B (-8.3%) vs. $4.2B. (PR)
• Gymboree (GYMB): Q1 EPS of $0.74 beats by $0.03. Revenue of $228M (-4.6%) vs. $233M. (PR)
• Hot Topic (HOTT): Q1 EPS of $0.03 beats by $0.01. Revenue of $175M (+10.1%) in-line. (PR)
• Intuit (INTU): FQ3 EPS of $1.68 beats by $0.07. Revenue of $1.4B (+9.2%) in-line. Issues in-line guidance for FY '09, sees EPS of $1.78-1.82, revenue of $3.155-3.185B. (PR)
• Limited Brands (LTD): Q1 EPS of $0.01 beats by $0.04. Revenue of $1.7B (-10.4%) in-line. Issues in-line guidance for Q2, sees EPS of $0.11-0.16. Sees FY '10 EPS of $0.67-0.87 vs $0.74 consensus. (PR)
• NetApp (NTAP): FQ4 EPS of $0.31 beats by $0.08. Revenue of $880M (-6.2%) vs. $856M. (PR)
• PetSmart (PETM): Q1 EPS of $0.37 beats by $0.07. Revenue of $1.3B (+9.4%) in-line. (PR)
• Synopsys (SNPS): FQ2 EPS of $0.45 beats by $0.05. Revenue of $337M (+3.8%) vs. $336M. (PR)

Today's Markets

Overseas markets moved lower Thursday after U.S. stocks sold off at the end of Wednesday's session. Futures have followed suit.

Stocks of dry bulk shipping companies had a huge run up recently. How expensive have they become from fundamental perspective? Below is a table with key parameters for some of the most actively traded pure-play companies in this segment.

Stock	GNK	EGLE	EXM	DSX	SBLK
Recent price per share	18.17	6.59	9.17	15.20	3.48
Shares outstanding (in mln.)	31.7	47	71.8	75.4	60.3
Market capitalization (in $ mln.)	576	309.7	658.4	1146.1	209.8
Fleet market value (in $ mln.)	1137.7	1314.9	1302.8	875.2	364.2
Fair value of above the market charters (in $ mln.)	328.1	227.4	207.3	280	251.3
Net debt (in $ mln.)	1260	1328.3	1420.3	257	250.3
NAV per share	6.49	4.55	1.25	11.91	6.06
Enterprise value/ Charter adjusted fleet value	1.25	1.1	1.38	1.21	0.75

The Baltic Dry Index, an index that follows the cost for cargo and goods traveling by sea. During its heyday, it was approaching 12,000 and now it is almost 90% lower. This is usually a good guide to how much demand there is for the global economy and works rather well as a coincident indicator.

Notice how it turned down recently in a time when some stocks that usually track it are moving up (Excel Maritime (EXM) to be exact). But one of the interesting points here is that the index started to move higher during the first part of 2009, stoking the idea that global demand is revving higher.

• Fending off foreclosures. Obama unveiled a larger-than-expected $75B housing relief plan yesterday, and set aside $200B of new backing for Fannie Mae (FNM) and Freddie Mac (FRE). The plan will allow as many as 5M homeowners who are underwater or have little equity in their homes to refinance their loans through Fannie and Freddie, and will encourage lenders to modify loan terms. Though the plan drew praise for its use of incentives, critics said it left many issues unsolved, including the difficulty of altering loans packaged into securities or loans not connected to Fannie/Freddie. Many Republicans were also wary of the plan, concerned it will only delay inevitable foreclosures. Notably, the plan will not try to spur demand for real estate and will focus solely on existing at-risk homeowners.
WSB Sponsor
Attention Wall Street Breakfast Readers: Gain invaluable insight from some of the world's most successful investors. Register by 3/1 and save $200 off the Early Bird rate!

Join us at the 4th Annual Value Investing Congress West (May 5&6 in Pasadena, CA) to find out how some of the world's best investors are recouping losses and finding great values in this tumultuous market. To see a full list of speakers, click here.

The Baltic Dry Index (BDI), a shipping index considered one of the most reliable global economic indicators, has been surging up for 17 consecutive days as of Feb. 11, 09. It's not often that something just keeps going up for 17 days. The BDI’s strong rally has caught a lot of people’s attention. However, dry bulk shipping stocks like DryShips (DRYS), Excel Maritime Carriers Ltd. (EXM), Eagle Bulk Shipping Inc. (EGLE), Genco Shipping & Trading Ltd. (GNK), TBS International Inc. (TBSI) and Navios Maritime Holdings Inc. (NM) plummeted instead of moving with the BDI. So, what's going on here? Let me digress a bit before talking about the fundamentals of shipping.

Despite a 17-day rally, most people remain skeptical about the outlook of the BDI. In a recent post, Trader Mark asked "What's Really Going On." Most believe the BDI rally will be short-lived, so when BDI finally dropped for two days, Bespoke Group declared: "BDI rally is DEAD!"

Gold rush 2009 is on, as gold is the front-runner in precious metals, so far. Gold is now only 10% away from its early 2008 high; silver is off 39%; platinum is still off 57% from its high; and palladium is still off 67%.

Don't buy the front-runner, buy the laggard, palladium! Chasing the front-runner and big crowds is the fastest way of losing money. Just look at recent bloodshed in DryShips (DRYS), a front runner in shipping stocks. I switched from DRYS to Excel Maritime Carriers Ltd. (EXM) and cautioned about DRYS in mid-January 09. So, I was lucky to have avoided the massacre in DRYS. There are inherit problems in DRYS that are now exposed, but big crowd sentiments added to the severity of plummet.

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.

Below are 10 companies that have been sold off sharply since the markets' highs in July and still have great earnings potential, sustainable fundamentals and balance sheets, and are giving extreme oversold signals on a technical basis. These are speculative plays that will likely come back into favor, and possibly see institutional interest as the market recovers and prices stabilize. Invest at your own risk and do your own research, but here is a quick take on the names with some “common sense” analysis:

It was, for many investors, confusing not to see gold surge to multiples of its current price. I mean, shouldn’t gold have dramatically surged in this financial tsunami? Most investors, including myself, forgot that gold was a playground to some deep pocket investors from the hedge fund industry that got hit tremendously by redemptions and massive forced deleveraging because of a domino collapse of prime brokers such as Lehman (LEHMQ.PK) or Bear Stearns. The result was a fire sale in COMEX gold futures and paper products with gold as underlying.

The physical market was different, particularly in the third and fourth quarter of 2008. Even though physical demand was very strong and supply reached its upper limits, the price of gold even declined. This was only a short lived market distortion triggered from the paper gold market. In the last couple of weeks, the market already rebalanced the price as gold went from sub $700/oz to roughly $900/oz. The pressure from forced sellers and fund liquidation sales is more or less over and this should pave the road for much higher gold prices in the future.

We saw another irrational knee-jerk market reaction on Jan. 7, when the price of oil dropped more than 12% in one day in response to EIA's weekly inventory report. The report actually showed an increase of 6.68M barrels, and the unwarranted knee-jerk reaction shows the market interpreted the data completely wrong. If you scrutinize the data - oil price should jump up, not down.

If oil is being hoarded, of course the inventory will jump up. The data shows that last week’s U.S. oil imports increased dramatically over the same week a year ago: 13.698M barrels a day versus 12.904M. Therefore, for the week, an extra 5.558M barrels of oil was imported. If the U.S. is buying more crude oil, of course, inventory will raise. When Americans are buying more, shouldn't the oil price be driven up in the international market? Inventory was up NOT because Americans are consuming less, but because we imported much more.

What is up with the shipping industry? It went through the roof. Then it fell through the basement. Finally now it looks like it is set up to rebound. See chart of the SEA ETF below:

click to enlarge images