Wow, so much has happened in such a short time. Did anyone think that Dubai would run into liquidity problems? Some, probably. But probably not to the degree it occurred. The fact that Abu Dhabi is reluctant to fully bail out the creditors is significant, not the least of which is because it means banks can no longer pump debt into Dubai despite its heavy leverage and assume payments are virtually guaranteed. Anyway, I’ll let someone else flesh out the story with more details because I don’t want this post to drag out too long. One thing I will clarify though, as I’ve expressed before the market’s surged too quickly too far. The rise in the stock market is not commensurate with actual economic recovery, even taking its forward looking nature into account. So is this the surprise that corrects the market? I’ll have to go with no. It’s certainly possible, but I’m thinking it’ll take a lot more than 59B from a sovereign corporation already known to be debt heavy to send the market into tailspin. As a piece of the harbinger, perhaps. But not in itself.
The portfolio will be undergoing quite a few shifts the coming week, and a new (bolder) outlook after the break!
So some of you are probably wondering what the Initiative’s next moves are going to be. Well, long story short I’ve been trying to build a new market outlook since the last one played out and while it still has potential, I was agonizingly a week late on a lot of plays I would’ve loved to make. If anyone remembers, my original theory was centered around transportation and the number of bargains there were with an overdepressed BDI. Clearly, the shippers didn’t deserve to be punished as harshly as they were.
Thinking back on it, I probably should have weighted them in the portfolio more heavily, adding PRGN (Paragon Shipping) for example which would have been a nice compliment to DSX since it’s much more exposed to the spot market. Another example is where I dawdled about UNP (Union Pacific) as its price sank, and it slipped my mind (blaming midterms 
) until the next thing I know, it’s surged considerably (helped obviously by Mr. Buffett) although that wasn’t the only impetus. So I think the original idea was solid, but my execution around it was only okay.
Well, the next moves are going to be a bit bolder, if only because the companies themselves are a bit riskier in the current climate. The theory is as follows: to find (preferably) niched companies whose input costs consist largely of USD-sensitive commodities and convert them to a consumer or “mandatory” corporate good. This has two aims. The first is a play on the USD. It’s weakened considerably, but at some point investors will realize the market’s recovered too quickly too fast largely by an overconsumption of risk. Dubai strengthens this point somewhat. The second is even simpler – based on fundamentals (as our own Prof. Roubini has been on air repeating) most commodities are far overpriced, oil in particular. Whether the market will bow to the fundamentals is another question, but the portfolio’s philosophy is not based on trying to predict how hundreds of traders will think over the next few months.
There are other aspects that go into it as well. Obviously the goal isn’t to pick up debt-riddled companies completely unhedged against commodities. But in a nutshell that’s the basic premise. Now for a quick portfolio update:
(Firstly I have to say, wonderful timing by Stern IT shutting down the servers. I was banging my head against the wall trying to execute trades the last day and a half)
Rebought into DSX, which I originally sold off after it hit my target price of $18. Day after it dropped like a rock. Thanks to Arvindh for making me determine an exit price to begin with 
Rebought heavily into VXX after shedding 2/3rds of the position over the last 2 weeks. I was of a mind to drop it until late December since the market was moving up inexorably it seemed. But I’m certainly glad I didn’t.
Sold PDA (Brazil Foods). I think Avi asked last meeting, but it was a good question as to why I was still holding Brazil Foods. Especially since I voted pass. The reality was I didn’t have anywhere for the cash to go in any event, so I kept it there.
Sold TNP (Tsakos). I’m not predicting great things for oil ahead (I’m going to regret these words), and it’s done above what I expected actually. Clearing up more cash for the upcoming purchases, and to give me a small respite in the number of companies to follow so I can focus more on looking into others.
Until next time! If/when/huh the MOT/VZ post ever comes. There was some mildly heated iPhone-Droid trash-talk going on tonight in this tiny neighborhood (surprisingly, I had no part in it) so it seems like it’s living up to its billing as a legitimate challenger.
