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Wednesday,
June 17, 2009
(Cont'd from
above)...
Jim (cont'd):
Because you are
about to learn about
a concept that
determines prices in
a way that you might
never understand
unless you think
about the concept of
"too crowded"...
Here's the deal...
I talk a lot about
the "playbook" on
the show... the
"groupthink
playbook"...
Sometimes I call it
the fashion show...
it's what's hot...
what's blazing
hot... and what
managers,
particularly hedge
funds, find out what
is hot, they rush
into a sector, into
a crowd, all at
once. When that
happens, we call a
sector - or even an
individual stock -
crowded.
When a stock or
sector gets crowded,
much too crowded,
you have to get
nervous...
particularly if we
get even the
slightest change in
the fundamentals.
And today, the
red-hot sectors got
that change... and
we got that pileup.
Last night, we
talked about the
soul of this
market... the battle
among those who
believe the economy
is getting better,
and those who think
that it's not...
that it's staying
the same... or that
it's simply less
bad. Why does this
battle matter so
much? Because there
are so many hedge
funds in this world
that play only what
is known as the
"macro"... That's
this concept that
lately I've been
hammering home on
this show... It's
when people don't
care about
individual stocks...
it's when money
managers look at the
stock market as one
asset in the world's
vast supermarket of
assets... and the
determinant of what
asset class class
gets crowded, that
they like... I'm
talking about the
hard assets, the
commodity asset
class, the stock
asset class, the
bond asset class...
gold is an asset
class, cash is an
asset class... The
collective nature of
the world's central
banks... the Federal
Reserve, the
European Union
Central Bank... all
the other central
banks, including the
Chinese... they
determine which
sector is going to
be overcrowded... at
least when it comes
to the hedge funds.
So, for the longest
time, the
overwhelming
perception of these
gunslingers, these
trigger pullers, who
take action first
and reflect later...
is that the world's
economies were
slipping, still
trending downward,
still teetering...
These gunslingers
figured that the
central banks around
the world were going
to keep printing
money during that
slowdown, because
they're worried
about a
depression... so
they're going to
keep "reflating"
around the globe
and, when that
happens, the hedge
funds instinctively
favor hard assets
that are going to go
up in price when
there's excessive
demand, because of
so much money being
printed. Steel, oil,
aluminum, minerals
and the
derivatives... the
drillers, the
natural gas stocks,
and most visibly the
fertilizer stocks.
The result? These
sectors... minerals,
steel, oil,
fertilizers...
became crowded...
much too crowded
with way, way too
many funds in
them... and now
they've been hit by
a one-two punch.
First, we heard
rumblings that the
Europeans believe
it's time to stop
stimulating. That
matters. That
triggered the
selloff that began
Friday.
Then this week, oil
failed... unable to
pierce through $72 a
barrel... That
triggered the oil
stocks selloff...
And today we heard
from POT, a big
fertilizer company,
that prices have
come down for
fertilizer, because
the farmers can't
afford the high
prices, as their end
markets - what they
would make - have
plummeted in value.
So now, we see what
this picture of "too
crowded" means...
Potash (POT)
down $11.60...
Mosaic (MOS)
plummeting $4.96...
Agrium (AGU)
off $3.44... They're
joining the sinking
Freeport-McMoRan (FCX*)s
and the
National Oilwell Varco (NOV)s...
Copper, drilling...
the two most crowded
stocks in the
universe... just
like they were last
year at this time...
Hey, people remember
last year... they
have some memory.
They recall when FCX
fell from $125 in
June to $16 in
December. They
remember all too
well that NOV
collapsed from $92
in June to $17 in
December. These were
crowded, much too
crowded. They got
caught in the rush
hour. Then it
started to shower,
and they drowned!
That's what happened
today. That's what's
been happening all
week. They've been
caught in the rush
hour and they've
been deluged...
So the question
is... What's got the
market's love and
affection?... What
isn't too
crowded?...
This was the drugs
and healthcare today
(showing a picture
of a deserted
street)... They're
screaming, "Look in
my direction!
There's nobody
here!"... So did the
foods, so did the
beverages... no
crowds in that
group. People want
to go where there's
no crowds.
That, plus the fact
that, if the world
isn't going to print
money, another whole
group of gunslingers
is says that the
economy is going to
revert to a
slowdown...
What do people stop
buying in a
slowdown?... They
stop going to
stores, they stop
going out, they stop
spending... Oh well,
they stop going out
to fancy stores...
they go to
Wal-Mart (WMT*)...
they eat at
McDonald's
(MCD)...
Hey, how did those
stocks do today?...
And they can't cut
back on cereal...
they buy
General Mills Inc. (GIS*)...
how about
Pepsi (PEP*)...
another of
my charitable trust
names... How did
that do today?...
Take a guess...
Yep. They're the
definition of
unloved... they're
the definition of
uncrowded. These are
the stocks that do
best when unliked
golds, the coppers,
the steels, the
fertilizers... We
slip back into
deflation, not
inflation.
Here's the bottom
line...
▼ ▼
▼ ▼
▼
 The Bottom Line!:
The inflation
beneficiaries... the
commodity stocks...
they got too
crowded, much too
crowded. And the
sellers took the
expressway exit,
right to the foods
and drugs. Who would
have thought that we
could learn how to
trade stocks from
the "soul
survivors?"...
And, if you stick
around, I'll give
you the
least-crowded name,
the soul survivor,
in the health
maintenance business
that, if I were you,
I would exit into
with all the crowded
money.
[verbatim recap]
[end of segment]
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