Monday, June 21, 2010

June 21, 2010 Yaun vs. Yawn


June 21, 2010 Yaun vs. Yawn

That was fun. We had a great start today as world markets reacted to the incredible news that China was going unpegging its currency from the US dollar. Well it wasn’t really news as much as a position statement. Actually it wasn’t as much like a position statement as much as a signal. Actually it wasn’t much of a signal as much as a sound bite, but did we bite. The market broke out about 1.5% higher and within about two hours everyone started to ask, “What does this mean?” We had to ask, “What did they say?” first. As our friends in Bloomberg were saying most of the day, what are the details? By noonish PST everyone had realized we reacted to a head jerk by the Peoples Bank of China. See they, the Chinese, do not want the G-20 meetings coming up to be focused on the valuation of the Yaun. This move kind almost takes that issue off the table, except for a handful of vocal democratic Congressmen who are running for election this fall and want China to do what we tell them to do and revalue the Yaun NOW. Imagine a foreign entity thinking of their own people and their own timeline. Don’t they realize these politician have ads to prepare. Who cares what the unpegging of the Yaun will do for the people of China we have a government to run into the ground. But I digress.

By the end of the day, we all saw the point and half evaporate and close down a hair.

Overall the announcement is a good thing from everything I could glean tonight. It is at the very least an indication that China has assessed all of the global economic threats and decided to consider how to appreciate it currencies responsibly again a basket of currencies including the dollar. Details are not available and that was what took all the wind out of the rally’s sale this afternoon.

So what does this mean to the market place. Probably not much short term except for those playing the currency exchange game. We have not figured out how to loose money in FX so we do not discuss it here, but look for China’s strongest inbound trading partner’s currencies to get a little bump this week. We are talking Brazil, Australia, Japan, Korea and as that happens look currency trader to accept a bit more risk in places like Canada and New Zealand. But overall the announcement is a vote a confidence for the global economy short term. Perhaps Zhou Xiaochuan Chairman of the People’s Bank of China monetary committee read our blog last night. Hey it could happen!

Find the Linkage

With the news that the Yaun was going to be free floating, well that is not exactly what they said, I know I did that already. I was gleaning articles as I could throughout the day and tonight. What we discovered was an article in the Financial Times, (remember I have a portfolio over there too that I help with) and a related story about the strength of the Chinese economy surfaced but it did not have to do so much with the Yaun, but could as their economy continues to expand. The article was based upon comments made by a Greek Shipping Magnate, Mr. Peter Georgiopoulos. He pointed out that the dichotomy of the expanding Chinese economy and recent cancelled orders for dry bulk and double hulled tankers are creating a price spike for the shipping industry. Mr. Georgiopoulos has launched several companies of late to take advantage of the situation. One of them is General Maritime Corp GMR and the other is Genco Shipping. We would draw your attention to GMR which is well positioned to meet the demands of the expanding Chinese market and, pay attention boys and girls, they carry a significant portion of Saudi and Indian Ocean oil to the US. Why is that important? Deep well drilling is in deep doodoo. New restrictions on shallow water drilling will also stress supplies and we will need oil from points ANYWHERE or we will be staring down the barrel of 100 oil again. Ironically, while researching GMR and Genco, Credit Suise had some positive comments about a recent equity offering for GMR that raised 200 million for fleet development. Their day rates for double hull tankers has risen from 40,000 a day to 70,000 a day. Their financials are not all that pretty because of the lackluster oil market over the last 2 years. China and the Gulf of Oil Mess is changing the game. GMR had a nice run from February till April 19th and the stock has come from that high of $8.70 to today’s close of $6.82 which is way below the 200 day MA and just below the 50 day MA. It currently has an accidental yield of 7.33%, but the dividend may get cut because of the recent 200 million dollar offering it did. (it is long and complicated but the offering might have breached some covenants and restrictions that will cause them to drop or lower the dividend). If the day rates stay above 50 grand, a forward looking value for the stock could be 12-14 dollars a share. I am playing with a November $5.00 call which I am paying 2.80. This one could be fun and it was true game of connect the dots which makes it a little harder for everyone to be in the pool ahead of us. If you get in, put your stops in right away. We now know how goosey the oil industry could be.

In other Salve Lucrum action, we picked up more UNG on the afternoon dip. We did secure the HNZ December 49.00 calls at 84 cents each. We doubled down on our January 20 dollar INTC calls for 2.68 each. Other than that we just watched the market take in the China Non-News.

My intel told me that MLHR, Miller Herman was reporting today. Sorry for the confusion as they report Wednesday. Ironically Steelcase did report today and they were way off due to a charge for healthcare. Is that a tell for MLHR? We’ll know in a day or two.

Salve Lucrum


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