The Economy Since the Crisis

A review of economic data encompassing the financial crisis to the present as presented on February 14, 2017, a must read.

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Transaction Alert

We executed the following transaction(s):

Commodity Index Review: February 2017

On August 31, 2015, we reviewed the Bloomberg Commodity Index had the following to say:

“While achieving the extreme downside target doesn’t mean that the decline in the index has ended, the majority of the decline from the 2008 peak is behind us.”

“We believe that those interested in the investment opportunities in commodity stocks should review the top tier stocks that have 7% or more individual commodity weighting in the Bloomberg Commodity Index.”

Based on that assessment, the following sectors would have been represented in individual commodity stocks:

  • gold
  • copper
  • corn
  • oil
  • natural gas

What has been the sector ETF performance of the related categories?  Below is the respective charts with percentage change:

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The gold ETF rose as high as +117% and currently sits with gains of +75%.  Notice that there was marginal downside action for the sector after September 4, 2015.

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The copper miner ETF did not fair as well immediately after September 2015, falling as much as –40%.  However,  the recover has been dramatic with the ETF chalking up an “in-line” performance with the gold ETF at +68% gains.

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The Teucrium Corn Fund has underperformed with a decline of –12.78% since the late August 2015 call on commodities.  This may be the sector to watch as it may be an outperformer in the category, if market conditions continue.

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The United States Oil Fund (USO) has suffered in a similar fashion as the corn fund but by a greater magnitude at a decline of –24%.

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Getting crushed in this category was the United States Natural Gas Fund (UNG) with a decline of –42%.

Unsurprisingly, the individual stocks affected by the representative sectors have had much better performance than the sector ETFs with losses.  As an example, our real-time purchases of Flowers Foods (FLO), Raven Industries (RAVN) and Helmerich & Payne (HP) had exceptional gains within the context of a declining sector at +36%, +63% and +74%, respectively.  Each of these stocks are heavily impacted by the segments of the above sectors of the Bloomberg Commodity Index.  The dichotomy between the commodity and the representative stocks explains why we have a long-held belief that the stocks are better for investors, in the short and long-term, rather than the pure play on the commodity itself.

Below is the updated review of the Bloomberg Commodity Index (BCOM) and our take on what to expect going forward.

Sears CEO: “We’re Cutting Costs, Ignore Conflict of Interest”

On February 10, 2017, Sears (SHLD) CEO Eddie Lampert put out a press release indicating that the company will generate savings of $1 billion in 2017.  The reaction by investors was a staggering +29% increase in the stock price.

Apparently, the timing of the news of “cost savings” managed to coincide with news that the same CEO of Sears just settled a $40 million conflict of interest lawsuit alleging that “…Lampert had stripped the company of its best assets to benefit himself and his hedge fund.”  This news was also reported on February 10, 2017 but seemed to have been “overlooked” by the general public or institutional investors may have acted in unison to support the effort to look the other way.

Lampert’s claims that the current efforts will revive Sears fly in the face of overwhelming evidence to the contrary.  While Sears continues to pile on debt, the bond rating agencies have negative outlooks on the actual repayment of that debt.  Additionally, Sears stock price, since Lampert came on board as CEO, has been in perpetual decline, having fallen more than –80%.

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The evidence suggest that the latest news of cost cutting is a cover for the settlement of the lawsuit.  As always, “the defendants said in court papers that the $40 million settlement was not an admission that the lawsuit's claims are valid.”  We hear this all the time, “I’m giving away $40 million of my assets but the plaintiffs claims are illegitimate.”  However, the clear conflict of interest on this matter suggests that anyone who continues to hold their position in Sears will not be rewarded for the value that has been lost since Lampert came on board.

Gilead Sciences, On Target

On November 16, 2015, when Gilead Sciences (GILD) was trading at $99 per share, we posted the following long-term downside targets for  the stock:

  • $56.93
  • $49.03
  • $41.12

At the same time, we contrasted our downside targets with commentary from TheStreet.com to ensure that there was some balance to the perspective for our readers.  TheStreet.com said the following of GILD:

“We rate GILEAD SCIENCES INC (GILD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, attractive valuation levels, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. (TheStreet.com. Gilead Sciences (GILD) Stock Is the ‘Chart of the Day’. Albright, Amanada. November 16, 2015. ”

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It is worth noting the buy rating that we gave to GILD on January 14, 2010.  At the time, the fundamentals seemed to be supported by the technicals and warranted due diligence and possible acquisition.  Below is our revised assessment of Gilead based on the technical attributes which is precipitated by investor reaction to the company fundamentals.

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