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dragonLZ (99.39)

TMFSinchiruna, you might want to take another peek through those windows...

Recs

14

December 21, 2010 – Comments (14) | RELATED TICKERS: WIN , DOW , S

TMFSinchiruna, remember your post The Clearest Windows Into Weakness from July 28, 2010, in which you told us:

"And then there are the steelmakers. With a reliability all their own, I believe that clear windows into the foundries of a nation's metalsmiths yield more direct insight into the underlying health of an economy than most other vantage points. I believe that sustainable recovery is impossible without the widespread participation of the industrial base, and so I continue to hold vigil outside their window.----

After turning in six consecutive quarterly losses, and after observing a corroborating fall-off in order rates, U.S. Steel (NYSE: X) sees deterioration of its operating performance for the second half. Steel Dynamics (Nasdaq: STLD) conveyed caution in its outlook for the second half, and Schnitzer Steel (Nasdaq: SCHN) foresees deteriorating sales volumes meeting tighter profit margins. Nucor (NYSE: NUE) is the voice in the industry that lays the stark reality on the table. Nucor warns of "the possibility of a double-dip recession, or at minimum a significant slowing of growth."

If you want a rosy, upbeat view of the economy, I believe they have windows for that. From where I stand, however, I am sorry to say I see the fires of American industry growing dim once again."

 

You probably don't remember, but I disagreed. I commented that I'd rather pay attention to what the market's telling us, rather than looking through the foggy windows:

"#2) On July 28, 2010 at 4:26 PM, dragonLZ (99.56) wrote:

"It is a wise move to use steel as a gauge of economic health."

I agree, and here is what I see (on 5 best steel plays):

AKS, Price in Feb. 09: $6.18, Today: $13.91 (return +125%)

CAS, Feb. 09: $7.29, Today: $14.84 (+104%)

WOR, Feb. 09: $8.20, Today: $14.25 (+74%)

X, Feb. 09: $19.67, Today: $44.28 (+125%)

GGB, Feb 09: $5.23, Today: $14.69 (+181%) 

Two more plays worth mentioning:

STLD (+71%) and SCHN (+61%)

Btw., NUE is a stinker (good for dividends and nothing else)...

I know most people think stocks will (or are supposed to) always go up in a straight line, and as soon as the market start going down they think that's a sure sign the market will "double dip". 

Well, let me tell you something: Most people don't make money in the market..."

 

So, today I thought maybe it would be a good time to take a look at how these steel plays I listed in my comment have performed since your July 28 post:

SCHN, then $46.28, now $$66.18, +43% return

X, then $44.28, now $58.71, +33% return

WOR, then $14.25, now $18.54, +30% return

STLD, then $14.33, now $18.06, +26% return

CAS, then $14.84, now $18.03, +22% return

AKS, then $13.91, now $16.63, +20% return

GGB, then $14.69, now $13.91, -5% return

 

Well, what do you think? Isn't it time to wash those windows and take another look?

 

14 Comments – Post Your Own

#1) On December 21, 2010 at 1:00 PM, dragonLZ (99.39) wrote:

Just to clarify something:

This is not a personal attack on TMFSinchi. This post is just a part of my series TMF Analysts I'm Watching (and tracking) You - just like my Ananad Chokkavelu, Are You Still Shocked post.

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#2) On December 21, 2010 at 1:08 PM, silverminer (38.68) wrote:

dragon ... don't worry ... I don't take stuff like this personally. I welcome the debate. I'm busy at the moment, but let me check back in when I can. Thanks for posting.

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#3) On December 21, 2010 at 1:38 PM, bothisellhigher (29.57) wrote:

Dragon...a touch off your thread but I just wanted to let you know that I've made my first "Dragon Volume Play"...COUGF, a pink sheet, rumored soon to be AMEX listed Canadian oil newbie with prospects in Alberta and British Columbia...check it out my droogie!

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#4) On December 21, 2010 at 4:47 PM, dragonLZ (99.39) wrote:

 bothisellhigher, I checked out COUGF, and have to tell you I'm not quite sure COUGF fits my Volume Story.

I see what you see, and the increase in volume looks very, very nice (the whole chart looks great), but there is just not enough data (less than 1 yr) to be sure that this volume increase is indeed a meaningful event.

Having said that, I think you might be onto something here, and I wish you best of luck. :)

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#5) On December 21, 2010 at 10:34 PM, ChrisGraley (31.54) wrote:

Dragon, I don't know why I always seem on the opposite side of the coin as you. I think it's just investment style more than anything. I think you are very good at finding companies that fit your goals and you seem to be successful at what you do, but again, I disagree on steel companies and I don't think that 5 months is a fair enough time frame to gauge Sinch's predictions.

I see no fundamental reason that steel is a good investment. I think it's risen on market sentiment and market sentiment is wrong.

Maybe it's the time-frame, I'm not sure, but I think that we might both be right on different planes of existence.

If I could just understand the plane that you are on, it might make me a better investor, but I'm having a hard enough time understanding the plane that I'm on.

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#6) On December 22, 2010 at 9:46 AM, silverminer (38.68) wrote:

dragon,

After going back and re-reading my discussion of the domestic economy as seen through steelmakers back in July, I continue to stand by my analysis and perspective 100%.

Unfortunately, the American economy remains mired in a weakened and structuraly challenged state, which is essentially what I was describing via the steelmakers.

Along the lines of ChrisGraley's reply above, I consider the stock price gains that you cite as completely divorced from the fundamental realities transpiring in the American industrial complex. It is important to note that the S&P 500 is up 13.4% over the timeframe in question, government stimulus dollars are continuing to trickle down into moderate near-term demand support, and quantitative easing has the effect of raising all nominal equity prices considerably with dubious inflation-adjusted benefit to investors.

Meanwhile, my precious metal holdings -- which are a direct extension of my macroeconomic perspective -- have gained far more than those steel companies over the same period. SLW, my largest holding, is up 85%. Great Panther, my second largest holding, is up 200%. Hecla Mining is up 100%. Etc. Etc. I believe that these are the types of nominal gains that will ultimately be required to outpace true inflation over the coming years, and my fundamental analysis of the domestic industrial space continues to leave me concerned for structural challenges and a lack of sustainability in observed normalization of market dynamics.

I am pleased if you have locked in gains from the steel sector in recent months. I am always pleased by the success of my fellow Fools. But in no way do I see those 6-month trailing nominal stock gains as contradicting in any way, shape, or form my broader perspective on the state of the American industrial complex. Like Nucor CEO Dan DiMicco, I try to maintain hope for a shift of strategy that can bring about a truly sustainable path toward recovery ... but this road that we're presently walking as a nation is just not it.

Merry Christmas to all, and it remains my greatest hope that I may turn out to be 100% wrong in my assessment.

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#7) On December 22, 2010 at 12:38 PM, dragonLZ (99.39) wrote:

Both Chris and Sinchi,

So, if the last 5 months is time not long enough to show Sinch was wrong with his prediction, I'd like to know what time frame are you looking at? 

If, let's say, a year from now all of these steel stocks double and S&P is up another 20%, are you again going to say "still not long enough"?   2 years?

I don't know why, but I have a strong suspicion that if the market was 20% lower today than it was at the time of Sinchi's post, you both would say: "We told you so" (as far as I know, you both are in the "double dip" camp).

I asked this question before: At what point does one admit he or she was wrong? I'd really like to hear your opinion.

Saying "Oh, I wasn't really wrong - It's just normal the market went up after the FED pumped in a trillion dollars into it" doesn't cut it for me.

If I'd told you: "Oh, I wasn't really wrong going all-in in Dec. of 2007 as who was able to predict the financial/credit mess that we ran into?", would you really agree with me I wasn't wrong?

Please explain to me how does that work?

Also, Sinch, you are mentioning how your silver and gold stocks way outperformed these steel stocks. Why do you think that makes you right about the future?

I'm sure I can show to you that a few of my March 2009 buys so far have outperformed any of your biggest silver and gold winners during the last 20 months, so what does that mean? I actually think that most likely my whole 2009-stocks portfolio is outperforming your 2009-PM portfolio, with most likely just slightly lower accuracy of picks? 

Doesn't that say we are in a recovery mode and in the new equity bull market? Why is it that precious metals bull market is more telling of the future than the equity bull market?

I'd really like to know what you guys think.

Thank you very much for commenting.

Merry Christmas.

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#8) On December 22, 2010 at 2:23 PM, silverminer (38.68) wrote:

Dragon,

I think we need to dial in on exactly which perspectives you're challenging here. The article of mine that you referred to was a macroeconomic discussion based upon the cautionary notes emanating from steelmakers at the time. The article did not claim that steel stocks could not rise. I was drawing from steelmaking execs' observations about market conditions, trends in capacity utilization, and efforts to separate the short-term impact of stimulus injections from sustainable recovery of demand. 

After a market collapse of the nature we observed in 2008-2009, followed by trillions in bailouts and stimulus -- and especially in the context of massive quantitative easing (the role of which in bolstering equity prices you seem to discount entirely in your reply) -- I do not consider the gains you cite to be either surprising nor indicative of sustainable recovery in the domestic economy. Capacity utilization in the domestic steel sector appears to have peaked for the time being, and I've seen no indication of meaningful recovery of sustainable demand sources.

As for my gold and silver stocks, I'm not about to get into a peeing match with you over who has outperformed whom... that was not the point of my statement... I was only pointing out that the continued rise in gold and silver speaks to the persistent undercurrent of crisis that lies fundamentally beneath the appearence of normalcy as manufactured by Congress, the Federal Reserve, and the media. :)  I'll admit I was wrong about the condition of the U.S. economy and my macroeconomic perspective overall if gold goes below $800 before it reaches $2,000. With housing still in the gutter, and unemployment still pinning the needle against that double-digit realm, the onus remains upon you my friend to establish that real recovery is afoot with something more meaningful than nominal stock price gains.

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#9) On December 22, 2010 at 3:59 PM, dragonLZ (99.39) wrote:

Sinch,

I might be wrong, but when I read your posts and articles the message I get is that you think that soon, we (both the World's and the US economy) is going to fall off a cliff, inflation is going to go through the roof, tough times are ahead, etc. That's why you are suggesting we buy gold and silver (as a protection from all of those), right? 

You are also telling us one should not invest in equities, right? I mean, why wouldn't you tell us that if you think a "big flood' is coming, right? You said, and I believe you, you want to help us be better prepared for what's the come (and I respect that).

Now, my question is, why do you think you were more right telling people to invest in SLW (when it was at $2) than I was right telling people to invest in LVS (when it was at $2)?

That was my point when I mentioned my March 2009 buys in reference to your "my gold and silver stocks are up 100-200% during the last 5 months".

Why are your 100 - 1000% gains in gold and silver picks more telling of the future than someone's 100-1000% gains in automotive industry related stocks, or casino industry related stocks, or biotechnology, or ...?

If let's say, a year (or a few months) from now, gold does reach $2000, but S&P also reaches 1400, I will still think the same thing I think today: Sinchi was very right in telling people to buy gold and silver, but very wrong in telling people not to buy equities.

I hope this clarifies my position a little bit more. And I'll hope you'll reply again. 

Thank you.

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#10) On December 22, 2010 at 4:14 PM, dragonLZ (99.39) wrote:

Sinchi, just as an example of my way of thinking, here is my comment to zloj's blog  Beware of this advice, or why the "Crash JPM" scam will only crash the suckers who believe it:

#11) On December 02, 2010 at 1:38 AM, dragonLZ (99.59) wrote:

There is no question that Silver bugs were very right about the direction in which Silver will move, but I think that majority of them were very wrong about the reason why.

Every time Silver and their favorite Silver play SLW go up, they make sure to remind us how's that just proving their theory that "the world is definitely moving toward hard currencies like Silver and Gold."

Well, it looks like there is some great news for the Fools who have very little or no exposure to Silver.

Based on Silver-bug theory, it looks like the world is also moving toward a car-parts currency.

Here is the proof.

Take a look at these 10-year and 3-year charts comparing Silver Wheaton (SLW) and car-parts manufacturer Tenneco (www.tenneco.com):

There you have it. Every time SLW was going up, TEN followed (or vice versa). And every time SLW was going down, TEN followed again (accidentally, S&P500 followed that same pattern too).

Now, just don't tell me you have no old car parts lying all over your garage...

_____________end of comment from zloj's blog____________________________________

 

So why is it that SLW's gains mean "fire of American industry will be growing dim once again", but gains in TEN, an automotive parts manufacturer, don't mean "fire of American industry will burn so bright you'll need to put welding mask on when leaving your house in the morning"?

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#11) On December 22, 2010 at 8:17 PM, silverminer (38.68) wrote:

Dragon,

As far as I know, I have never suggested that investors avoid non-pm equities. In fact, I have frequently pointed out that the perceived black/white division between pms and equities is nonsensical. I myself am 90% invested in equities, even if most of them are pm related.

I also purchased and owned shares of a steelmaker for a period over the past several months, and I recently added another to my watchlist. You may also wish to review my bullish article on Schnitzer Steel from October 2009 that posited an increase in demand for new and used auto parts domestically as cash-strapped Americans sought to prolong the operating life of their vehicles. You offered a cute anecdotal chart pairing, but there is nothing inherently contradictory about the two stocks exhibiting strength in tandem.

http://www.fool.com/investing/dividends-income/2009/10/05/hidden-treasure-awaits-in-leftover-clunkers.aspx

I still think you're misconstruing and misrepresenting my message, albeit unintentionally. I appreciate the point you are trying to make, but we are framing the arguments differently. My original article that was the subject of your post did not seek to use steel company stock prices as indicators of economic condition, but rather the observations of industry execs, capacity utilization, etc. Silver Wheaton's rising stock price is not a direct result of weakness in the American economy, but rather is a direct result of the increase in silver prices. Silver prices are higher for a barrage of reasons, which include substantially among them the monetary measures undertaken in response to severe challenges faced by the American economy. The condition of industrial companies like steelmakers is a distinct topic.

To answer another question you posed: "Why are your 100 - 1000% gains in gold and silver picks more telling of the future than someone's 100-1000% gains in automotive industry related stocks, or casino industry related stocks, or biotechnology, or ...?"

I have made no such claim.

Finally, permit me to clarify that gold and silver's future trajectory should not be seen as being directly correlated with weakness in the American economy. I do consider elevated precious metal prices as indicative of an unhealthy U.S. dollar and persistent systemic risk from leveraged debt and derivatives, etc., but major portions of the American economy could well gain a foothold (I certainly hope they do!!!!) without diminishing the outloook for gold and silver. In fact, a particularly robust recovery in segments of the economy, unfortunately, could trigger inflation all the same that could be expected to send those prices higher.

The crux of our varying viewpoints seems to center around disparate presumptions of causality and correlation, as well as regarding the significance of stock price movements (which I generally consider as poor indicators of much of anything). 

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#12) On December 22, 2010 at 8:23 PM, silverminer (38.68) wrote:

Also, let me reiterate I appreciate your perspectives and viewpoints even though we seem to approach these topics through disparate paradigms and methodologies. I am also truly excited for your investment success, and wish you continued success just as I wish for a steadily continuing recovery in the American economy. I personally sleep a lot better at night being 80% long precious metals than I would if I had diverse exposure to multiple domestic equity sectors, but I understand that many investors may well be comfortable with such exposure and I wish them only the greatest success. The question is far more nuanced than an either/or, as allocation is always a highly personal consideration ... by bottom line argument has only ever been that I believe every investor could benefit from some precious metal exposure in this macroeconomic environment.

I hope this helps to clarify my perspective.

Merry Christmas.

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#13) On December 23, 2010 at 1:48 PM, dragonLZ (99.39) wrote:

Sinch, first of all, thank you for taking the time to comment.

Most likely, I was wrong thinking that you are one of those guys who think that rising gold and silver prices are a sure sign of a coming US economic collapse (or a double dip).

Saying that collapse / double dip is a possibility, and that one needs protection against it, is something I respect.

 

 "I am also truly excited for your investment success, and wish you continued success just as I wish for a steadily continuing recovery in the American economy."

Unfortunately, my investing is not as successful as you might think based on my previous comments. I don't know if you noticed, but I said some of my March 2009 "buys" (not holdings) are ouperforming your silver and gold picks. I don't own any of those "buys" any more (big, big mistake).

My point was that some of those stocks have outperformed gold and silver related stocks (so in my opinion gold wasn't the King the last two years), not that I'm the best investor ever.

Another reason I mentioned the stocks I bought in RL is to show you I'm not coming up with some penny stocks nobody ever heard of just to prove my point that there are stocks that have outperformed gold-and-silver related stocks for the last 22 months.

All in all, I'm glad we had a chance to exchange our opinions on this "hot topic", and I thank you once again for making sure all my questions are answered.

Merry Christmas. 

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#14) On December 23, 2010 at 1:54 PM, dragonLZ (99.39) wrote:

Sinch, I'd also like you to know I'm not a Gold and Silver hater - not at all.

If you have a minute, please take a look at these posts of mine to get a better picture of my position on Gold and Silver:

Can these two bull markets coexist? 

Hecla Mining, Are you kidding me?

 Thanks again.

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