Where's The Story Stocks?
One of the questions I get now and then is on the topic of what I call "story stocks". Because of the way most financial info is marketed, folks expect to see a long winded story of some company that has this and that working, and how it should come out as a world leader with a stock price that shoots to the moon.
This is the sort of thing Cramer still goes off on when he's making a fool of himself. He'll tell you about the CEO, the CFO, what they wear, where they came from, what they make, how they sell it and on and on. It was for years the classic way of describing an investment idea.
Back in the early 2000's I did a lot of that form of story telling. I remember for instance laying out stories for water stocks. Water is actually very rare around the world. In many areas, people are still to this day dying because of lack of good clean water. Because of overbuilding, many water "works" are antiquated, over loaded and running dangerously low of the stuff. We were very bullish on the sector. (still are actually)
One that we mentioned several times was WTR. We first did a piece on it in 2000/01 and a good friend and analyst of mine Bob Nelson did the write up for us. It was a ten dollar stock. We loved it. It had water, it had agreements it was growing. All the fundamentals were in place and demand could do nothing but go up. So, we put it out as a buy, and we invested in it. Yet a full five years later it had only gone from 10.60 to 19.90. We got emails asking if it was ever going to actually "move". It was like watching paint dry. Five years to gain 10 bucks??
In 2006 it made it to 30.00. But guess what it did from there? It sat at the 30 - 35 level for SIX more years.
Now here's the point, as there is a moral to this story.... since August of 20012 to right now however, it has blasted higher from 40ish, to almost 70. It has moved more in ONE year than it had in the last 10. Why is that?
Because this last year is where stocks diverged from anything to do with fundamentals into this perverted mess we find ourselves in. This is where the Fed money has really taken over as the ONLY real driver in the overall market.
So right now, stories really don't mean much.
Let me give you a perfect CURRENT example.
Uranium powers hundreds of nuclear plants around the world. There's more than 70 NEW nuclear plants under construction. Yet "yellow cake" is at decade's low price. Yellow cake is the "stuff" they need to extract uranium for fuel. One of the reason's of course was the Japanese disaster that was and still is Fukashima. When that nuke plant imploded, panic reigned and anything nuclear was sold off. That included Yellow cake. Yet when I talk to people that really understand this technology, they tell me that each year they're running lower on Uranium. Yellow cake is getting fairly scarce.
Now consider this... by the end of this year, a very big deal with the Russians is going to come to an end. Many don't know this, but we've had a program in place for over ten years where Russia has been dismantling their nuclear weapons and sending the uranium to us. We take it and change it to fuel grade and burn it. If you look at how much we take in, and what we do with it, it is responsible for about 10% of our nation's overall electricity production. Yes you can read that again. Fuel from Russian nuclear weapons has been powering about 10% of our country's electrical production for the past 10 years. Soon it is going to come to an end.
Well, when that deal ends, and with Obama's relation with Putin being so lousy, I do indeed think it will end by November and NOT be extended, where are we going to get the extra uranium from to keep the nuclear plants running?
This is a major league story folks.
Now, there's ONE company that leads the world in uranium yellow cake production. That is CCJ. Cameco Resources is a subsidiary of one of the world's largest uranium producers, Cameco Corporation of Saskatoon, Saskatchewan, Canada. They are America's largest uranium miner, providing more than half of domestically produced uranium for nuclear power plants. Well guess what? CCJ has been under 22 bucks for almost 2 years. It was in the high 40's back in 2007.
With the Russian deal ending and drying up supply... does CCJ belong at 19 bucks? NOPE. Yet there it sits. A perfect "story stock" and yet it sits there like a lump.
CCJ will move WHEN WALL STREET SAYS IT WILL MOVE. Fundamentals don't matter any more. The story doesn't matter. What matters is simply "where the big boys are buying." Nothing else.
Think of it like this... when Black rock or JPM or some major fund decides they want a stock, they are buying in tens of thousands of shares in a block. They might want to acquire a million or more shares. The best story stock on the planet will NOT move until the big shots decide to finally buy it. Consider Blackrock. They have over 4 TRILLION dollars under management. They are the single biggest owner of stock at 1 out of every 5 US companies. Are you getting the scope of this? They are the majority shareholder at 1 out of every 5 companies. When they decide to buy, it MOVES stocks. Nothing else.
This is why the street "darlings" like AAPL, PCLN, LNKD etc can go to insane heights. Wall Street likes them. If the big boys say they're good, they're good. It doesn't matter if the P/E is nuts or sales fade or what have you.
Right now, in 2013... a good story means nothing. What is important is simply "are the big wheels buying or not?" If the wheels aren't buying you can have the best story on earth and you're not going anywhere. Since it is only the big wheels moving things, the way to higher success right now until the market rolls over is to buy what they love. FB,JNJ, AAPL, MMM, PCLN, BIDU, etc etc.
I have great story stocks. Most of them are sitting there doing nothing, and that's why I didn't tell you the story. What moves this market is Blackrock and the boys, not a great company story.
One day that will change. But that's in the future. For now, we play with technicals and market sentiment. I wish it wasn't so. While we're devout silver and gold bugs, we generate cash by investing and trading in stocks. We use Gold and Silver as our Insurance policy/retirement plan. But we use the stock market to grab gains. While a great story rewarded us richly for many many years, today we don't care what the story is. We don't care what the CEO does, we don't care if sales are great or lousy. All we want to know is ..are the criminals buying it or not? If they're buying we want in too. If not... we're not much interested.
I'm not proud that my chosen profession is mired in fraud, manipulations, and lies. I'm not proud that I no longer have to do hours and hours of research on a stock any more. But we've had to evolve as the market has mutated. One day we'll get back to doing story stocks. But not until the current Fed driven Bankster monopoly of the market is over. That will be a while.
The Market...
So after consolidating for a couple weeks the market pushed up and over that elusive S&P 1700 level and looked for all intents like it was well on its way to a new leg higher. Then came Monday and it got soggy. Then came Tuesday and it got downright wet. So, we wondered if they'd do the "Wednesday reversal" thing, a small trend we've noticed over the years where Wednesday reverses what ever the market did on Monday and Tuesday.
Not quite. While they did rescue us from a really horrible showing as the DOW was off 100 points early on, and we closed down just 48.. it was a struggle of a day. So, what's the deal? Why did things look so good only to fizzle out?
The main reason is that the Fed heads have been out telling anyone that would listen that they would be fine with the Federal Reserve "tapering" off their QE program starting on the September meeting. Well, the market has every reason to fear that very act, the only reason the market is in the stratosphere in the first place is because of all the QE money. Take the money away, and the market has to fall.
The raging debate is an easy one to ask and one that I will not get into here today. I'm going to devote the entire Sunday edition to this situation. I can hear the objections already..."Bob, didn't you just do a write up about the taper and how you don't think they'll do one??" The answer would be yes indeed. But a few things have changed and now we're back to discussing it again. When they change the data stream, they have something going on. Stay tuned.
If the market actually starts to fully believe that the tapering is on the way, then there's a good chance we're going to be looking at a lot more downside here. I'm talking maybe even more than the piddley little 2-3% drop outs we've seen for months. But that's the problem, is the market really going to believe it or just figure it's more bluster from the talking heads to keep the market from overheating? . Just yesterday Byron Wein from Blackrock was on CNBC and said flat out "there's no reason for them to taper QE yet, the data isn't strong enough".
I'm leaning toward them taking a bit of a wait and see for a few days, but then the animal spirits grab them and they push us back up again. On Tuesday the Fed pumped 5.7 billion into the system via the POMO deal. Today another 1.6 billion. As the billions pile up, the bankers get like kids with a dollar burning a hole in their pocket. They usually relent and go out and buy things.
But there's no doubt that they're a bit rattled right now. Given today's wishy-washy outcome, tomorrow isn't easy to predict. But, considering that getting 4 down days in a row in this year has been as rare as finding that 4 year old kid that loves lima beans, we could have a skinny green day "just because".
So, it's a good time to just start making a shopping list of stocks that would go well in the next wild brainless run up. There's been a ton of profit taking in some monster names and we'll be looking at them and finding entry levels that we would enjoy. CAT, IBM, POT, IPI, INTC, VLO, and a dozen more come to mind.
I'm not saying buy them...I'm saying put them on your radar. The market could continue to stumble and they'll go down. But when the market does firm up and run again, those that have been pushed down like that, will turn and run.
Take care folks and do NOT miss Sunday's issue, there's some IMPORTANT things to talk about.
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