Biz Dev in NYC by Rob Tsai

With only the agriculture and energy complexes appearing to work, and with the financials continuing to trade down, I’m continuing to position myself for a sideways or bearish market for the rest of the summer.

As we come close to retesting the March lows of the DJIA and SPX, I felt that last Friday’s sell-off was nowhere near as brutal as the March sell-off surrounding the panic that was Bear Stearns. Only this time, the story was contagion. First the money seller banks sell off, then the regionals follow. Investors have kept trying to call the bottom in financials - only to see more downside. Each bounce is being sold.

On the commodity side, I’m still bullish agriculture and natural gas and iron ore (over crude and gold). Bunge’s sell-off after its acquisition of Corn Products is a little troubling, but Potash and Mosaic both held up ok, and Corn Products is less of a pure play on agricultre - and more of a processor of grain products (like Archer Daniels). I’d say it’s a less attractive part of the value chain, especially as raw input costs rise, the ability to pass on the costs and maintain margin is difficult. Who is to say that sugar refineries won’t get their margins compressed similar to the crack spread compression faced by the oil refineries like TSO and VLO. Plus, Bunge paid a big premium, so it wasn’t surprising that the buyer’s stock sold off on the news.

I still feel Potash and Mosaic need to get bought on any pullback. Actually, I feel like Mosaic is getting close (would buy in the low 140s).

And Deere looks interesting at these prices, too.

Here’s what I traded today:

Shorts -

Shorted Conagra ahead of Thursday’s earnings. All food stocks have been feeling the pressure of rising inputs - pork (Smithfield), poultry (Pilgrim’s Pride), Jams (JM Smuckers) - so I think Conagra will have a hard time this earnings period and offering guidance moving forward.

Shorted Big Lots - retailer has had a big run, lots of insider selling. The only retailers I’d own today are Walmart or Costco.

Shorted Hanes Brands - cotton prices are running, commodity product, high debt

Shorted Oracle - bearish on enterprise IT spending, with financials continuing to break down, retailers in pain. The countervailing trend is international demand (IBM posted good numbers last quarter), but I’m still on the bear side here.

Shorted Ryder - transports performance diverging from the indices is a little strange here. Transport theory suggests that the market will turn when the transports are performing (as volumes precede the economic turn). Still, I feel this is a head fake. High oil prices definitely squeeze the margin of trucking. I’d rather own the rails. Though they are impacted by fuel prices, it’s a more efficient mode of travel. And trucks are more levered to shipping consumer stuff in declining demand (apparel, electronics) while rails ship the stuff that world needs (grains, coal).

Buys -

Still buying industrials, energy and metals - Gardner Denver, EOG Resources, Cabot Oil and Gas (Secondary priced and stock is still trading higher), Companhia Siderurgica Nacional, Precision Castparts

Bought an ultrashort on the Lehman 7-10 year treasury index. Fed meeting this week, and fed is in a bind. 4.15% yield on the 10-year to me is a joke, with spiraling costs in oil, gas, food. The ECB has been uber-hawkish on rates, trying to defend against inflation, while the Fed has been uber-accomodating in an effort to rescue the domestic markets and the economy. Seems to me a bad situation - as we continue to need to print paper to fund our war in Iraq, our broken health care system and our insatiable demand for driving SUVs (actually - this may possibly wane with $4 gas), and yet we want creditors to fund all this with 4.15% paper. Seriously?