George Soros’ favorite Latin American cell phone play, NII Holdings (NIHD), continued to be the top performer in your Global Stock Investor portfolio this week, soaring 6.16%. Transocean (RIG) also is likely to move today after this morning’s announcement that it doubled its Q2 profits and beat earnings estimates yet again.
Sadly, these were the sole bright spots in the Global Stock Investor portfolio this week. For the month of July, the handful of themes that were working earlier in the year — oil, agriculture, commodities — all fell out of bed at once. The S&P Natural Resources Index fell off 15%, the worst monthly sell off in the sector since August 1998, when the Russian currency crisis triggered the implosion of the hedge fund Long-Term Capital Management. Prices for the underlying commodities also suffered in July, with the Jefferies/CRB Index down 10.1%. This was just short of the worst monthly performance for that index since 1970. The smartest money in the world is having it tough. One of the world’s top-performing hedge funds in 2008, Phil Falcone’s Harbinger Capital, was off 16% in the month of July alone on the back of its heavy commodities bets.
With your holdings in gold miner Barrick Gold (ABX), oil driller Transocean (RIG), Brazilian oil giant Petrobras (PBR) and the diversified commodity Elements Rogers International Commodity ETN (RJI), the sell off is affecting the performance of your heavily commodities-based Global Stock Investor portfolio negatively as well.
The financial world is on a knife’s edge (yet again) about whether the commodity boom has ended. But as I mentioned last week, there is a lot of smart money out there betting that this is just a pause in a long-term trend. It’s worth emphasizing that although energy and resources stocks were hard hit in July, this performance did not reflect the sector’s solid fundamentals. Historically, oil dips in July before rallying from August through October. In addition, July and August generally mark a low time for gold before prices climb with the arrival of the fall buying season. At the same time, I am not ready to call a bottom here, so I am moving Barrick Gold (ABX), Petrobras (PBR) and the Elements Rogers International Commodity ETN (RJI) to a HOLD. There is no use in trying to “catch a falling knife.”
The market feels to me a lot like the summer of 2002 after the dotcom collapse — a long, grinding slog, punctuated by sharp bear market rallies like we saw yesterday. At the same time, the degree of overall pessimism is reaching such extremes that I would not be surprised if we are near a market bottom. What the market needs is a catalyst of some sort. Perhaps the fall in the price of commodities will be it. But I will wait for more of a confirmed uptrend before recommending that you move back into some of your current and former Global Stock Investor holdings.
PORTFOLIO UPDATE
Barrick Gold (ABX) struggled this week as the gold prices fell to around $860. The U.S. dollar is rallying and when the U.S. dollar rises, gold falls and vice versa. I am moving Barrick Gold back to a short-term HOLD.
NII Holdings (NIHD) continued to perform strongly as one of George Soros’ favorite turnaround plays. With analysts posting a target price between $70 and $81 for NIHD, the stock is a BUY.
Transocean (RIG) announced its second-quarter profit doubled, topping Wall Street estimates, on strong demand for its offshore rigs. Transocean has seen rates for certain deepwater rigs top $600,000 per day as high crude oil prices prompt demand from exploration and production companies. Tight rig supplies also have helped push contract awards higher. Second-quarter profit rose to $1.1 billion, or $3.45 per share, from $549 million, or $2.63 per share, a year earlier. Analysts on average had expected a profit of $3.30 per share, according to Reuters Estimates. Second-quarter revenue more than doubled, soaring to $3.1 billion. The stock is a BUY.
Petrobras (PBR) continued to correct on the back of the weakening oil price. The stock will recover with the price of oil. For now, I am moving it to a HOLD.
Elements Rogers International Commodity ETN (RJI) fell back below the $12 level on weakening commodity prices. Short-term sell offs notwithstanding, the commodity boom remains intact. Nevertheless, I am moving this ETN to a short-term HOLD.
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