Playing Applied Materials

Yesterday Jim Cramer offered a new breakout play: Applied Materials (AMAT). He said to buy it after company reports on Thursday, if stock drops.

I decided to buy now. I don't know how earning report is going to play out. If stock drops, I might add to position. If not, well, I have it already.

Of course, I did my own homework. Company looks solid. Future P/E around 14. There is a new cycle in semiconductors, companies are switching to 22 nm chips, and AMAT is the biggest equipment supplier. Which means that there isn't much chance of serious downside (except for unforeseen or unreported events). But in case of a break up profit may be significant.

Disclosure: I am long AMAT.

Additional disclosure: Positions can change any time.

Taking Profit In DSW

Took some profits in DSW Inc (DSW) today. For one simple reason: stock trades in range between earnings (usually) and current range is between 64 and 68. I don't know the reason for a jump today (intraday high 68.80), and I don't care. Of course, I don't know the future (nobody does), so I sold only part of my position.

Will buy back under 64.

Disclosure: I am long DSW.

Additional disclosure: Positions can change any time.

Closing VmWare: Darkened Clouds

My apologies. I promised this article yesterday, but didn't have time until now.

I closed VmWare (VMW) position yesterday. It was done according to plan, outlined in annual portfolio review. I waited for a better price, but missed the opportunity back in March.

Company missed earnings target two quarters in a row. That's enough. These misses is a confirmation of my thesis: cloud computing moves out of IT departments to specialized companies. The biggest IaaS (infrastructure as a service) providers are Google (GOOG) and Amazon (AMZN). Neither of them uses VmWare software. Other companies trying to crack IaaS and PaaS (platform as a service) are IBM (IBM) and Microsoft (MSFT). They don't use VmWare either. For me, Google and Amazon are obvious winners here. For VmWare, it doesn't matter though, they are losers in either case. Their product was designed for internal clouds.

Bye, VMW. It was a good run, with a good overall profit.

Disclosure: I am long GOOG.

Additional disclosure: Positions can change any time

Back From Vacation

Returned to about 2% drop of my accounts. Sucks.

But vacation was great. Italy, despite many naysayers, is still in place. People are working, trains are running (mostly) on schedule. Service sometimes not very good, not many people speak English, which is surprising. But food is great, wines are pretty good and cheap. And weather was so good, I couldn't believe it. My head is still trying to digest this trip. Bologna, Venice, Ravenna, Florence, all in one week! By the way, style and design are superb. Even everyday things are pleasant to look at. Somebody will make huge money selling Italian design to the world. Not high fashion, it's done already, but simple things. Like kitchenware, furnishings, tools, even plumbing fixtures.

Back to markets. Main trend of this year is confirmed: commodities are going down. Gold, oil, base metals, grains, you name it. Natural gas in US is the only exception, so far. I think commodities were severely overpriced in the first place. People, as usual, built linear progression of Chinese growth, but China is moving to less material intensive economy. Besides, production of many commodities went up.

Google (GOOG) earnings: pleasant surprise. It's still my biggest position. Looks like company is improving mobile search, and it's a huge money maker, if done right.

Changes in my positions during vacation: my Facebook (FB) puts got exercised. So I bought FB for $26.20 plus commissions. Little loss for now, not a big deal.

Looking ahead, bad news and good news. Bad news: global disinflation, with a threat of global deflation. Deflation = depression. Good news: EU starts to understand that austerity doesn't work. Maybe US can understand it too. I hope.

Disclosure: I am long GOOG, FB.

Additional disclosure: Positions can change any time.

Cyprus: Not So Bad

Reports about Cyprus banks bailout sound like the end of the world:

Jim Cramer: "Cyprus is outrageous" :http://www.thestreet.com/story/11874236/1/cramer-cyprus-is-outrageous.html

Cody Willard: "Cyprus, hype-rus; losing the stock market war":http://blogs.marketwatch.com/cody/2013/03/20/you-are-losing-the-stock-market-war/

And these are not the most panicking examples.

I prefer to look at things with cold head. Here's the facts.

There is one insolvent bank (Laiki) and one, which solvency is in doubt (Bank of Cyprus). Other banks are OK, unless Laiki and Bank of Cyprus fail catastrophically (like Lehman Brothers).

Government of Cyprus already spent some money trying to save Laiki in 2012, with significant help from Russia (Russians keep a lot of money on Cyprus, private citizens and companies alike).

This time, Laiki required a lot more money. Initial plan was very strange: government wanted to skim all depositor in all banks. This caused demonstrations on the streets and rejection in Parliament. I don't know how such plan could be proposed at all. There are two possibilities I can think of: conflict of interest (corruption?) or attempt to pressure Russia into another bailout. As I said, Russians keep a lot of money on Cyprus, there is also Russian Commercial Bank (Cyprus), which is a subsidiary of big Russian bank, VTB, connected to Russian government.

Anyway, idea to rob all depositors failed. Crisis was resolved properly: small depositors (under 100000 Euros) are not losing anything, bigger depositors at Laiki and Bank of Cyprus are losing. More at Laiki, less at Bank of Cyprus. Those who say "expropriation" forget that the same scheme used in US, when bank fails. That's not expropriation, that's bankruptcy.

Now, the consequences. Offshore banking on Cyprus is over. Same thing happened in Iceland and Ireland. Most depositors will take money (whenever possible) and run. New ones will not come. Economy of Cyprus is going to be in trouble, because offshore banking was a very significant part of it. A pity, I liked the island after spending vacation there in 1994. Some Russian businesses and people are going to lose money. Reminder: there is no such place as absolutely safe bank. And that's about it. Total losses are around 12 billion Euro. That's a huge money for Cyprus, but a statistical error for EU economy. We saw today that there is order in Cyprus, on streets and near banks, no riots, no huge lines.

What will not happen. There will be no cascade failures of EU banks. At least, not related to Laiki or Bank of Cyprus. EU will not fail into recession, it's already there. Even offshore banks in other places will not suffer. Not until there is some other failure in another offshore zone. Russian money will not return to Russia, it will go to Bahamas, Hong Kong, Jersey or whatever offshore banking haven you can think of. Main thing, for me, this crisis will not affect EU economy in any significant way.

EU banks failed hard on Cyprus events. Among them my investment, Banco Santander (SAN). Today I added to this position. I will probably add more if fall continues.

I am a buyer of a panic, not a seller.

Disclosure: I am long SAN.

Additional disclosure: Positions can change any time

Flipping Indian Fund

I added to my position in Indian Fund (IFN) today. Sounds simple, right? Not so simple. Reality is, Indian Fund has an interesting strategy. Twice a year fund helps holders to make a little bit extra money. If fund trades at significant discount, it buys shares at net asset value, if fund trades at NAV or above, it sells shares at 95% of NAV. Currently, fund trades at discount over 12%. Fund is buying shares at tomorrow's NAV (there is a fee, of course, 2%, plus something your friendly broker takes). I decided to take the offer and put part of my position on sale. At the same time, I want to keep this position, so essentially I'm flipping shares, selling them at 2% discount to NAV and buying (today) at more than 12% discount. Easy money. The only problem, this time more than 30% of outstanding shares have been put for sale, and fund buys only about 12%. I don't know exactly how many of my shares will be bought, but it's OK. Fund made me a lot of money and increased position is worth it.

Disclosure: I am long IFN.

Additional disclosure: Positions can change any time.

Into Shipping

It's a risky business, I know. But Jim Cramer recommended Diana Shipping (DSX) as a play on increasing international trade. That made me thinking.

I don't actually like DSX. It's specialty is bulk carriers. There are two problems here, both originated in China. First, China is trying to switch from raw material intensive economy to more efficient one. That means less raw materials (or at least not much increase in use). Another problem: in the last decade shipbuilders built way too many bulk carriers. DSX is a quite efficient company, but it's working on the saturated market. Not much potential here. No wonder DSX doesn't pay any dividends.

But there is another play on the international trade. Most of the trade goods are shipped in containers. Container shipping is increasing faster than bulk shipping, and potential for growth in here.

Decision came easy. Diana Containerships (DCIX) is a sister company of DSX. As the case with DSX, company is very transparent. On company's web site you can find information on current and future ship leases. Company's financials are in good shape, profits are increasing and dividend is stunning 18%.

I opened position in DCIX today. If stock falls down more, I will increase this position.

This is a risky investment, I wouldn't recommend it as a part of conservative portfolio. But my portfolio (except for the fixed income part) is quite risky anyway. That's why I don't recommend anybody piggibacking on my investment decisions. If you do, it's your risk, not mine.

Disclosure: I am long DCIX.

Additional disclosure: I have no positions in DSX. Positions can change any time.