Thursday, July 24, 2008

Bookkeeping: Closing Vale (RIO)

Love Vale (RIO).

Love to stay in business more.

Perhaps this is capitulation on my part.

I still like the name here at a potential double bottom with March 2008 lows in the $28 range, and in fact doubled the stake last week on this thesis but that was before the next leg down of the commodity sell off. I can only assume Vale has some crude oil stake, right? Because iron ore = corn = coal = crude oil = nickel = all the same. Since we can exit this position "flattish" ( no major gains, no major losses) I'll take this 1.3% stake and move it to cash as well. Building up my pile of crumbs. Until there is any meaningful sign of support in this group, it is just tossing good money after bad. Some other names have crumbled so bad for no real reason that it would be dumb to lock in these losses, but this one we are not in that situation so it's a good candidate to liquidate. No change to long term thesis, we've held this name since March 07 2008.

I've written in one of my comments today that this reminds me of August 2007 which differed from the other selloffs in that we were getting random herky jerky dislocation type sales... which "felt" liked forced liquidations by hedge funds. I believe a similar thing is happening now. These stocks are now being punched in the gut even when crude oil is flat on the day. I think a lot of overlevered hedge funds were caught with their pants down on the "short financial trade" and now they need to puke up merchandise at any price to raise funds. I could be wrong, but the price action is not lying. It is chopping people's hand and feet off left and right - fundamentals mean nothing and/or we are now pricing in a worldwide Great Depression if the stocks are signaling the future. I simply think it's the hedge funds liquidating but again - who knows.

I'd rather miss the first 10-15% of a true recovery than give all the year's gains back. So I'm liquidating "here" or "there". Vale is "here".

[Apr 25: Excellent Piece on Vale (RIO) in WSJ Today]
[Mar 26: CVRD Pulls Out of Xstrata Deal]
[Feb 19: CVRD (RIO) Secures 65% Increase in Iron Ore Pricing]

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