Bookkeeping: Adding to James River Coal (JRCC)

James River Coal (JRCC) has held $19 in each of the past 5 days and performed much better than the other coal names yesterday which were beaten senseless. I added more this morning (for a trade) over $20. With the 200 day moving average @ $26, I'll be selling a large batch in the $25s. I've made a bunch of purchases in the $20s -$21s range this week. JRCC is now up to a 5.4% stake.

Remember to not get excited about any strong commodities movement over the coming days. As I've repeated for months now, they are now no different than banks last winter. They have traumatic selloffs, and then will have some huge oversold rallies - that must be sold. If there is a 7-15 day rally anytime in the future (I'm not counting on it but just saying) people will get overconfidant, say we overstated the global slowdown thesis and start piling back at the wrong time. Just like each time banks last winter and spring, sold off 60% in 2 months and then rallied 35% in 2 weeks we were told "the bottom is in financials and the worst is behind us". The parallels will be identical. As far as I'm concerned all these stocks could now be called "Citigroup Coal" circa January 2008. At some point it will be wrong to sell them on a rebound but with the "global slowdown thesis" now firmly entrenched most likely that point will be latter 2009. So just like the banks last winter and spring - they are ok to trade but dangerous to hold for long periods. That did change for some banks this summer, and that will change for commodities at some point in the future as well. But as with all things, it's a matter of timing. Until that "change in attitude" towards the group comes, they are just trading vehicles. It will be very apparent on the charts - just like some banks finally jumped over and above the 200 day moving average a few months ago - and held it, we want to see the same in any commodity before trusting it. That is, judging from the charts, eons away.

We are really down to only 5 "global growth/commodity" stocks after our purging the past 3 months. 3 are in fertilizer, 1 coal, and 1 global engineering firm. I plan on lowering that even further on the next extended run up - you really only need 1 of these stocks to trade the massive moves as they all move in lockstep. Over a 5 year time frame the World of Shortages theme continues (despite the mocking) - just like those who, pointing to internet stocks performance over the previous 2 years, said in 2002 "that whole 'internet is going to change the world' was such a joke and the stocks prove that" were proven wrong over time, so will any saying commodities won't be in a multi decade bull market. Too many people, who were levered apparently beyond belief, got into this trade at the same time and took a good thesis too far, and nothing goes up in a straight line. We as American investors have very short term time frames - and for many 6 months is an eternity. My comments are multi-year and in fact multi-decade.

While it is hard to believe now sometime in the next 2-4 years the world will begin a new economic cycle upward - led by Asia (not the US) and the stocks will anticipate that ahead of time. So imagine a world in 3 years where most countries are hitting on all cycles (and the US is at least standing upright again after its credit binge), and Asian demand for resources are 10-25% higher than they were in 2005-2007. Nothing straight up, nothing straight down. This is a 20-30+ year urbanization/modernization cycle for nearly 50% of the world's population, and we just have exited stage 1. Stage 2 I believe will be even stronger and cause new levels of stress. But since we have to make money in the interim (next 12-18 months), and in stock markets 90 days is an eternity, we have to focus in other areas for now and then revisit this thesis when institutional money returns.

Long James River Coal in fund and personal account