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The Ag Lag


Why are most agricultural names 50% or more off their highs?


Remember Ag stocks? As in, "China has 1.3 billion people (who presumably have been accumulated in over 2,000 years without understanding the miracle that is deliverable pizza). Those people will pay almost any price for (fill in your BRIC bubble name here)!" As it turned out, to the dismay of longs and those who dared ignore the Purple Crayon's mysterious powers, China held the Olympics and promptly resumed their tradition of being the most sealed up country on earth; at least among the countries outsiders would actually like to visit (sorry, Iceland).

While the coal names have slowly been wafting their way sootily, time has been less kind to the agricultural names - most of which seem to be 50% or more off their mid-2008 highs. Such is the cruelty of Mr. Market when companies start projecting 25% growth for the foreseeable future, only to start turning in quarters so bad they actually could be used for fertilizer substitute in less than 12 months. The latest victim is Agrium (AGU), which reported this morning. The company missed, guided lower and generally stunk the joint out in every way imaginable.

Reading the headlines, I put the over-under on the stock drop at 10%. When I pulled Agrium up and saw it down a buck, then recalled that I had cash on hand from flipping some banks and casinos, it was time to get long some Agrium for the first time in my trading life. Short of announcing company-wide fraud or a secondary that doubles the float, there simply isn't much worse the company could possibly say. My bet is any and all "reasonable" bad news is in the stock. For those who enjoy playing along with, or taking the other side of, Macke: My stop is an even $40, my higher target is undefined, my entry point is $45, including commission, and I feel more naked than Madonna in that metal book telling you all of this.

In less smelly or salacious news:

  • Okay, the fact that Wells Fargo (WFC) isn't just hanging in there but actually ripping on bad news may make selling some seem to contradict everything I just said, but regardless, sell some I did. Wells is up more than 55% in the month. I've owned it. Pigs get slaughtered. The rest of us pay for tax programs with which we vehemently disagree.

  • Not that I'm saying the government and UAW won't be able to restore the glory of the US auto industry. Wait. I'm saying exactly that. The Administration and unions stiffing the real owners (those "unpatriotic debt holders" who, in 60 days, will be asked to re-buy the Chrysler they just got hosed out of) and going halfsies on the auto industry is the worst merger since the axis powers were formed. I don't think the answer to the American auto industry's problems is to make a bunch of golf carts that go 50 mph for an hour - before you have to plug them in for 8 hours. Keep in mind, these have to be subsidized, even if you sell them for $50,000. And the North American auto run-rate is now 8-9 million annually, versus 17 million 2 years ago - which is nothing short of terrifying.

  • One bank stock I gave up on too soon: Morgan Stanley (MS), which is finally putting $27 resistance in its rear-view today.

  • Not because I'm selling it all but in the interest of sharing, I've taken off just under half the 2x short ETF (SDS) today. The market I expected had resistance at 900. The one we're in seems to be having no problem at all with the Big Round Number. I'll buy it back if and when it can break 900 with any conviction.

  • For what it's worth, I didn't get longer when I bought Agrium. That's right, Las Vegas Sands (LVS) are on the outs again. She'll always have a special place in my heart but Sandy's going to need to digest her gains somewhere below $10 ($7.50 or so?) before I find her irresistible again. "Keep stocks and people you date on an emotional pendulum" is the best, and only, flat out advice I can give you with total confidence.
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Positions in WFC, AGU, SDS

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