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Weekly rollup | May 30 - June 05 2022

Stocks Mentioned: Gold Fields (GFI), Yamana Gold (AUY), Lundin Gold (LUG.TO), Frontline (FRO), Chinese tech stocks (CQQQ), StealthGas (GASS), Tellurian (TELL), Timber & Forestry ETF (WOOD), West Fraser (WFG), Core Scientific (CORZ), Terawulf (WULF), Marathon Digital Holdings (MARA), Riot Blockchain (RIOT)

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May 31 2022

Gold Fields (GFI) is acquiring Yamana Gold (AUY) at a 33.8% premium. We own Lundin Gold (LUG.TO) on expectation of a takeover bid, so I'm glad to see M&A activity picking up and premiums increasing.

Frontline (FRO) closed at $11.43 last week after going parabolic for no reason and gapped lower today to open at $9.94. Knowledge of the fundamentals kept me from chasing the false breakout. This kind of price action is not uncommon, which is why I like to see fundamentals and technicals align, why I sometimes buy value even when the chart looks sick, and why I avoid certain breakouts even though I love buying breakouts. I still wouldn't buy Frontline or even Euronav while the M&A discussions are ongoing.

Speaking of chasing breakouts, Chinese tech stocks ($CQQQ) gapped higher off a 7-week bottoming process. Certainly an interesting trade, but not for me since I'm finding many higher quality trades.

June 01 2022

Buy StealthGas (GASS)

This is an addition to the LPG trade, along with current holdings BW LPG and Dorian LPG. StealthGas operates smaller vessels, trades at 0.2x book, has a huge debt load which is crushing the stock but the debt is more than covered by rising vessel values. To me, the clincher was the following extract from the Q1 earnings call:

Chris Robertson (Analyst)

I guess, with the market improving now and the shares still trading below NAV, aside from a general market improvement in the LPG sector, what do you think is going to drive kind of a narrowing of that discount to the NAV?

Harry Vafias (CEO)

Consistent quarterly profits.

The stock is at 50 week highs, right back to pre-covid levels. The company has a fleet of 35 LPG carriers, plus an additional 5 vessels as part of a joint venture. Like with Dorian LPG, I expect rising rates to lead to consistent profitability and the valuation gap to close.

Time for a Tellurian (TELL) trade again. The company announced a $500 million convertible bond offering, with the conversion price fixed at $5.724, 26% above current market price of $4.55. The 6% interest rate on the bond offering is a bargain, given that interest rates are rapidly rising (the 30-year mortgage rate is at 5.1%, up 100% YTD).

Added to my trading position on WY. The stock and the broader Timber & Forestry ETF (WOOD) is stuck in a trading range, so my aim is to buy on weakness and hold the position in anticipation of a breakout from that range, i.e. above $43 on WY and $100 on WOOD. These are just loose targets based on the weekly charts, not predictions based on Gann angles, Fibonacci retracements, Elliot wave counts, DeMark indicators, mercury retrograde or other such voodoo.

June 02 2022

The death of the containership sector was greatly exaggerated. According to Xeneta’s Shipping Index (XSI), long term contracted ocean freight rates jumped by 30.1% in May, the highest ever monthly increase. Price hikes in 2022 have reached 55%, leaving long term rates 150% higher than their year-ago level.

US exports of LPG -

This account is nice to go over. The emotional swings that come with being a unidirectional trader in a single sector of the market. He got it right, good for him, but the path he took is not easy, which is why I like to trade multiple sectors and limit drawdowns.

June 03 2022

Remi Tetot works with Raoul Pal, now infamous for calling staking on Terra network for a 20% yield "basically risk-free" and then attempting to hide the evidence on the internet. Unlike Raoul, Remi publicly accepted he shilled Luna and says he lost eight figures on its collapse. As for Raoul Pal, he's now being called Rug Pal or Raoul "Risk free" Pal. Internet warriors can be vicious when a former idol falls.

West Fraser (WFG) expects to take up and pay for approximately 11.898 million Shares at a price of approximately US$95 per Share, representing an aggregate purchase price of approximately US$1.130 billion. West Fraser currently expects that all shareholders who made auction tenders and purchase price tenders will have 100% of their successfully tendered Shares purchased by West Fraser at the purchase price.

This means that the uptake was less than 100%, since the company offered to buy up to US$1.25 billion worth of shares. Crucially, all those who tendered shares indicated their offer price to be US$95 per share, the upper limit of the company's offer. Once this deal closes, the company's shares outstanding will reduce by 11.71%. No telling how the market will react to this news, but I admire management for making this quick. A NCIB (share buyback program executed on the open market) may have pushed shares up to $95 anyway, so the 6% premium over yesterday's close isn't much in the grand scheme of things. Had they been swamped with shareholders wanting to hit the bid, the offering would have been oversubscribed and happened closer to the lower limit of $80 than $95. By doing it this way, management has clearly shown that shareholders find the stock undervalued at current levels. Plus, by clearing the share registry of 'weaker hands', the company has strengthened its shareholder base. No company would take this route unless they were strongly bullish on the long term prospects of the business.

I like this news and expect to continue holding my position.

Buy Core Scientific (CORZ) for a swing trade at $2.68 per share

Core Scientific is the number one public listed bitcoin miner by hash rate, responsible for 8.7% of the overall bitcoin network's hash rate of 185.78 million exahash per second. CORZ's hash rate of 16.2 EH/s is split into 8.3 EH/s self-mining and 7.9 EH/s hosting. Nearest competitor $MARA is responsible for 3.9 EH/s all of which is self-mining. All the bitcoin miners are at or near 52-week lows.

What I like about this trade is that while CORZ has sold off more than is warranted, relatively speaking as compared to other bitcoin miners, and made a new low, bitcoin itself hasn't yet breached or even gone near its 5/12 low of $26,700. Investors seem to expect bitcoin to clear that low, or at least head lower over the weekend. I think we bounce. CORZ is so oversold, it isn't hard to get a rally. The risk/reward is in favor of going long here, stop to be determined next week.

June 04 2022

Positioning as of this week's close. Gross exposure is 137% and I'm net long 124%. That is a lot of leverage for me. Over the weekend, I'll be rehearsing what I'll trim to bring my leverage down in case of a crash scenario. I reckon the positions that have already gone parabolic will get stopped out in case of a crash, so the decision is easier.

But if I'm in the right trends, the leverage will work in my favor to goose my returns, so it's a risk I'm comfortable with.

June 05 2022

Hash rate is highly correlated with bitcoin production. Core Scientific (CORZ) is the clear leader here, with RIOT and MARA a distant second and third. HIVE's hash rate is calculated as a bitcoin equivalent, inclusive of its current ETH mining operations. I left out Terawulf (WULF) since the company refuses to provide data on its current hash rate, instead talking up an expected hash rate of 4.9 EH/s by year end 2022.

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