Gartman’s Latest Investment Blows Up

Gartman made waves, so to speak, on Monday when after months of being vocally bearish, the “world-renowned commodity guru” flipped bullish, and not just bullish but mega-bullish in what he said is a “WATERSHED” shift in his sentiment, saying “We are now of the mind… after having been manifestly and loudly bearish of the global stock markets and most particularly of the US stock market because the Fed had been removing the fuel from the markets and from the economy via its continued and material running off of its balance sheet… that stocks are headed a good deal higher; that the dollar is headed a good deal lower; that commodities… and especially gold… are headed demonstrably higher and that the great game has changed. We do not make this statement often, but Friday was a WATERSHED shift on the part of the Fed and a WATERSHED shift on our part.”

It remains to be seen if he will be right or not, but at least Gartman had enough foresight to anticipate what would happen next:

We are certain we shall be taken to task by the bloggers and others… Zero Hedge being first and foremost… for changing our view as swiftly and as materially as we have and we are prepared for that. But we were consistent with our bearish view of stocks and our bullish view of the dollar as the Fed ran off its assets taking reserves en masse from the system. If that is going to stop… if that has changed, and we believe that it has… then we’ve no choice but to change with it. And so we shall and so we are. We trust we are clear?

However, while his marketwide bullish flipflop has yet to be validated (or refuted), in a far more typical example of Gartman’s  process, in his Tuesday Gartman Letter, he describes his latest investment…. which turned out to be a disaster in just a few days:

As  for our retirement account, late two weeks ago we bought into the market, punting on the banks and on the energy market… but in a very small way. We bought energy via a “sand” supplier necessary for fracking operations and we bought the shares of a local bank here in Tidewater, Virginia. The shares of the “sand” supplier”… Hi-Cross Partners… had fallen from near $15/share five months ago and from $57/share four years ago to near $3.50/share recently, and “reversed” to the upside Wednesday of two weeks ago, so our risk is simply to that week’s lows. We added to that position late last week, adding half again as many shares as we had previously owned.

However, yesterday hurt badly for HCLP reported earnings and sales nearly a month and one half before they were expected. We expected management to report sometime in mid-February but instead it reported yesterday morning instead and the results were devastating. To no one’s surprise, sales were and are down… materially… while the obviously unserviceable dividend was cut entirely. The reason for the poor earnings and sales?  The collapse of crude oil prices, of course, which has resulted in a collapse of drilling efforts here in the US and the concomitant collapse in the “rig count.” Clearly that should not have been surprising.

Nonetheless, the shares gave back much of the nearly 35% rally that they had enjoyed last week and the week previous, falling 16% yesterday. We cut our position by one third on the opening. We know of no other way to trade.

And now, back to Gartman’s “Watershed” call.