Bookkeeping: Weekly Changes to Fund Positions Week 21

Week 21 Major Position Changes

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 7.4% (vs 13.5% last week)
54 long bias: 73.6% (vs 79.2% last week)
5 short bias: 19.0% (vs 7.3% last week)

59 positions (vs 59 last week)
Additions: Trina Solar (TSL)
Removals: Frontier Oil (FTO)

Top 10 positions = 36.6% of fund (vs 26.8% last week)
37 of the 59 positions are at least 1% of the fund's overall holdings (62.7%)

Major changes and weekly thoughts
After a short lived Santa Claus rally (2 days?) last Friday and Monday, we ended the week with 2 quiet days sandwiching a down day on Thursday. All in all, we just continue to make lower highs since the October peak [Like a Moth to the Flame], and if this pattern is once again repeating itself we are at the top of a channel, which would point to downside ahead. I have repeatedly said, I am worried about this earnings season in particular - not so much for what companies will be saying about quarter 4 2007 earnings, but for what they say about their 2008 guidance. The tells on the broader economy weakening are everywhere when you listen to the companies themselves (Fedex, Target, Darden), and ignore the bogus data from the federal government (they can't manage any program effectively so why should we believe their financial figures anyhow). So I'd make the arguement the weakness is now spreading from the 'low cost', subprime folks to our middle class. Our largest "middle class" retailer is telling us, our largest "middle class" restaurant chain(s) are telling us, and the two largest transport companies are telling us. Only the talking heads and our politicians are telling us the opposite.

I think this market is very tough for all but the most apt traders especially if you are not in a very narrow piece of the stock market. A lot of stocks have been relatively comatose of late even on the very short rallies, or at best they are just making up lost ground. Not an easy market as shown by the action in the indexes. With earnings estimates for 2008 far too high for many sectors in this market I remain cautious as the market needs to adjust to the 'new reality' at some point. I do still feel areas I am focused on such as fertilizer, infrastructure, et al have pricing power and a lot of visibility - but these are again, very narrow parts of a very large economy and stock market. Do you think any consumer based stock outside of a select handful (Apple?) has any idea where things will be in summer 2008? Not likely. Just simply rolling out a 10-13% annual growth figure as many have done the past half decade won't cut it this year. Analysts might actually have to do some work this year and not just nod "yes" to everything the company's say for 2008 guidance.

For the fund, we caught some major breakouts from the November lows with many of the top holdings giving very good returns. However, after such big runs I have turned cautious and indeed cut back on a lot of these names, whether from fertilizer, to infrastructure, to technology. You can see the top 10 holdings on the long side are dominated by companies that will benefit from a slow growth economy and if the market takes a downturn hopefully will hold up better than some of the stocks I've had there for the better part of the quarter, which in many cases are not near any technical support level and hence could have quite a ways to fall if the market does indeed fall. (no guarantee the market will fall of course)

With my Ultrashorts, I have moved to more of a focus on the commercial real estate market Ultrashort over financials. While financials still have many shoes to fall, at least they are on the radar of everyone at this point... I don't think commercial real estate has been mentioned much. When you start hearing CNBC whine about it every day then you will know it's starting to reach public consciousness and it will be time to reign in that position more. By that time, the next shoes in the financials should be dropping (i.e. auto loans going bad, credit card defaults, etc). And then eventually people will see emerging markets are not immune after all to the western world slowing down. So we have a lot of opportunity on that side of things in 2008 - it is just a matter of when the market chooses to acknowledge these things (perception is reality). Remember, I went negative on financials and the market chose to smack me for that after the Fed made its first rate cut. Father Fed would save us all and the market went on a gigantic upswing. Perception was reality. Perception was the Fed would be all knowing and financials would be fine. It took time for that perception to fade away and reality to hit us. And eventually that Ultrashort Financial became a big winner for the fund, despite hurting performance in late August and September when the market was drinking Fed kool aid. [Top 10 Winners and Losers so far]. So I am confidant the rest shall also come to pass, it is just a matter of waiting until the market sees the truth and perception matches reality. It could be Monday, it could be 6 weeks or 6 months.

Below are the fund changes this week - the specific rationale for each of these major moves is explained in the weekly posts which can be accessed in the left margin under archives.

Some of the larger changes (chronologically) to the fund below:

1. In a general sense, all week I took some more off the table in one of my favorite groups, fertilizer. These stocks have run so far in a month, and I want to lock in some profits. I am generally early on these calls, but better safe than sorry. Maybe Goldman called a near term top with its upgrade of Potash (POT). This is my lowest exposure to this group in a long time, but I plan to begin rebuilding in increments on pullbacks to support levels.
2. Monday I sold down some Shaw Group (SGR), which is an infrastructure name I really like. However, the market doesn't seem to like it of late, so I don't want money sitting idly by until the market agrees with my views. The stock continues to trade below its 50 day moving average, while some of its brethren are making nice moves.
3. Wednesday, I cut back by 50% what has been left of my Silver Wheaton (SLW) position. The more I think about the actions of the world's central banks the more I think gold and silver have more to go. As we devalue all paper currency to help bailout the subprime nation (aka USA) gold & silver which is a hard physical asset looks like a good alternative. This is not a new view, and in fact I am late to the party. I am looking to add back to Silver Wheaton on any pullbacks, but with its huge move I chose to take some profits.
4. We had another week of solar mania, with the 'worst of breed' being run up by the retail speculators. I don't own those for this type of fund because I never want to be stuck with something I would not want to own for the long run, but the most speculative name I own (which in relation to the junk that is really moving in this space is not speculative at all), Solarfun Power (SOLF) was cut back to a miniscule position on this latest run up. I didn't catch the top, but then again, I did not expect the stock to reach such heights so quickly either so I was happy with the profit I did get. When I use the word speculative I simply mean in relation to say a Suntech Power (STP), not that this is a pure gamble like some of the stocks making 30% moves on hopes of revenue in 2009.
   
5. I had some fortunate timing with Mechel (MTL) and Huron Consulting (HURN) - 2 stocks with larger exposure in the fund. I sold a portion of these Wednesday as they both had made very nice short term moves, but was able to buy some back (smaller positions) on pullback in the downfall Thursday. I had hoped for a $94 price to get back into Mechel but got some back at $95-$96 instead. Again, not major moves - it is not like I sold 80% of these stakes and bought them back the next day, but some trading around the edge of core positions.
6. I sold down some CNH Global (CNH) Wednesday, as the agriculture fervor seems everywhere right now, and I am wary of this bandwagon overloading. It has had quite a performance, just like Mechel and Huron Consulting, in a very short time, so I took some off the table. I am a bit worried about the strong euro's affect on exports for this company so we shall see how it plays out in the longer run, or if the agricultural boom has no bounds, strong currency or not.
7. Speaking of solar, I restarted a position in a former fund holding, Trina Solar (TSL) Wednesday afternoon. I had been waiting for this long lost stock to finally make a move, and from a technical perspective it looked poised to break out. With the continuing strength in the later afternoon I in fact added even more. And on weakness Thursday I added more... and now this is the largest long position in the fund. While I am extremely wary of the entire solar sector, Trina has not participated in the recent mania and is closer to key technical levels than most in the sector hence has some downside protection in case if falters. The stock acted very well late Friday, and if the market had not been so weak Thursday (especially solar stocks) I think this stock would of been well on it's way to a breakout - but then again I'm biased. :)
8. Thursday, I sold some Atwood Oceanics (ATW) - this has been an incredible short term move. I (re) added this position back to the portfolio December 17th @ $84.66. In 2 weeks its approaching $104. So I locked in some of those very quick profits. I just wish I had bought more this time around - I had a much larger position the last time I held this name... the deep sea oil drillers is a group I have been bullish on for a long time but have been dead money for most of the fund's history - until the past 3 weeks.
   
9. I sold down some Core Laboratories (CLB) for the exact same reasons I mentioned with Shaw Group in item 2 of this list. Stock I like, that has made a nice run, but sits below a key technical area.
10. Friday, I cut back some exposure to Chicago Bridge & Iron (CBI). As I mentioned, not much difference to me between this name and a Shaw Group or Foster Wheeler but the market has pushed this name up, so I am locked in some profit. My infrastructure approach is to buy a basket of favored names... what the market does with each individual name is tough to figure at times.
11. I closed the fund's long standing holding in refiner Frontier Oil (FTO). While I think this is best of breed, the market is just not buying the refiner story, and since this is more of a cyclical story rather than secular, I will wait for the market to rejoin the sector at some point in the future. At that point I will be back.
12. I added some short exposure here on the back end of the week, as the markets failed to break out and now appear below key technical levels. We keep repeating the same song and dance so until it changes, I will keep doing the same jig. Eventually it won't work anymore, but so far so good.