Bookkeeping: Weekly Changes in Fund Positions

Week 8 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 each week 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.

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

Cash: 14.3% (vs 19.4% last week)
57 positions (vs 58 last week) - Completed exited Garmin (GRMN), F5 Networks (FFIV) and LDK Solar (LDK), initiated Cummins (CMI) and Under Armour (UA)
54 long bias: 73.2% (vs 69.6% last week)
3 short bias: 12.5% (vs 11.0% last week)

Top 10 positions (excluding cash) = 36.2% of fund (vs 31.1% last week)
36 of the 57 positions are at least 1% of the fund's overall holdings

Major changes and weekly thoughts
A quiet week overall, although technically the charts of the major indexes improved. Economics fundamentals continue to call for caution yet the market seemingly is ignoring the news (or it's all 'priced in'). Some of the momentum leaders started slowing down at the end of the week, meaning either they are topping out or resting before the next push up. Small speculative stocks in both China and solar had huge moves this week. I did cut the fund cash position by 5% this week, putting some into more index short positions and into quality stocks that had pulled back. I still remain very wary with earnings season in October as holding such a large portfolio of names means 'something' will blow up (i.e. a great earnings report but "not good enough to meet expectations" can hurt your portfolio very quickly). Just the lemming behavior of Wall Street. If the market breaks down I won't hesitate to change back to a more bearish view but right now bad news is seen as good news (bad news = more Fed cuts) and that's all the market seems to care about now.

Some of the larger changes to the fund below:

1. I initiated a position in Cummins (CMI), based on my expose last week on the name and continued to add to this position as it pulled back throughout the week. It is a 1.3% position in the fund.
2. Closed my smallish position in LDK Solar (LDK), on the huge run by solar stocks.
   
3. Cut back my position in laggards Sandisk (SNDK) and Perini (PCR) for technical reasons - of course Sandisk (SNDK) promptly reversed and made my decision look foolish.
   
4. I continued building my coal positions in Consol Energy (CNX) and Peabody Energy (BTU) on low volume pullbacks this week.
5. I sold completely out of my Garmin (GRMN) position and initiated a relatively small position in Under Armour (UA) on it's pullback after an analyst downgrade; making it a 0.70% position in the fund. I'd like to see more of a pullback in Under Armour to add more (or a jump back above its technical resistance points). I'd like to re-enter Garmin at a lower valuation down the road. Under Armour closed below its 50 day moving average for 3 days in a row so that is generally not a bullish sign. Hence my caution.
   
6. I added to my UltraShort Russell 2000 (TWM) during the latter part of the week.
7. I completely exited the position in F5 Networks (FFIV) - I like the networking space but am more confident in other names such as Ciena (CIEN) and Blue Coat Networks (BCSI) so increased those positions instead. The latter 2 names are now the top 2 long positions in the fund.
   
8. I cut back (a bit) on some of the names in the fund with strong runs the past 5-7 days, Apple (AAPL), Crocs (CROX), and Suntech Power (STP) - still very bullish on all these, but they have made some very big runs in a short amount of time so I want to bank some profits and redeploy cash into other names I like that have pulled back.
9. I added some Pride International (PDE) this week as the chart improved suddenly in the back half of the week. Pride is an oil driller which is focusing more on deep sea drilling (and a potential take over candidate) - and is the fund's 4th largest long position.
   
10. I added to the fund's position in NII Holdings (NIHD) taking it from 1.3% to 2.05% of the fund's holdings as the technical picture finally improved.
11. I started building back the fund's position in Western Refining (WNR) as the stock has fallen down to its 200 day moving average. This is a bit of 'catching a falling knife' so I am not totally committed yet as the stock could certainly fall further but it's down 25% in a month.

Once again, some reasons for caution in the weeks ahead. First October... well it's October - 1987 crash, 1997 major turmoil, 2007 ? . Second, any earnings period is a mixed bag - on one hand I love seeing updates to business, but on the other I dread seeing people's very short sighted reactions to long term businesses (i.e. people react violently on 90 days worth of data - a company could grow 65% year over year which is wonderful, but if expectation were 67% than the stock can drop 20%). Third, we get another employment report - my guess here is September's low number will get revised up but October will be somewhat weak. How the market reacts - who knows. Fourth, we've had a huge run (including some super speculation) and some of the leaders seem to be stalling a bit late this week. Once again it is too early to tell if they are truly stalling or just creating a base for the next move up. Ironically some of the weakest areas such as retail and homebuilders are showing signs of being washed out and potentially good for at least a very near term trade (up) as most of the bad news seems 'priced in' (for now). So many cross currents and I remain flexible as always on the roadmap ahead.

Chuck Norris Market Facts - Let's Have a Laugh

Let's have a laugh going into the weekend - for those who don't know "Chuck Norris Facts" is quite the internet phenomenon. Per Wikipedia:

Chuck Norris Facts are satirical "facts" about martial artist and actor Chuck Norris, which have become an Internet phenomenon and as a result have become widespread in popular culture. The "facts" tend to involve jokes and plays on claims of Norris' toughness, attitude, virility, "alpha-male status", sophistication and masculinity stated in an absurdly serious tone, for example:

Chuck Norris' tears cure cancer. Too bad Chuck Norris has never cried. Ever.

Here is a hilarious Bloomberg "article" about Chuck Norris and financial markets I found "laugh out loud" funny. Ok, maybe I need to get out more...

Chuck Norris doesn't target inflation. He roundhouse-kicks it until it begs for mercy.

The Chuck Norris dollar buys 3 Canadian dollars, and trades at parity with the euro.

Chuck Norris doesn't supply collateral, only collateral damage.

The tears of Chuck Norris would supply enough liquidity to solve the credit crisis. Too bad he never cries.

When the yield on a Chuck Norris bond goes up, the price also rises.

Chuck Norris trades on fear and greed simultaneously.

Alan Greenspan calls Chuck Norris ``The Maestro.''

Chuck Norris has already banked his dividend payment from Northern Rock Plc.

Chuck Norris funds at Libor flat.

Chuck Norris Asset Management made 50 percent on its subprime mortgage-backed bond fund last month.

Chuck Norris doesn't borrow at the Fed's discount window. Chuck Norris LENDS at the Fed's discount window.

Chuck Norris's curves never invert.

Net income at Goldman Sachs Group Inc. rose 79 percent in the third quarter; profit at Chuck Norris Securities Inc. climbed 80 percent.

There is no market regulator. Just a list of securities Chuck Norris allows to be traded.

Chuck's iPhone never needs recharging.

Chuck Norris doesn't buy gold to hedge against inflation. Gold buys Chuck Norris to hedge against inflation.

Chuck Norris charges the Bank of England a penalty rate for borrowing. And guarantees its deposits.

Chuck Norris is the pilot Ben Bernanke calls when he wants to shower the economy with dollar bills. Sometimes, Chuck refuses to fly.

Chuck Norris gets ALL of his funding from the asset-backed commercial paper market.

Chuck Norris doesn't mark-to-market. The market marks to Chuck Norris.

When the U.S. economy sneezes, the world catches a cold. When Chuck Norris sneezes, the U.S. economy catches pneumonia.

When Chuck Norris makes you a price, it isn't an offer; it's an obligation to buy.

Chuck Norris isn't a market maker; he IS the market.

Chuck Norris can still get a 125 percent mortgage on a $2 million condo without providing proof of earnings.

Chuck Norris subprime collateralized debt obligations still trade at 100 percent of face value.

Chuck completed Halo 3 on his Microsoft Corp. Xbox 360 on the day before the computer game went on sale.

Chuck Norris has a trade surplus with China.

Bookkeeping: Rising Tide Growth Fund Performance Week 8

Week 8 performance of the mutual fund

Comments: Another very solid week for the fund vs the indexes. The SP500 was essentially flat at+0.07%, and Russell 2000 was down 0.94% this week, but the Rising Tide Growth Fund was +0.90% so nice outperformance versus both indexes. Again, this was done with roughly 20% in cash (earning no interest) most of the week.

Price of Rising Tide Growth: $10.828
Performance to date (vs Aug 3, 2007): +8.28%

SP500: 1,526.8 (+4.20%)
Russell 2000: 813.1 (+3.93%)

Fund return vs SP500: +4.08%
Fund return vs Russell 2000: +4.35%

Since the market cap of the median stock in the Rising Tide Growth fund is significantly below the SP500 index but higher than the median market cap in the Russell 2000, I am measuring the fund against both indexes to be more accurate.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 2000 : 775

To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.

Please click here: fund performance for previous updates

China Rally Sliced and Diced Courtesy of Bespoke

Bespoke has another awesome analysis, slicing and dicing the increases in the Chinese market year to date in multiple ways. Some amazing statistics:

• China's Shanghai Composite is now up over 107% year to date. However, the average stock in the index is actually up 199% year to date. This discrepancy is because two stocks that collectively make up over 13% of the index are up less than 10% on the year.
• With the exception of these two large companies holding the index back, most of the largest stocks in the index are actually doing better than smaller ones.
• As shown, the decile (each decile represents 10% of the stocks in the index) of the largest stocks is up an average of 251% versus the decile of the smallest stocks that is up 163%.

Check out the link to see charts that break up the gains by market cap, and by industry/sector. Amazing run.

Ciena (CIEN) Analyst Day next Tuesday

I have been writing about the consistent snooze fest in Ciena (CIEN) since its blowout quarter results at the end of August.

To call the action in Ciena the past month frustrating would be an understatement; no movement at all - completely range bound. I am looking for a move past $40 as confirmation to buy in even more scale than I already have, but with an Ciena analysts day next Tuesday we might finally have some catalyst(s) to move this stock over the strike price ($38.15) of its debt convertible and off to new highs - I am adding back 300 shares here in anticipation of this being a potential catalyst. If the stock finally clears $40 and away from the demons of the convertible, I will be adding much more as I believe this stock should be a $45 valuation 'today'. The stock has been stuck on its 50 day moving average the entire month of September.

Ciena's EPS estimates for 2007 are $1.29 and 2008 $1.73, both numbers up substantially from before the last earnings report but the stock has done zilch. With the rebirth of telecom spending as we need 'fat pipes' to play all these Youtube videos, the networking sector has really picked up. Ciena has chunky revenue due to a concentration of customers so there is always the risk that a huge quarter can be followed by an inline one, but I can see this as a $53+ stock in about 12 months if the company continues to execute; which would be a 40% gain from here. The market is throwing money hand over fist at 'growth' but Ciena has been ignored in the past month.

Ciena is back up to 3.9% of the fund.

Seeking Alpha has a transcript of Ciena's last conference call here. As always I think its important to read the Q&A sessions of conference calls to get the real scoop.

Long Ciena in fund; no personal position

Federal Reserve Still Flooding Markets with Money. I Thought the Crisis was Over?

I didn't see this widely reported... but if it happened a month ago it would of been cause for great trepidation. Today, totally ignored.

Fed Adds $38 Billion Reserves via Repos

• NEW YORK, Sept 27 (Reuters) - The U.S. Federal Reserve said on Thursday it added a total of $38 billion of temporary reserves to the banking system through four separate repurchase agreements.
• The total amount matched $38 billion of repurchase operations on Aug. 10, which is loosely seen as the beginning of a crunch in the credit markets, when companies began to have difficulty accessing lines of credit due to problems that began in the subprime mortgage market.
• But some analysts said Thursday's action by the Fed may not have entirely been an effort to re-ignite liquidity in credit markets, but may have more to do with making cash available to meet quarter-end needs, when hedge funds and other financial operations square their books.
• "They want to make sure things run and flow smoothly over the quarter end -- it's not only happening in this country but it's happening in Europe as well," said Jeff Hlavacek, director of fixed income trading at BNP Paribas in New York.
• Previous to Aug. 10, the largest amount of repurchase operations in a single day was on Sept 19, 2001, when the Fed undertook $50.35 billion of repurchase agreements.
• The last time the Fed undertook four repurchase agreements in a single day was also on Sept. 19, 2001.

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Takeaways: I am no credit expert but really if things were so hunky dory why is this going on? Why is cash "not available" to meet quarter-end needs if that is the reason. And why is SO MUCH needed? These amounts are staggering and levels equivalent to post 9/11 fundings. I also read on another site that $22 of the $38 Billion went to repurchase mortgages. The bailout continues behind the scenes.

Brings a whole new scale to "don't fight the Fed". Most important, I read a lot of financial news sites and only 1 reported this. Strange.

Short "everything is fine now"; Long "more interest rate cuts on the way"

Bookkeeping: Building back my position in Western Refining (WNR)

Western Refining (WNR), a smaller position in the fund, has been trounced the past month. After peaking at $55 four weeks ago the stock has been a straight shot down, now sitting at $41, which conveniently is its 200 day moving moving average. That is a 25% free fall in a month. I am going to take this fall, as a time to add 200 shares to my current position. If the stock shows good behavior here and begins to bounce back I will add more in the coming weeks.

As discussed in the past, refineries generally trade on the crack spread, essentially the variance between crude oil prices and refined gasoline prices. This spread has collapsed the past month, and the stock of most of the refiners have followed suit. This is a very cyclical dynamic, and makes for a few good trades a year. While I cannot call this a bottom, I like buying merchandise at 25% off sales.

The other refiner I own is Frontier Oil (FTO), which I have been tentatively building a position in as well (it has the best profitability due to its unique locations but still is affected to some degree by the crack spread degradation). Frontier Oil has dropped down to only its 50 day moving average so it could be vulnerable to more pullback.

There are not positions that will turn on a dime, but I expect by January 2008 we should see some return to normalcy in the crack spread. The stocks are now reflecting a lot of the bad news, and I expect quite poor earnings when these companies report, but the market is a forward looking mechanism so I begin rebuilding these positions here and re-assess from there.

Again these refiners, like coal stocks, are not like the other 85% of positions I hold which are really long term pure secular upswing type of stocks. These I put off to the side and trade them either on severe weakness (refining right now) or breakouts (coal right now) - but I will take severe profits in these groups when the time comes due to their more cyclical stock trading nature versus everything else I own. With that said, with no new refinery built in the US in 30 years and burgeoning energy demand worldwide, they aren't bad sectors to be in bed with either.

Long Frontier Oil and Western Refining in fund; no personal positions.

Bookkeeping: Adding to my Blue Coat Systems (BCSI) and Riverbed Technology (RVBD)

Blue Coat Systems (BCSI) continues to pull back so I continue to build out this position. The networking sector has stunk the past 2-4 days, not really partaking in the rallies.

Generally I prefer to add to positions as they pullback to their 50 day moving average, which for Blue Coat Systems is down near $71. But for very strong companies, sometimes in an uptrend they only pullback to their 20 day moving average, which is where Blue Coat is right now (just below $80). So I am adding more here with an eye to try to add more if it drops.

Blue Coat Systems is now the largest long position at 4.25%. With my general nervousness about the market as a whole (can the market go up for 2 months straight?), I am going to hold off adding more, and hoping the stock falters down to its 50 day moving average so I can load the boat.

As an aside, I also added a bit to my smaller Riverbed Technology (RVBD) position as I sold most of it higher in the mid $40s, as I am favoring Blue Coat due to valuation but that stock is sucking wind as well back down below $40, so I will be working on position building here, with hopes to add more around $37.

If you are a new reader please click on the Blue Coat Systems label at the bottom of this post to see earlier thoughts on this dynamic company.

Long Blue Coat Systems and Riverbed Technologies in fund; long Blue Coat Systems in personal account.

More Ritholtz: The Chicanery on Wall Street

Another entry from this blog regarding the recent Bear Stearns (BSC) situation. A common thing individual investors do when they make bad trades or things go against them is blame "the Street". I think mostly this is just excuse making. That said, after you've been watching this for so many years you see so much stuff happen that you just have to say, "boy the game sure is tilted to the guys at the top". You know, stocks up 14% 2 hours before a buyout announcement, massive buy calling ahead of a buyout (which the SEC says they will "investigate" and then we never hear anything else about it since our attention span is that of a fruit fly), independent hedge funds working together to relentlessly drive down (or up) smaller float stocks, and then things like what happened with Bear Stearns this week. There are countless examples.... and the truth is we only see what is at the tip of the iceburg. I can only imagine on what really goes on.

The way I treat this is thinking I am walking into a casino. The odds are in favor of the house (the big boys). If you know that walking in, you accept the environment and just realize its part of the culture. I feel bad for those new to the market who don't see these things, and get whipsawed/defeated by it. I was (we all were) in their shoes once as market newbies.

Here is the latest adventure for those who were not following it - on a quiet old trading day Wednesday the New York Times came out in mid afternoon with a report that Warren Buffet was interested in a 20% stake... Bear Stearns, listless, suddenly jumped up 10%. Now who can doubt such a prestigious organization such as New York Times? (and as Barry points out do you notice that everytime a company is in trouble rumors get started that Buffet will buy - reminds me of the dotcom days when every new startup was going to be bought by either Yahoo, Amazon, Ebay or Cisco).

Anyhow, this was refuted by Buffet yesterday. Case closed right? Silly rumor, probably got some hedge funds some 10% of profit that they could take off the table and show their clients how great they are! Well it runs even deeper than that. Out of the blue comes a $1 BILLION bond offering.

"At Bear Stearns, timing is everything. The struggling brokerage house raised at least $1 billion this afternoon with a surprise sale of 10-year bonds. The sale, which was met by strong demand in the bond market, comes just a day after Bear shares surged nearly 8% on rumors that the Wall Street firm was near a deal to bring in a big outside investor. One report said Bear has been talking with billionaire value investor Warren Buffett."

"On Thursday, Bear Stearns took advantage of that momentum and some strong demand in the corporate bond market to raise some money. Sources say the deal drew more than $3 billion in orders for $1 billion worth of bonds, though it may be upsized."

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Takeaway: Ugh.

Barry Ritholtz on Bloomberg Finally Seeing the 'Truth' in CPI

One of my favorite blogs is Barry Ritholtz's "The Big Picture". He rails about the CPI just like I do (how its such a fictitious measure). He had a great entry earlier this week about how the mainstream press finally is coming around to this view. Now if you just care about stocks and your eyes get heavy when you read entries like this, I urge you to read on. It does matter.

Why does it matter? First, the Fed apparently makes decisions off this number so they are making decisions off fiction. Somehow I think as some of the top economics in the world (in theory) they are smarter than that to see what the reality is, but they can use these fake numbers to justify their pumping of the monetary system. Or maybe they are in such a high income bracket that the things that really affect people like energy, food, tuition, medical costs, don't affect them so they live in a parallel universe. Second, many pensions/wages etc are tagged to 'cost of living' and a favorite measure is the Consumer Price Index (CPI). So just imagine how much more it would cost governments and corporations if they had to pay at a rate that reflects true inflation? Answer: more than they want to. So a low (fiction) inflation number is great for them too. I am sure there is a third, fourth, and fifth negative associated with it but let's get on to the article.

On to Barry's post and Bloomberg's piece

• We have long railed against the absurdity of the CPI data. The ridiculous adjustments, the lack of correlation between CPI prices and reality, as well as the Fed focus on the core
• For the most part, the media has dutifully reported the nonsensical CPI data as if it were scripture. This drumbeat of criticism -- both here and elsewhere -- has begun to penetrate the MSM. We've seen a few critical columns over the past year or so. But I never expected to see this kind of critical reporting in a mainstream outlet: CPI's Lie on Household Inflation Doesn't Wash.
• From Bloomberg: "The U.S. consumer price index continues to be a testament to the art of economic spin. Since wages, Social Security cost-of-living increases and some agency budgets are tied to it, the government has a vested interest in keeping it as low as possible.
• Yet your real cost of living -- what you keep after taxes, medical bills, college expenses and other household costs -- is probably much higher than the 2 percent annual rate the government reported in July, showing a slig