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.
    

Worldwide Readership

One of the amazing things about the internet is the flattening of the world. It is quite amazing how one can communicate with people all over the world in this manner. Just for kicks I thought I'd post where the worldwide audience is coming from (over the last month). Of course the USA is far and away the #1 audience member with 83% of visits, but some interesting places making up the other 17%. In the past month alone, people from 90 countries have visited the web site. (although people from 89 countries could not invest in the mutual fund!)

Amazing stats - especially since this website was not in existence in July. Granted probably people from 20 countries got here by mistake (20 countries only had 1 visit - hey I don't hold it against you Ghana, Latvia, Malta, Kenya, Luxembourg, Oman, Nepal, Bolivia, Afghanistan, Syria, Monaco, etc etc - no Jessica Alba pictures here unfortunately)

Here is the Top 20 Countries (I'm a statistics nut so this sort of data Google provides on web site usage is just fascinating to me)

1. USA
2. Canada
3. India
4. United Kingdom
5. Germany
6. Belgium
7. Singapore
8. Spain
9. Estonia (I think 1 person who comes every day)
   
10. Taiwan
11. Israel
12. Australia
13. France
14. Hong Kong
15. Sweden
16. Thailand
17. Slovenia
18. Russia
19. Switzerland
20. Netherlands

Top US cities

1. New York (I knew Cramer was reading the blog...)
   
2. Houston
3. Bellevue (aka suburb of Seattle)
4. Seattle
5. Chicago
6. (not set)
7. Brooklyn
8. Beverly Hills (hey throw me a dime fellas)
9. San Franscisco
10. Weston (aka Miami)

Strange to see so much traffic out of Seattle - and a suburb outside of Seattle. Perhaps a lot of Microsoft investors need to find a place to park all those decades of stock options. The next 10 (11-20) is dominated by CA cities. The next 10 (21-30) is dominated by TX cities. Guess it makes sense as those are huge population states.

What Countries Stay on the Website the Longest each Visit (on Average)?

1. Ukraine (nearly 17 minutes)
   
2. Ivory Coast
3. Uruguay
4. Indonesia
5. Vietnam
6. US Virgin Islands
7. Israel
8. Panama
9. Estonia
10. Austria (nearly 6 minutes)
    

And I Thought I was Negative

For those who have been reading the blog, you know I've been negative on the coming year in the economy since inception. [Et tu, September] Sometimes having this type of position (especially in the summer) I felt like a lonely voice in the wilderness... but as each week passes, more and more things are coming to fruition. About 3-4 weeks ago 2 of the 5 major investment banks chief economists have turned quite negative on the 08 economy as well. I updated my thoughts a few weeks back. [Et tu, 1st Half 2008? Predictions for the Coming 6 months]. I found this article on Minyanville.com and boy, if you thought *I* was negative [What to Watch for in 2008]- I will highlight the points below. This is more of a long term prediction, going out a year from now and how we will feel on Christmas Day 2008.

• A credit contraction is well underway, oil remains near its all-time high, the housing free-fall is accelerating, and central bankers are freaking out. So, who would have predicted that the Dow would reach an all-time high in October and still hover within about 6% of that number as the year drew to a close?
• The market’s relative buoyancy reveals a touching faith in the powers of the Fed and other father figures of the financial landscape. Will this faith remain strong enough to surmount the tests that lie ahead?
• With equity-free (not to mention upside-down) homes proliferating across the country, consumers turn to their retirement accounts and credit cards to keep afloat. This stop-gap proves very short-term, and consumer credit takes a trip down the subprime path.
• The rush to sovereign wealth funds for rescue money slows dramatically as politicians and the public push back, alarmed about foreign government interference and the prospect of a Dr. Evil gaining access to American technology.
• Xenophobia, economic stress, and – this is a sure thing – pandering politicians lead to resurgent protectionism. The march towards legislation is interrupted, however, as international investors remind politicians that the U.S. now works for them.
• Counterparty risk moves to the foreground as banks and institutions discover that those companies from whom they bought CDS and other types of insurance were just kidding about their capital reserves.
• The pendulum swing away from libertarianism and towards a more positive view of government and regulation accelerates as insolvent consumers and companies clamor for safety nets and bail-outs. Investors, scorched by hundreds of billions in losses on trillions in asset-backed securities and derivatives, urge regulators to slam shut barn doors across the financial landscape. With structured finance stuck in the penalty box, CDO-financed lending diminishes to a trickle.
• A dollar crisis forces the Fed to halt interest rate cuts even as the economy moves deeper into recession (yes, the recession has already begun).
• Corporate defaults and bankruptcies finally begin to rise as over-levered companies find that raw material costs remain stubbornly high (squeezing profit margins), demand continues to soften and that bankers have learned to say "no."
• Continued drought in the U.S. Southeast and Southwest wrecks more economic harm than Katrina, and drives home the point that global warming's impact comes more from changes in precipitation than in temperatures. Atlanta becomes the poster child for the economic risks of water stress. As water tables fall, H2O rises as an investment theme.
• Total oil production again fails to meaningfully exceed peaks established in late 2005 and mid 2006. Prices rise and stay above $100 a barrel despite a global slowdown. Emergent bubbles develop in companies specializing in energy conservation/efficiency and alternative energy. Event-driven, regional supply shortages scare the pants off politicians and consumers alike.
• Faced with shrinking credit and falling asset prices, officials stop talking about inflation, and the dreaded D word resurfaces.
• As the de-leveraging of the economy continues, the savings rate rises further, cutting corporate profits. With financial earnings under pressure, equity prices either have to fall or P/E ratios rise. You make the call!

So it's nice to read someone who is more negative than me :). I have touched on most of the points above - however some things I have not stressed quite so severely. I have mentioned that consumers are now turning to credit cards to replace the house ATM, and we are seeing the first signs of 401ks being raided to help sustain people. I should mention I expect the latter issue to accelerate and while that will help "bouy" the near term economy, what does it mean for the long term of our country? Nothing good. As with many things in this country, especially in our political decisions we focus on kicking the can down the road - just trying to make sure things don't get bad now, and the future will somehow "take care of itself". Myself? I worry about a lot of people working as Walmart greeters until they literally keel over - instead of enjoying a traditional retirement.

Regarding sovereign wealth funds, while initially celebrated and constant referels to how the 'bottom must be in' because sovereign wealth funds are 'buying' (i.e. smart money) what will the same pundits be saying when the next round of capital is necessary from these same players? Or a third? All at lower prices? Buffet certainly is not finding any value in financials.

Berkshire Hathaway Inc. Chairman Warren Buffett said Wednesday that he rebuffed financial firms that have approached him recently about buying stakes in their companies.

Just because you have a lot of money from one arena doesn't mean you are a smart investor, especially if your money is through no work of your own. We've seen many people (think Paul Allen of Microsoft fame) who took huge sums and proceeded to destroy much of their wealth in their future investments. Is that smart money? Are heirs of fortunes from their parents "smart money"? Do you think Paris Hilton's investing prowess is something to be excited about? Are people who just happen to be sitting on huge amounts of long dead dinosaurs suddenly "schrewd"? That's the talking points we are handed by the financial media. I'd rather listen to Buffet myself. Remember, when you print billions of dollars each day due to your dead dinosaurs you can afford to be "early" or "buy high" for the "very very long term". For the rest of us, we don't have those benefits, so we need to invest accordingly.

As in the article above I've stated to look for more and more bailouts from the politicians, as the economic situation worsens. While I don't agree that a "more positive view of government" will emerge I suppose in our short sighted manner if the government uses our tax dollars to bail out people, those people who got bailed out will see the government is a more positive view. I sure won't.

I agree with the corporate defaults and bankruptcies increasing as I mentioned in my recent investments in 2 firms that specialize in such a thing (and their stocks have been reacting very positively of late as more people jump on the bandwagon) [2 New Recession Plays] I agree with the stubbornly high input costs as I mention constantly in the blog [A World of Shortages]. In fact at this point I think in the larger macro sense we are going to be entering decades of higher inflation as our world is not currently suited (first) for so many people and (second) so many people trying to live urban Western lifestyles of consumption. While this will ebb and flow from year to year, its a long term issue. At some point technological innovation will help solve some fo these ills but we could be talking decades to solve some of the issues. And projections for worldwide human growth only continue to grow.

The drought issue is an interesting one. I've long though that water, not oil will be the commodity that wars are fought over in the coming century. You are already seeing serious strains in the southeast of America and western regions. Unfortunately there are very few investable themes in this area and it is "very very long term", but one day I do think we will be talking about water like we talk about crude today. As for crude, I will be curious to see how it reacts - if in a slower growth world economy crude stays high, this will lend credence to the peak oil theorists. Also keep in mind the USA has had 2 years without a major hurricane. Not sure how much longer we avoid that bullet, and it has a tendency to really spike energy prices if the right area of the country is hit (let's hope not).

His last point is the one that I think will be the most important from the perspective of an investor. All these other bad things he (and I) talk about - well that only affects us in our real lives. It only affects the 'real economy', and the vast majority of this country.... not the investor class (as much). Not until corporate profits actually fall do I suppose the top 5% really begin to care about the bigger issues because then their portfolios may actually fall. (gasp). So, much like he, I suppose if one is a raging bull on the market in 2008 you must ask yourself do you think P/E ratios are set to rise in the coming year as corporate profits fall? If so, the market should hold flat or heck make new all time highs. Certainly possible but not the probable situation in my book....

With that said, the stock market and the economy are at times two different things and with central banks worldwide committed to trying to 'inflate' assets to keep us out of a slowdown one could envision a scenario where markets hold up (or at least far better) than the real economy. All this money circulating and being created needs to find a home - real estate in this country is not an option, and bonds yield almost nothing post inflation. So equities seem to be, by default, where money is going. As more money is being dropped on us, the more can go into equities. While on the surface this sounds "great", keep in mind this helps prod along inflation and when your equity return is 7% and real inflation is 2%, that is no different than when your equity return is 13% and real inflation is 8%. It just 'feels' better because your equity return is 'measurable' whereas real inflation is harder to assess. I think this is the path we are on now. Further, with large parts of the market "un-investable" i.e. financials and most of retail, that eliminates about 25% (20% of S&P 500 was financials before this correction) of the choices to invest, except for those who enjoy trying to catch falling knives. So more and more of the new money goes into the other 75% of the market, further buoying those names. An interesting conundrum. But certainly this could be the case to be made for a sustained rally in the market - it is always important to see the other side of the fence, and opposing views to your own.

Bookkeeping: 'Rising Tide' Performance Week 21

Week 21 performance of the mutual fund

Comments: A quiet week overall, we had some continuation of the Santa Claus rally Monday, a very quiet day Wednesday, a mild sell off Thursday on some bad economic news and bad news out of Pakistan and another quiet day Friday. Most of the fund performance this week actually came on the two quietest days, Wednesday and Friday. [These are the days to make Hay] The bad economic news continues in relentless style and even the most bullish of prognosticators of last summer are now acknowledging "we might get a teeny tiny slowdown for at least a few months" now.

I was a lot more invested to the long side as of last Friday, than I had been in quite a few weeks, but by the end of this week, while my cash position was still lower than it's been for a long time (well below 10%), I have balanced my long positions with some 'insurance' with my Ultrashort positions. [Back to Large Short Exposure] In a general sense, all the sectors I like have really had tremendous runs so I am increasingly finding new opportunities difficult to uncover. Hence I have pulled back on some of my favorites, and in the past at times like this when my favorite sectors had put on such runs, the market was ready to pull back.

Rising Tide Growth Fund generated a +1.92% return this week. This compares to -0.40% for the S&P 500 and -0.48% for the Russell 1000. This created leading an outperformance this week of roughly +2.35%. (which is 1/5th of my YEARLY goal, in just 1 week)

I've surpassed my yearly goal of beating the indexes by at least 15% this year, in 5 months - with 9% extra to spare. So hopefully the remaining 7 months I can build on that and not give away these sizeable gains. As they like to say in the mutual fund literature, "if you had invested $10,000 on August 3rd, 2007 you would have $12,500 today" (ok $12,499 to be exact) ;)

Price of Rising Tide Growth: $12.499
Lifetime Performance to date (vs Aug 3, 2007): +24.99%

Comparable S&P 500: 1,478.5 (+0.91%)
Comparable Russell 1000: 804.5 (+1.10%)

Fund return vs S&P 500: +24.08%
Fund return vs Russell 1000: +23.89%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $9.8 Billion as of November 07) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of mid November 2007.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2

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

Back to a Large Short Exposure

Well after our Santa Clause rally (seems so long ago?), once again I am approaching a 20% Ultrashort exposure (19.1%) after buys yesterday and today. Per my own "rules", since this is not a hedge fund but a long focused mutual fund, I try to stay in the spirit and stay within a band of 0-20% on the short exposure, so this is about as far as I go on the 'dark side'.

We have broken S&P 1490 now and don't appear too interested in breaking back above it (but I suppose anything could change in a thinly traded market). Even if we did, we have the 'ceiling' above that. So we appear to be in the band of 1490 to 1440 now. As (or if) we move back to 1440, I expect some fight to be put up there; once again. At some point these repeated retests will fail and we will move down to the next area.

In the big picture we have made what is technically known as a double bottom (definition here) on the major indexes (August and November lows). Generally you get a nice bounce out of a double bottom (which we did). Generally, triple bottoms fail in spectacular fashion. So in S&P 500 world this means the next time we rest those lows around 1400-1405, the inclination is we will have a very good chance to break through... and fall to the basement.

Coinciding with earnings season in January, which will be full of confessions (I believe), this is my working thesis. Again, note the words "generally" I use. Nothing works every time. Nothing is fool proof. But in a mid term view (out past a few days), this scenario has the potential to unfold. But even if it did work out this way, the potential for surprise counter rallies can happen at any moment in a downtrend. And S&P 1440 which every one ("the invisible hand") knows is key, will be defended strongly as well. So neither bulls nor bears can rest too easy. :) But I plan to hold these Ultrashorts far tighter to the vest in the coming time frame as I expect a lot of land mines in earnings season about 3 weeks from now.

I expect January 2008 to be a very interesting month!

Bookkeeping: Closing Frontier Oil (FTO)

I am closing the remaining refining play in the portfolio, Frontier Oil (FTO) with a total loss of about 1.1%. I've owned it since August 6th, 2007. So essentially this has been a lot of dead money. Of all the refiners, this one remains far and away my favorite as Frontier has shown an ability to make money in a very difficult environment [More Refining News] but with some additions of late the portfolio is getting more names than my target so in reviewing what should go, I decided on this name.

Refiners are not my typical cup of tea (much more cyclical than secular growth) but a few times a year they are generally good for a nice solid run. But we haven't seen one in a long while - even an upturn in crack spreads has done nothing for these stocks.... very very strange.

The technicals in this stock give a very easy roadmap so by selling the position and waiting for a breakout I can conserve cash or apply it elsewhere, long or short. Simply put we want to see Frontier Oil break back above its 50 day moving average, currently $43 (and falling), and then we have the potential for this good move. The stock has been 'basing' in a narrow range for 3 weeks so this could happen at any moment (or not happen at all). But with crack spreads rising, you'd think the stock would reflect this sooner rather than later.

So this might be a temporary exit, as we await the stock chart to firm up. I had lowered my exposure to Frontier Oil to 1.2% of the fund and am selling all 350 shares @ $41.75. I'd gladly pay $43+ when the appropriate time comes. Much like the deep sea oil drillers, I have been in and out of these stocks during the life of the fund, getting nowhere fast - but of course the deep sea oil drillers finally took off once I had sold out my exposure. :) Hopefully the same will not happen here - I will keep a close eye out. If crude falls in 2008, profit margins should expand meaningfully in this space and perhaps we get "the run" then....

No position

Bookkeeping: Cutting Back on Chicago Bridge & Iron (CBI)

Cutting back my position this AM in this excellent infrastructure stock, Chicago Bridge & Iron (CBI) by 20%. This is more of a technical move, and locking in some profits. The stock has blasted off and is nowhere near any meaningful support - i.e. the 20 day moving average is down at $58 (8% lower), so as the stock pushed to $63, I am going to take some off the table here.

You can compare this stock performance to Foster Wheeler (FWLT), and see a stock correcting and pulling back to support in the latter name, so before this happens to CBI I want to lock in some profit, and in fact I redistributed some of these profits into a small buy in FWLT (hoping to see $150 or lower on that name to add more). Fundamentally, I am as bullish on both names (and the sector) but these two names are interchangeable to me on a fundamental basis but one is being favored by the market at this moment and one is not. Now, I am breaking the "technical analysis" handbook here which tells you to buy the the one breaking out, but that's just a stylistic choice of my investing style and for purposes of this fund I am taking a longer term view - for you swing trading types you'd be wanting to buy Chicago Bridge & Iron for example (which is what I did when I added to this name last Friday as it was "about" to break out during the Santa Claus rally). I prefer to buy things near technical support and cut back on things nowhere near support.

I'd be interesting in buying more Chicago Bridge & Iron on a pullback to a support level...

Long both names in fund and in personal account

Like a Moth to the Flame - S&P 500 and 1490

Amazing how for months on end the S&P 500 and the 1490 level have been key. If you search for the term "1490" on this blog you see I keep coming back to it.
With yesterday's swoon we once again dropped below this level - while the day is young we are sitting below both the 50 day and 200 day moving averages. More importantly is this series of lower highs we continue to make.

I wrote back in mid December we are making a series of lower highs [Like a Magnet Back to 1490] which is quite a bearish development.



High #1: mid October
High #2: late October
High #3: mid December
High #4 (?): a few days ago (too early to tell but it doesn't look good)

If you simply draw a straight line on this chart from each of these 4 points you see our 'ceiling'. Again I am not technical analysis guru, but you don't need to be either - until this trend is broken we are not breaking out to the upside.

I will again keep referring to the S&P500 index as a house.

1. When we are above 1490 we are in the penthouse, and we'd like to see this ceiling broken and if we did, I'd take a bullish stance
2. The upper floor is between 1440 and 1490 - this is the floor we bottomed out in during December
3. The bottom floor is between 1400 and 1440 - this is the floor we bottomed out in August and November.
4. The basement is below 1400 - we don't want to go there.

This sounds simplistic but essentially as we trade from floor to floor I adjust my strategy. Within each 'range' of each floor as we reach the top of that range (1490) I get more bearish, and at the bottom of the range (say 1440) I get more bullish (expecting at least some sort of technical bounce - S&P500 will be Defended). Unless we break through to another floor. Then I keep repeating the same strategy on the next floor.

At some point we will either break out above the penthouse or into the basement. But for most of the life of this fund (since August 07) we have been stuck in a relatively narrow range. If the economic story truly does matter and corporate profits in January start to weaken as I believe, and more importantly GUIDANCE for 2008 (i.e. confession time) is given by companies in a manner that I think is more accurate, we might be visiting the basement. But until then, we continue to simply go from 1 floor to another, but in aggregate are limited by the ceiling being formed by our series of lower highs. Hence, why it is hard to get too bullish on anything for more than a few weeks around here...

Combined with the fact most of the stocks/sectors I really like have had tremendous runs off the November lows and the "easy money" is in, it puts in a more conservative stance. As I have stated in the past, people are saying the market is cheap based on 2008 earnings. But if in fact 2008 earnings are a mirage is this market that cheap? Since the market seems to be disassociating from reality of the real economy, we are forced to use these technical analysis views to try to make overall market calls for the near term. I've stated in the past, if the market were fully reflecting what I see as an ugly economy in the coming 12-18 months, we probably should be down another 1000-2000 pts on the Dow. However, those Dow components are chock full of multinational corporations which people have deemed immune to slowdown since they are much more highly leveraged to the world economy. With Europe slowing, Japan in 15 year death spiral, and China reliant on US to export (and many other countries reliant on China to buy their commodities) I just don't buy this decoupling argument. But as always, perception is reality.... until perception changes to view a US slowdown to actually matter to China, the multinationals will hold up. I expect sometime in 2008, people to panic on the multinationals as well (many of the Dow components) when GDP growth in China and India finally falters from unsustainable 11-12% levels (even 7% would be great for them, but that is not what people are wanting to hear). So this is the long term road map. Let's see how it plays out.

New Home Sales Plunge

Readers, I am going to spare you from posting about housing every month when these reports come out. For those who have been reading the blog a while you know my views (click on housing bust label at bottom of this post for a history of posts on the subject) Here is a summary for new readers. Month after month it will be bad news. Every so often a report will look "ok" since it was "up" from the previous month (but still massively down year over year). The CNBC talking heads will tell you *this* is the bottom. The home building stocks will rally for a few days, probably 20-30% off of very low levels. Seals will clap on TV. You will just ignore it. And realize until late 2009 or early 2010 it's all a sham.

Until prices come down to a level where people with 5-20% down, 6% fixed rated, making normal American incomes can afford, we are nowhere near a bottom. The only good thing of late I have seen is new home starts are finally slowing, and home builders in desperate attempts to get cash flow have slashed new home prices. We now are going to face a almost comical dichotomy in some markets. New homes selling for 30% below existing homes. It's already happening in southern CA in some spots. This just means that existing home sellers are still in the denial stage and think they can get 2005/2006 prices. This is why your 'median' prices are not falling.

Remember, unlike stock prices, home prices are very illiquid. Stocks are priced instantly, by the second. Homes can takes quarters/years to adjust. Eventually people who cannot afford homes they 'received' (and I mean received since many put NOTHING DOWN), will see they cannot afford these homes - and be forced to sell. Also keep in mind as each month passes, more and more people who bought with 0% down, 1% down, 2% down will be going upside down on their home. So they need to make a decision - do I continue to make payments on something I put almost none of my own money into... for an asset that is depreciating by the month. When they come to their "aha" moment, that's when the real price adjustments will happen. Until then you will hear hopeful talk about how we will have a bounce next spring when people are out and about in prime house hunting season.... and how prices are "holding up" and that is bullish! A bunch of lies.

The reality is it would be better for all of us if housing prices fell. Why? So it would not be such a strain on our budgets. While it would not feel good to lose asset wealth, for anyone who is looking to buy a new home would you rather have a $1400 monthly mortgage payment or a $2700 mortgage payment? Well you would get the former if the median price was where it should be. Please read this if you are new to the blog: Analysis: What Should Median Housing Price Be Today.

Again, I am not going to post these monthly figures every month because it's already getting old very fast. We are in about inning 2 of this correction. A 7 year bubble of epic proportions does not get fixed in 11 months, no matter what the pundits claim. A correction does not end when everyone is looking to "buy a bargain"... which is the stage we are now. It ends when no one wants to buy real estate because "all it does is lose value". We are nowhere near that stage (despair). We are still in the early stage... denial. Just as we are when we talk about coming recession (errr, slow down). Until people see "facts and figures" (which will come to fruition next spring/summer) they will continue to deny, deny, deny. These are people who live in NYC and don't see what is happening in the real world. Just think about the coming few years where every major city, county, and state needs to make budget with real estate tax dollars plunging. Except for areas in secular bull markets (say Houston with its energy market), it is going to be an interesting time trying to make budgets with overspending politicos drunk on excess from 2002-2006. [California in State of Fiscal Emergency]. I'd argue 5 of our largest 10 states are already in recession, California, Florida, Michigan, Ohio, and Pennsylvania. I do expect the sunbelt states who are benefiting from migration trends to do the best on the back end of this, but many of those states were also the most inflated so there is major cross currents, even for them, in the near term (1-2 years).

New Home Sales Plunge by 9%

• Sales of new homes plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector. The Commerce Department reported Friday that new-home sales tumbled by 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.
• The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 percent, to a pace of 715,000.
• The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less. (and this remains the problem)
• New-home sales dropped by 19.3 percent in the Northeast. They plunged by 27.6 percent in the Midwest and they fell by 6.4 percent in the South. However, sales increased by 4 percent in the West.
• Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.
• A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

Again, folks I say again, economy will be issue #1, #2, and #3 in the coming general election. Expect proposal after proposal by these politicians to stop the business cycle from happening and try to keep home prices above where they should be. They should not be allowed to happen since in the long run it will be better for all of us with mortgage payments to have cheaper homes that we can actually afford instead of having to stretch with 40-45-50% in some cases of our income going to try to put a roof over our head. This is what the people trying to come up with bailout plans do not get.

Hoping to Add back some Mechel (MTL) near $94

Yesterday I mentioned cutting back my position in Russian iron ore/coal/steel stock Mechel (MTL) after it ran so far so quick. I was a few hours early as I sold at $102 and the stock went up to $106 later in the day (never get the exact top or bottom), but already today we have seen a quick retreat to the mid $95 range in this volatile name. The 20 day moving average is sitting at $94 so I will be hoping to buy back my position (plus a bit more) at that level.

With the market so choppy of late, sometimes we can make some nice quick trades like this - doesn't make a huge difference to performance but if you can do this relatively consistently it adds up, and in a directionless market as we have had for months (range bound), this has worked out pretty well. Again this goes back to a strategy of culling some of the winning positions as they move up - then if they continue upward, at least you have some skin in the game. (sort of like the fertilizers right now which refuse to fall down) And if it pulls back you can buy back (and in fact buy more). When it works it's a good thing but of course sometimes you see a stock just run and run and run upward and you miss out in part on that move. On the flipside, when a stock implodes during earnings (i.e. a Crocs (CROX)), by taking these incremental gains along the way you lock in some profits that cannot be erased by the fickle mood of the market or unforeseen events.

No strategy is perfect but having such a large portfolio allows one a lot more flexibility to let winners run to some degree while at the same time trimming (and then adding lower) along the way. Obviously this strategy works less effectively in a market that moves straight up for months on end.

Long Mechel, Crocs in fund; no personal position

Bookkeeping: Adding more Trina Solar (TSL)

I added more Trina Solar (TSL) today and in fact it has now moved to my #2 position. Just like that - from zero to #2 position in 26 hours. While the solar sector in totality is way over run with speculation, the charts are very overextended, and the valuations stretched - I like Trina Solar for the reasons I explained yesterday [Restarting Trina Solar]. Today, the technicals actually confirmed a near term positive outlook. Before the sector got hit, the stock had made a new (recent) high (surpassing the December 5th high), and a higher high and higher low from yesterday. Even after being hit, it still retained those qualities and as I stated yesterday I wanted to see this stock hold its 50 day moving average (moved up to $50.30 today) which it has.

Now the headwinds are against most of the sector, so it's struggled and while a market I don't trust could work against it, if the market can just hold flattish and the sector as well, I think this stock is poised to make a substantial move. Unfortunately, this has been the red head step child of the group in the past half year, so just when it is ready to "run", both the sector and the market take a hit. But that's ok because it let's us build a large position.

Again, if market / sector forces work against it, and it breaks down below the 50 day moving average I will quickly lighten my position but from a fundamental basis, Trina Solar is many times superior than much of the junk speculators are running up 50% in a week's time in the sector. As one simple example, while there is hand wringing about Trina's gross margins falling below 20%, other companies in the sector of similar ilk have posted gross margins of late in the 5-15% range (and these stocks have run up over 100% in the past month) - while Trina has lied like a dog hit by a car on the side of the road since all investors (at this point in this sector) care about is revenue growth and not profit margins. Once capacity comes online for this stock it should be able to prove the naysayers wrong but this might take some time. But unlike some of the junk that speculators have run to (some of which have just a dream of reaching Trina's level), one can sleep at night knowing this is a viable business with real fundamentals underneath. Now we just hope the market (perception is reality) is coming back to this story. If so we should see a print north of $60 sooner rather than later.

Trina Solar is now up to a 4.4% position.

Long Trina Solar in fund and in personal account

Speculators Take the Day off in Solar, On to Dry Bulk Shipping

Well speculators apparently have run the solar stocks up to a level even they cannot believe. Time to give it a rest... at least for 12 hours. Well not for China Sunergy (CSUN), probably one of the most fundamentally challenged solar companies, but that hasn't stopped speculators from taking it on a 2 day ride from $11 to $19 (as if the people who bought it in the past 2 days care about fundamentals). After a thorough investigation, reports are emerging that the company has 2 very valuable assets which are leading to this explosion in value. The assets are: China & Sun. Both in the same corporate name. "Priceless!" Until it falls 50% like it is apt to do every 6-7 weeks.

But for today, the sexy sector of the day is dry bulk shipping, our long lost love - we haven't seen these stocks ramp for 2 months. They deserve some attention too. Solar has been getting *all* the attention and it's just not fair - the divas of dry bulk have been upset. So today they get their day in the (ahem) sun. Dryships (DRYS) +9.2%, Diana Shipping (DSX) +9.0%, Excel Maritime (EMX) +6.5%. Really - everytime the teenagers get the keys to Wallstreet they just go back to the same tired groups. (Did you notice all the chinese small caps making 25-30% moves yesterday on no other reason other than... well they're chinese stocks under $10?)

I've been debating these dry bulk shippers over the past few weeks, especially when they were washed out. At these stock prices, a far cry from where they used to be, there is actually some value. But perception is reality in the market, and the minute perception reverts back to potential slowing global economy these stocks go down, even if their pricing is near all time highs [Baltic Exchange Dry Index]. That's the problem we have with investing in these names right now. Surely they will have very severe bounces where very apt traders can make a large % in a very short time, but knowing "when" the markets "deems" the global growth story is back is just a guessing game. The irony is their business is actually booming... but they are getting discounted for potential future slowdown. This is the tricky part of the market - not only must you be right on your thesis, you must also be guessing correctly what the "crowd" is also thinking. Hence, why despite being tempted on these serious pullbacks from highs reached in the fall, I still am very wary of wading into this pool. I can play the same "global boom" trends with a lot more safety through agriculture stocks in my opinion. So that's the path I've chosen.

No positions

Investors Appear Immune to More Writedown Talk

It is interesting to watch the financials here ... as Goldman (the "man" on the Street) comes out and says writedowns will be far worse than expected, the market seems to be in general shrugging it off. People are saying it is 'priced into the stocks', but I just think its investor fatigue with hearing the same news every few weeks. Much like a drug (or credit injections) it takes more and more to keep the user going. So at some point all this news of billions upon billions of writedowns starts rolling off investors backs.

What? Another $6 billion? Been there! Done that!

Unless its something much more large in scale ("Maybe I'll get scared when you write off $40 billion!") or using some new lingo or a new problem ("Writedowns not due to subprime mortgages but due to commerical property loans"), the market has apparently checked out and moved on. Again, Americans have the attention span of a gnat so away we go to worry about Britney Spears' little sister's pregnancy - we cannot be bothered with such things as another $20 billion+ of writedowns. Whats $20 billion when we already have heard this news before? It's all fake money anyhow - I mean what's a writedown after all? And no matter what the Fed has our back as do our friends in the Middle East and Far East.

So I suppose when these banks are going back with hats in hands asking for yet another round of capital infusion from our foreign friends, maybe that will get the attention of investors. Because right now even a nearly $20 billion write off by Citibank means very little. At this point they are fast approaching the point where they are just writing off every thing they have in terms of CDO exposure and saying 'ok we fess up, it's all a joke.' And investors seem content with that because at least it's contained and measured. Until it's not. Which could be a few weeks or months from now. When the next shoes fall. And maybe we have something attention grabbing enough to get the short attention span investor to realize these are real dollars and real destruction of bank's balance sheets. Gosh, back in the day when a Goldman analyst spoke, people actually paid attention.

• A Goldman Sachs (GS) analyst on Thursday joined a long line of his peers to predict that fourth-quarter writedowns to be taken by several large banks are likely to be even greater than investors expect.
• William Tanona now estimates Citigroup's (C) writedowns to come in at $18.7 billion in the quarter, up $7.7 billion from his original expectation. He expects Merrill Lynch (MER) to write down $11.5 billion of CDOs and subprime exposure, up $5.5 billion. Tanona doubled JPMorgan Chase's (JPM) writedown estimates to $3.4 billion, according to an industry note in which he cut his earnings estimates on the three firms. (booooooring!)
• Following the writedowns, Citi would still be exposed to about $25 billion worth of collateralized debt obligations, or CDOs, Tanona estimates. Merrill will still be exposed to $8 billion of CDOs and $5 billion for JPMorgan Chase, he writes. (and we can write that off next quarter, and all our problems are fixed - magic!)
• Still, as a result of the larger-than-expected writedowns this quarter, Citi is likely to cut its dividend by 40% to preserve capital, Tanona wrote in a note on Thursday. (boooooring!)
• Separately on Thursday, Brad Hintz, an analyst at Sanford Bernstein, estimated that Merrill's combined subprime and CDO exposure currently totals $27 billion. The New York brokerage will likely write down $10 billion of its exposure this quarter. (that's just 2 more quarters of writedowns at this pace, and problem solved!)
• Hintz estimates that Merrill will report a net loss of $5.10 a share, "marking the weakest quarterly result in the firm's history," he writes in a note. (whoooooooooooooooo cares! It's only money - there is always more around the corner to squander - we are too big to fail - nah nah nah)
• Shares of all three firms were falling between 1% and 2%. (ooooh, scary!)

Folks, we need something a lot more interesting to bother us nowadays. Writeoffs? We're Immune! A write off here, a write off there, here a write off, there a write off... old Mcdonald...

Goldman Sachs Likes Potash (POT)

Looks like Potash (POT) got an upgrade this morning. A little late to the game (?) [Analysts Still Doubting the Fertilizer Stocks - I'm Adding Potash Ahead of Earnings], but hey you always want to be on the side of the smartest guys in the room.... even if you are ahead of them by a few months.

• Shares of Potash Corp. jumped on Thursday, after a Goldman Sachs analyst upgraded the fertilizer company's stock on higher potash prices. The stock advanced $6.59, or 4.6 percent, to $150 in early morning trading and set an all-time high of $150.26 earlier in the session.
• Goldman Sachs analyst Edlain Rodriguez upgraded the stock to "Buy" from "Neutral" and said Potash will be able to raise prices because of strong demand and tight supply. Rodriguez noted that Potash shares have risen sharply recently, but still thinks they have further to climb.
• "Despite the strong run-up in the stock, we believe there is further upside potential, based on the constant upward earnings revisions that will likely continue in the near-term because of Potash's ability to raise prices due to strong demand and tight supply," Rodriguez wrote in a client note.
• Rodriguez's new price target is $180, from $122 previously, which implies upside of 25.5 percent to Wednesday's $143.41 closing price.

I still love this space for the long run, but the recent run ups have been enormous off of November lows, and the more analysts start to love the stocks the more I get wary. I prefer it when analysts underestimate the estimates, allowing the companies to beat the numbers and raise guidance and continue that pattern. I've seen a lot of fertilizer bandwagon jumping in the past few weeks. While I think justified, the ride is starting to get full. I've cut back my fertilizer exposure to the lowest its been in quite a few months, and at this point am hoping for some pullbacks to add more. In fact I have taken a bit more off the table this morning as the stock is up over 45% in a month. The stocks seem quite extended to me at this point; but again going out 1-2 years I still think there is a long way to go.

Long Potash in fund; no personal position

Best Performing Stocks in the World 2007

Well for all you lucky First Solar (FSLR) investors who got shares at IPO prices and never sold, congrats - you had the 12th best stock return in the world.

Courtesy of Bespoke blog are the top 25 stocks in the world. Yes it is chock full of Chinese and Hong Kong stocks - no surprise there. But 4 of the top 11 are Romanian and 2 of the top 10 are Ukranian. This is a part of the world I don't think many give credit to... Eastern Europe. Unfortunately we have very few ways to play this trend through stocks; I have been looking for 3-4 years and have found about 5 names. I did find this mutual fund a few years ago for those interested (but make sure you don't spend all your mutual fund money in 1 place, hint hint) - but even most mutual funds in this part of the world focus 50% or more on Russia, so they are not really looking at areas I'd be most interested in.

While all these emerging markets are well overdue for a pullback, I do like Eastern Europe for the long run (ex Russia), and now have my eyes set on the (non war zone) Middle East and parts of Africa which I think have a lot of opportunity. But finding stocks to take advantage of these trends is even harder - one I have in the portfolio is Millicom International Cellular (MICC)

Long First Solar, Millicom International Cellular in fund; no personal position

These are the Days to make Hay

Looking through the portfolio, having 1 day like this a month would be a great thing.

The main markets (DJIA and S&P500) were flat... but out of 54 long positions, 48 were up in the fund. Only losers were

FWLT -2.0%
DHIL -1.3%
SGR -1.3%
MA -1.2%
RVDB -1.1%
CLB -0.1%

I will give these 6 positions a stern talking to today and withhold dinner. Hopefully tomorrow they behave properly.

A good day, where retail traders dominated the trade. Can't complain - very little news flow until the new year so despite the indexes not doing much it was quite a beautiful day, pulling in a 1.50% return. 10 days a year like that and you have your goal of beating the indexes by 15% a year.

If only it was this simple most other days. :)

Bookkeeping: Restarting Trina Solar (TSL)

With my sell off of Solarfun Power (SOLF) to a minuscule exposure, I have decided to restart a position in the neglected name in the sector Trina Solar (TSL). I last owned this name in late October [Rather be Safe than Sorry: Closing Trina Solar]. After an implosion post earnings about a month ago, the stock finally looks poised to break out. While the rest of the solar sector has been screaming higher, Trina Solar has been consolidating in a tight range of $46 to $52 for over 3 weeks, doing just about nothing except frustrating those wondering why this is the only solar stock that never moves. This is the type of base that a nice breakout 'could' occur from. A move north of $53 would be preferred but with institutions sitting home, and retail investors driving up stocks in the sector with far less fundamental strength than Trina, the potential for a rotation into this forgotten name is possible.

As another benefit the stock is sitting right above its 50 day moving average, right at $50, so we have a clearly defined downside. If this is a false breakout, similar to December 10th, one can reduce exposure and wait for Trina to be rediscovered again. Generally I would wait 1 more day to buy this type of chart, but with the mania currently happening in the sector, any stock has the potential to gap up in the morning 10%+ for no particular reason other than it is their turn to be the 'chosen one'. So in a more sane situation I'd wait for a confirmation day.... However, if solar continues to go on this war path for the remainder of the week we could have a nice move. But we have a very nice playbook to work for on this position with limited downside and potentially large upside.

Due to familiarity with this name, I restarted this position with a larger than normal beginning stake of 500 shares or 2.1% of the fund. Purchases are in lower $52s. On a breakout over $54 I will add more exposure as this would indicate Trina has found more 'believers'. On a fall back below the 50 day moving average ($50) I will cut this position down and use cash elsewhere - however I expect Trina Solar to have a solid back half of 2008 so hopefully management can start delivering - the 2 most recent quarters have not put them in the best light.

EDIT @ 3:50 PM - Trina is acting great so I added another 300 shares to take this to a 3.4% stake.

Long Trina Solar in fund and in personal account

Credit Downturn Hits the Malls

When I first clicked on this story on WSJ.com [Credit Downturn Hits the Malls] I thought it was going to be a story how strapped consumers were running out of space on their credit cards, or how their housing problems were hitting their spending... but lo and behold the first stories of commercial real estate slowdown are finally hitting the press.

One important method to make money is to be ahead of the pack. I have been touting the issues that a slowdown (even if its not an official recession by "government reporting") will have on commercial real estate. Put bluntly even with a static economy we have way too many stores - too much of everything - where I live there is a CVS next to a Walgreen next to a Rite Aid... every 2 miles... in every direction. Malls every 6 miles. Strip malls galore. Small restaurants everywhere. I truly don't know how these companies keep any profit margin at all with all the competition, but in a booming economy I suppose it is possible. In high growth states where people are fleeing too (southeast, and southwest) it will still be possible to continue to build out, but in the slower growth states or older areas of the country (much of the midwest and east) everything really seems 'built out'.

Anyhow, the first "round" of financial issues is probably at this time "priced in" the banks - that being "subprime". While I argue this is only stage 1, and we will have the next rounds of alt A mortgages, and prime mortgages, along with credit cards, along with auto loans, along with student loans - that's a problem for another day as the foreign Middle East/Far East cash infusions has people singing a sweet tune (I believe this is the 9th "this is the bottom!" call by CNBC). While that will be proven to be wrong in my opinion down the road, for "now" the financials seem able to hold a bid. But real opportunity is found in places people are not talking about. Hence I anticipate early 2008 will be the time I actually am overweight Ultrashort Real Estate (SRS) over Ultrashort Financial (SKF) - the latter being a big winner in the fund this year. [Top 10 Winners and Losers so Far]. While I will hold both in varying degrees, I don't see UAE or Singapore or our central banks coming to the resuce of commercial real estate developers. The coming slowdown will happen, and we won't have to worry about the "invisible hand of bailouts" in this sector as much as we have to worry about it daily in the financial arena (if you are short the sector). Further, it is not something people are talking about... aside from a few sources [Commercial Real Estate Dominoes Collapse], the mainstream press and investors seem to be ignoring it. Hence I see real opportunity here, just as I did in the Ultrashort Financials back in August before the "invisible hand" started its maneuvers to make sure a day of reckoning never happens...

Back to the story....

• The credit crunch triggered by the downturn in the housing market is creating problems in commercial real estate, driving down prices of office buildings, shopping malls and apartment complexes, and leaving some owners scrambling for cash.
• One victim is Centro Properties Group, the fifth-largest owner of shopping centers in the U.S. The Australian real-estate company saw its share price fall by 90% in two days last week as it struggled to refinance short-term debt it took on to fund its $6.2 billion acquisition of New Plan Excel, one of the biggest owners of strip malls in the U.S.
• Centro had planned to pay off the short-term loans by selling long-term debt via the commercial mortgage-backed securities market, but the lack of buyers forced it to get a two-month extension from its creditors. Commercial mortgage-backed securities, or CMBS, are pools of loans that are sliced up and sold to investors as bonds.
• Residential mortgages are packaged and resold much the same way, but so far the CMBS market hasn't had any significant problem with defaults.
• In another high-profile case, the clock is ticking for Harry Macklowe, the New York developer, who is struggling to raise financing by February to replace $7.1 billion in short-term money he borrowed to finance his heavily leveraged acquisition of seven Manhattan office buildings this year.
• The predicament facing Centro, Mr. Macklowe and numerous others underscores the state of the once-unflappable commercial real-estate market. For the past few months, the sector has been in a state of near-paralysis, as financing has nearly dried up. The number of major properties sold is down by half, and many worry that the market will continue to deteriorate as property sales remain slow, prices continue to drop and deals keep falling apart.
• The CMBS market was the engine that drove the commercial real-estate boom. Over the past few years, the issuance of CMBS allowed banks to get rid of the risk on their books, lend with cheaper rates and looser terms and that made it easy for private-equity firms to do huge real-estate deals. (hmmm, sounds vaguely familiar)
• Real-estate investors aren't the only ones feeling the pain. Many big banks issued short-term loans to buyers and planned to sell them off later, much the way they do with loans made to private-equity buyout shops. But the banks have gotten stuck with an estimated $65 billion in fixed- and floating-rate loans on their books, according to J.P. Morgan. Some of the largest issuers have been Lehman Brothers Holdings Inc., Credit Suisse Group and Wachovia Corp.
• Prices, however, haven't appeared to fall, though much like residential real estate, there is often a period where buyers stop buying but sellers refuse to lower prices. There is "cognitive dissonance" between buyers and sellers, says Dennis Russo, a real-estate attorney for Herrick Feinstein. "There's a period of time in which the seller cannot psychologically move his price down. They haven't accepted what's happening in the market."
• According to Real Capital Analytics, sales of significant office properties plummeted to $7 billion in November, a 55% drop compared with November 2006. So few deals are getting done that many market experts say they don't know how to put a value on many buildings right now -- but almost everyone is in agreement that the valuations are dropping.

Again, we are in the denial phase. The 'shoe dropping' phase will come sooner or later. Unless you are in the camp of a booming economy returning by spring 2008 and if everyone just closes their eyes for the next 2 quarters, everything will return back to 'abnormal' as it was in 2003-2006, all over again. I wouldn't take that bet.

Long Ultrashort Real Estate, Ultrashort Financials in fund; long Ultrashort Real Estate in personal account

Target (TGT) Shoppers Turning into Walmart (WMT) Shoppers

In my piece 'Do the Bottom 80% of Americans Stand a Chance', I (virtually?) penned a lot of the long term issue hitting the "middle class". I also talk a lot about tell stocks - Fedex (FDX) or UPS (UPS) for the general economy, Coach (COH) for the aspirational upper middle income/lower upper income [Coach (COH) Imploding]... we also are getting a lot of hints from companies like Starbucks (SBUX), Harley Davidson (HOG), etc on the stressed US consumer.

To that "tell" list we should watch Target (TGT). Target is one of the best run retailers in America - but the past few months the news flow has just gotten increasingly worse. So unlike say a Sears Holding (SHLD) which is full of badly run Kmart stores, when one of the best of breed retailers is struggling, you take notice. With a not so great retailer you might think, well maybe they have issues with execution but Target is not that kind of company. I think what is slowly happening is more and more Target shoppers are becoming Walmart shoppers... not by choice. I won't rehash the litany of reasons, and today's bad news out of Target is not a reason to claim victory on a thesis. One data point is never useful but the past 3-4 months have seen a series of lowered expectations and Target not even able to hit those lowered guidances. While the economic bulls claim the consumer has always pulled us through and 2008 will be no different; I say 2008 will be different. And our "tells" are showing us, one by one, even as government reports tell us "nothing to worry about, go about your business, the economy is roaring". So with the big push to gift cards we really won't know how Christmas will be until the end of January when most of these cards are redeemed. But the focus on Christmas is over blown to me; people will spend on Christmas to one degree or another no matter what. It's what they are doing the other 48 weeks of the year that will be causing the issue. Each incremental dollar that has to go to $5 milk or 30% higher (from a year ago) chicken, is less dollars for the mall, or the nail salon, or the local theater. And in a service economy where we create less 'goods' by the year, it's a very damaging ripple effect. These problems have been showing up for years in the "have nots" (people you rarely hear about in the news), but the problems will slowly but surely move upstream... to the type of people that the news actually cares to report about. People with average service economy jobs, living average lives, forced to live at lifestyles below where they were 5 years ago, all the while hearing how the economy is booming in aggregrate... I guess at that point it will become "newsworthy".

I expect many of you sat around at Christmas and the local economy came up in some part of the conversation. I also expect very few of you said, wow things are roaring, that GDP in last quarter was up 5%, I am feeling great! ;) That wasn't what I was hearing but perhaps your Christmas party was different.

Target Offers Holiday Gloom

• For Target (TGT), the holidays were far from bright. The discount retailer warned late Monday that it now expects December same-store sales to be in a range of down 1% to up 1%. That's far short of its prior projection for a 3% to 5% rise in same-store sales, or sales at stores open at least a year.
• Based on those numbers, it's unlikely Target can meet its projections for fourth-quarter earnings. In early December, the company said sales trends would need to "meaningfully improve" in the month for it to achieve its fourth-quarter EPS growth forecasts.
• Target, a longtime outperformer, has particularly stumbled recently as some of its lower-income customers cut back on spending amid the housing and credit crises.

Oh yes on a non related note that doesn't matter to the stock market (approaching record highs), housing prices fell 6.7% in October - but don't worry - this will soon pass and the economy is booming and luckily subprime is contained (Paulson August 2007). I believe the first part of grieving is denial. We still seem to be in it.... but in a first... our friend Lawrence Yun, he of National Association of Realtors fame [Housing Will be Flat Next Year! Whew!] actually admits things might not be rosy! wow, miracles do happen this time of year.

• "This is just the beginning," said Peter Schiff, a Darien, Conn.-based investment adviser known for his bearish views of the housing market. "Pressure is there for much, much lower prices."
• According to Schiff, one factor that will drive prices lower is a change in buyer psychology. "The prices that existed were completely artificial, a function of speculators who are no longer in the market," he said. "Some buyers thought they were going to get rich." Today, however, that demand has all but disappeared. "More people want - or have - to sell," said Schiff, "because prices aren't going up, so buyers have to look at the actual cost of owning a home."
• Lawrence Yun, chief economist for the National Association of Realtors and among the most optimistic of industry insiders, conceded that large inventories will mean further price declines. "Price growth during the boom was clearly unsustainable. This is the payback," he said.
• But, according to Yun, the Case-Shiller index exaggerates declines because it covers many of the markets that have been hardest hit. He cites Realtors price data that show a majority of 150-plus markets recorded year-over-year price gains. (oh of course!! but this 'exaggeration' by focusing on these markets was never complained about when the market was going up and those markets went up the most?! Oh Mr Yun, have you no shame)
  

I am so short Mr Yun it is not even funny

Bookkeeping: Taking Some Profits in Huron Consulting (HURN) and Mechel (MTL)

Both these positions have worked out splendidly...

1. With Huron Consulting (HURN) in 7 sessions we've seen a run from $72 to $83 (15%)... for a sleepy consulting stock that's quite a move so I want to lock in some of these gains as this has turned into my #2 long position and I have yet to sell a single share. Further, on the technical side the stock has now reached levels seen in late October before its earnings swoon so if it doesn't break out here, it will have made a 'double top'. I am not saying that is what is going to happen but without a further move upward it will, but always prudent to book profits along the way - especially when I don't like the market overall. So I will sell 75 of my 450 shares (17% of position) near $83, and move this name from 3.0% of the portfolio to 2.5%. Barring inability to perform I do plan on holding this name for quite a while as a play on the coming restructurings in corporate America in 2008/2009 in a slow growth economy.
2. Mechel (MTL), the Russian steel/iron ore/coal company continues to be one of my favorites, but in 4 sessions we've gone from $90 to $102 (13%) and very similar to Huron we might be forming a double top here, as the stock peaked here around $104 back on December 10th. Too early to tell on this name either, and in a market I trusted more I'd be more apt to let these names run, but going into January earnings seasons, and with the technical positions on the major indexes right at previously noted resistance I am going to take some profits along the way. I've dropped Mechel from a 2.3% position to 1.6% position by selling 75 of my 275 shares (33%) here at $102.

I like both companies, and will continue to like them. Much like the fertilizer and solar names - I just am taking profits when offered along the way as has been my strategy from day 1. Make sales when you can, not when you are forced to. (i.e. in a major downturn). I will look to add back to these positions on the inevitable corrections.

Long both names in fund; no personal position

Solars Flying With Big Boys Sitting Home

With the institutions resting, this week is the week of the retail trader. And what sector have they loved more than any other the past 6 months? Solar.

Many of the most speculative are the ones with the largest moves today.
CSUN +16.5%
SOLF +13.0%
DSTI +12.9%
HOLU +11.0%
AKNS 10.9%
ESLR +9.9%
CSIQ +9.7%

I've basically sold down my Solarfun Power (SOLF) to a point where it is barely in the portfolio. In the past I would exit a position like this, up massively in a short amount of time, but since I do like this stock to some degree I will just keep holding the very tiny position in the fund and wait for the inevitable lemmings to panic sometime in the next month and drive the stock back down.

Compared to most of the names above, Solarfun Power is akin to General Electric in terms of quality.... I was joking that this name would be racing to $40 when I bought it in the mid $20s but I guess my joke was taken seriously by the momentum daytrading folks.

As an aside LDK Solar (LDK), #1 position in the fund, is making a nice run as well, up nearly 8%. In a perfect world I'd love to see a quick move to near $60 where I could book some serious profits and then let it pull back so I could rebuy once the froth if out of the sector. As this sector is prompt to do every few weeks, it is getting nuts around here as fundamentals don't matter and the lowest quality names (or those with the cheapest stock price) get run up... for example HOKU doesn't even have a meaningful revenue stream yet but plans on building polysilicon in 2009, AKNS simply installs solar panels - it doesn't produce them... etc. But none of it matters to those running up these stocks...

Long Solarfun Power and LDK Solar in fund; long LDK Solar in personal account

Bookkeeping: Taking Half of Silver Wheaton (SLW) Off the Table

Silver Wheaton (SLW) has had quite the run here, jumping from $14 to $17+. I am taking half of my smallish position (1% of fund) off the table. This is 400 of my 800 shares sold.

With the world's government's coordinated attack to devalue their currencies by bailing out our financial institutions (Unprecedented Times, Unprecedented Moves) I feel more confidant that gold (and by proxy silver) will continue to be positive positions in the coming year or two. As each dollar/euro/UK pound/loonie is printed out to help bail out our subprime nation, hard assets have that much more value.

I will rebuy this very volatile position on a pullback.

Original proposition for buying Silver Wheaton (SLW) here [Market Seems to be Holding - Adding 2 Weak Dollar Plays]. As an aside, since that entry in mid November, the Canadian and UK central banks have done surprising rate cuts to help bail out the debtor nation aka us. Hence their currencies have started to weaken. The euro has held up decently however, as they have held rates steady (and even talk of raising rates due to inflation? gasp!) and have chosen instead to flood the region with half a trillion in repos [Libor Rates Plummet on Half a Trillion Infusion by ECB] I guess in a 'relative' sense, this is the least of all evils ... buying worthless junk from the banks for longer and longer periods - remember, the length of time the central banks have agreed to hold this toxic junk gets incrementally longer each month longer we get into this mess. At some point I just expect them to say - "give us your tired, your poor" B.S. loans for years, and once we get through this "patch" you can buy it back from us... like in 2011. I mean after all we are freezing subprime loans for 5 years - why not give the banks the bailout they justly deserve too.

Long Silver Wheaton in fund; no personal position

Quiet Day

In this shortened day I did not do much.

Took some more profits off that crazy Solarfun (SOLF) up another 15% after a huge spike Friday. I am now down to almost nothing in this position, but with the mania in the sector there is no reason it could not be a $40 stock by end of week (currently $33) but it has now turned into pure speculation. The solar sector is again reaching a point (aside from LDK Solar (LDK) and Trina Solar (TSL)) where valuations are getting hard to justify. But speculators don't care about valuations.

I added a bit to two positions which recovered their 50 day moving averages, FTI Consulting (FCN) <--looks ready to breakout, and Gafisa (GFA). (Gafisa is at a critical juncture, it could either break down back below its 50 day moving average or break out to make a run - hard to tell)

I also added to some of my Ultrashort positions late in the day. I don't want to go overboard because in a very thinly traded market, which we will have this week, the market is very hard to assess.

My overall plan now is to snip away at some of the larger winning positions into rally, and increase some short exposure. Despite my love for all things fertilizer some of these charts are getting might extended so I might need to start snipping away if the rally continues in the latter part of the week. I am already down to a 6% allocation and I don't want to go much lower but some of the moves of late have been quite powerful and with a market I don't trust overall I want to lock in some gains.

The only reason to change this approach is if the market takes off to new all time highs - and then once again we go back to drinking kool aid and pretending the coming economic tsunami is just a figment of our imagination. But until I see otherwise I will simply be going down the path outlined above.

As an aside, I really like what I am seeing from Apple (AAPL)... I try not to mention this name to often because I could write a good thing each and every day about this company and the overall story is not a mystery or ground breaking stuff. The stock just broke to an all time high and we are about to his $200 in this name.

Have a good Christmas and we'll see you Wednesday.

Long all names above in fund; long LDK Solar in personal account

Bloomberg Outraged by Ethanol in Farm Bill

(note: I am not in either party and think 99.8% of politicians are quite useless so this is not a political post)

I do have to say if not Ron Paul than maybe Mike Bloomberg. This sounds like a guy gearing up for a run. Unlike most of the others who clap like seals that we give the 10% largest farmers (not the small farmer mind you) these huge subsidies to produce a product that consumes as much energy as it generates (if not more), while driving up food prices [Why Fertilizer Will Continue to be a Winner; and Why Food Inflation Won't be Stopped by the Fed], at least Bloomberg speaks the truth.

I guess > a billion in net worth affords you such luxuries as not having to pander to the Iowa masses.

Bloomberg and Ethanol

• Michael Bloomberg is not a fan of ethanol, the corn-based fuel that is critical to farmers in the key caucus state of Iowa and whose increased production is mandated by the energy bill President Bush signed this afternoon.
• The mayor, asked about the subject during a Q&A near the South Street Ferry Terminal this morning, said the increased production will make food more expensive in America and have “world wide implications” on the overall supply of food.
• “The part of the bill that, uh, requires using more ethanol was an outrage,” Bloomberg said. “That is going to drive up the cost of food for everybody in this country and have world-wide implications on the food supply. The bottom line is you cannot keep growing corn for ethanol and have reasonably priced food in our country. Farmers are already walking away from planting wheat and soybeans and other things to go over and plant corn because they’ll be able to sell this corn to be used in ethanol plants.
• There is no evidence whatsoever that the ethanol that is made is fuel efficient or anything else. It’s just, it’s a farm bill rather than an energy bill and I’m not even sure it’s good farm policy. Most of the farm things that we do don’t benefit most farmers. They just benefit ten percent of the more industrial-sized farms. And the small farmers who we really should be helping in this country, who needs a lot of help isn’t sharing in that. So it’s bad energy policy and probably bad agricultural policy.”
• This is not the kind of rhetoric someone running in the Iowa caucuses can afford to spout. But someone who bypasses the primaries and caucuses and runs as an independent....

Finally, someone in Washington speaking the truth. Wait, he is not in Washington....

I'm just glad someone sees the reality.

Until things change... keep those agriculture stocks at the forefront....

China to Subsidize Rural Farmers Consumption

What an interesting story - China is trying to turn its farmers into American like consumers. I suppose this is what you can do when every day your country bring in boatloads of cash in trade (exact opposite of the US situation)... but quite an interesting maneuver - not sure how much this centralized planning will work and I think farmers have other issues i.e. facing raging inflation costs in their food.... but....

China Subsidies To Boost Farmers' Appliance Spending

• China will subsidize farmers' purchases of televisions, refrigerators and cell phones to narrow the wealth gap with city dwellers and boost consumption in the world's fourth-biggest economy.
• The government will pay 13 percent of product prices for farmers in Shandong, Henan and Sichuan provinces in a pilot program that may be extended nationwide, the finance and commerce ministries said on their Web sites on Dec. 22.
• Almost 740 million of China's 1.3 billion people live in the countryside, where incomes are less than a third of those in the cities. Boosting rural spending may help to curb the nation's dependence on investment and exports for growth.
• ``Up until now, rural households have spent most of their incomes on food and clothing,'' said Qi Jingmei, a researcher in Beijing at the State Information Center, an affiliate of China's top economic planning agency. ``There's tremendous potential in the rural market.''
• The plan will ``significantly'' increase rural spending, improve farmers' living standards, narrow China's record trade surpluses and boost consumer-goods manufacturers, according to the ministries' statement. They didn't give costs.
• Rural ownership of home appliances at the end of last year was at the urban level of almost 20 years ago, Xinhua reported Dec. 22, citing government data. In the countryside, every 100 households had 89 color televisions, 22 refrigerators and 62 cell phones on Dec. 31. The urban figures were 137 color televisions, 92 refrigerators and 153 mobile phones.
• Rural per-capita income climbed 15 percent to 3,321 yuan ($451) for the nine months through September from a year earlier. That was less than one third of the 10,346 yuan earned by city dwellers.
• Rolled out nationwide, the subsidies may curb industrial overcapacity and, annually, reduce the trade surplus by more than $10 billion and increase domestic consumption by 100 billion yuan, Xinhua said, citing Zeng Xiaoan, deputy head of the economic construction department of the finance ministry.
• China's exports of televisions, refrigerators, washing machines, air conditioners and cell phones accounted for $50 billion, or 28 percent, of last year's trade surplus, according to Zeng.

Now if you were a cynic, you'd argue that the Chinese government's over zealous plan to overbuild any and all types of manufacturing is creating huge overcapacity in certain industries. And if you were a cynic you'd say this is a "2 for 1" special of alleviating some of that overcapacity AND trying to help the poor folk in the far regions of the country to maybe offset them being upset with their raging food inflation [China Inflation Highest in 11 Years - Why Do You Care?].

Luckily, I am not a cynic. ;)

Giant Interactive (GA) - Recent IPO Buying Back Shares?

Giant Interactive (GA) is one of the handful of Chinese video game makers...not a stock that really fits the fund profile but it's on one of my watch lists and I saw a huge spike this morning... curious to see what was driving the news I found news of a share buyback.

• Giant Interactive Group Inc. said Monday that the online game developer's board has approved a buyback program for up to $200 million of its outstanding American Depositary Shares.
• The China-based company expects to buy back stock over the next 12 months in open-market and other transactions. Giant plans to fund the repurchases from available working capital.
• Chairman and Chief Executive Yuzhu Shi said the company's current share price does not reflect its potential value. "Furthermore," Shi said, "we firmly believe that our available cash resources will allow us to implement a share repurchase program while continuing to pursue growth opportunities."

All well and good until you realize this stock has not even been public for 2 months.... (already buying back shares??)

• Giant shares have dropped 34 percent since the company's initial public offering priced at $15.50 on Oct. 31.

Wonders never cease...

No position

Unpaid Credit Cards Bedevil Americans

A kind reader (thanks!) pointed out this article to me.... part of the next flurry of shoes to fall by the cash strapped American consumer aka the world's consumer. I continue to believe the rising cost of living has been masked (for the homeowners) by their cash out financing in their homes aka ATM machine. Renters? I am trying to figure out how they have been surviving.... this is going to take a few quarters to play out (and the dollar amounts are not as huge as mortgages) and until the numbers start showing up in real data, the Goldilocks folks will tell you it's not a problem. Perhaps they are right. I am not in that camp though. Remember, the banks are siding with me, not Goldilocks TV commentators. They have been increasing their allowances for consumer defaults (this is getting lost in the focus on their massive writedowns). With that said, the 'forecasting' skills of banks should also be questioned by their last round of behavior... ;) But that is part of forecasting - if you simply rely on past information you have zero advantage over the 'crowd'.

Remember, across all income strata estimates are 70% live paycheck to paycheck. They don't have cushion for all forms of inflation now hitting them. The shell game has been home equity withdrawals... "now" they are going to credit cards.... when the credit card shell stops working I don't know. But just keep in mind, credit card debt has been packaged, securitized, and ship to your local hedge fund and (who knows?) local government municipality as well. Where this stuff is hiding is anyone's guess. This article taught me a new thing - 45% of credit card debt is now securitized. Wow. Also keep in mind, unlike mortgages (excluding the 2 year teaser type of longer dated ARMs) - credit card rates can change at a moment's notice. So your 11% rate can suddenly jump to 29% if you are late... on that card or really on any card in your portfolio. So unlike mortgages where you have some visibility (think hurricane), credit card rates can change at a moment's notice (think tornado). And that only makes the debt even harder to service... plus late fees.

Let's just cross our fingers and hope (aside from all those layoffs you will see in January in the financial world, once the executives get their huge year end bonuses), that most people do continue being employed ... or it can get far worse, far quicker than currently imagined.

• Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.
• An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears. Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
• "Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."
• The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. At the same time, defaults -- when lenders essentially give up hope of ever being repaid and write off the debt -- rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission. [again the raw totals are relatively small, but the percent increase is the focus here... this is still in an economy with historical low unemployment AND roaring GDP growth - if you believe the government numbers. Not hard to imagine a much darker figure if either of these pillars starts falling, but this will be a very lagging indicator. Americans are very good at playing the shell game... until they run out of shells]
• Serious delinquencies also are up sharply: Some of the nation's biggest lenders -- including Advanta, GE Money Bank and HSBC -- reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
• The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors -- similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.
• Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.
• The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.
• Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.
• Economists also cite America's long-standing attitude that debt -- even high-interest credit card debt -- is not a big deal. "The desires of consumers to want, want, want, spend, spend, spend -- it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."
• Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.
• In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.
• Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said. "It's been getting tougher to finance any kind of structured finance -- mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.
• "You're looking at more and more distress -- consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."

Dominoes.... shells.... you get the picture. We are a subprime nation. Wages pressured by a flattening global labor force... inflation rearing it's head... consumerism an "American right" (spend spend spend). I think the master plan by our central bank(s) is to try to force mortgage rates to 5.5% or lower (they can't directly affect the long term rate, but are working feverishly through various means to push in that direction) so people can try the refinance game yet again. Those with equity left in their house that is. Like a drug addict I think it becomes less effective each time we 'shoot up'. Should be interesting....

Best Performing Stocks the past Month

Below is a list of the best performing stocks of the past month. I always like to look at these lists to see what the market is favoring, try to find some new ideas, and to see how stocks I favor do in the big scope of things.

Since I focus mostly on mid caps and large caps I focused on market capitalizations of $2 billion or greater, trading at least 100,000 shares a day, and a price of at least $10. Using a minimum return of 12% for the past month, the list generated 179 names. Keep in mind the S&P 500 is up around 2.5% in that same time frame, and if not for Friday's big rally it would of been closer to 1.2%. I will highlight in green the fund holdings, and in blue stocks of interest to me (either considering to add to the fund, a stock that has been discussed a lot, or past holdings)

40 names generated at least 25% return, sorted by return here is that list. Lower on the page are those returning 12-25%. Some interesting notes - despite the pole axing LDK Solar (LDK) took the last 2 days it is still the 5th performing stock on the list, along with solar brother Yingli Green Energy (YGE). My top holding for much of the past month, Mosaic (MOS) came in 6th. A stock I have been asking Marketocracy.com to add to its portfolio, Mercadolibre (MELI) for the better part of 3 months came in 7th... I see it now finally available to trade in the Marketocracy.com system - unfortunately about 40% too late for my purposes. Think Ebay/Amazon of Latin America - very pricey but at $40 I could stomach it, now near $60 it's Baidu.com (BIDU) like expensive. I continue to be amazed at Consol Energy (CNX), which is a coal stock whose chart looks like a solar stock of late.

Happy to say we own 8 of the top 40 stocks of the past month, in the entire market (>$2 billion). You can see some of the same themes I have been espousing for months on end - agriculture, solar, infrastructure, coal. Notice how few "tech" stocks are in the list... and previously hot sectors which I have avoided/exited such as mining, dry bulk shipping, etc - are nowhere to be found. (victims of fears of potential worldwide slowdown). With that said, 1 month ago was near the market lows of November (within a few days), so the % return is off of a steep low point. Also, I am unclear how much longer these same sectors can continue their moves up - certainly with earnings season fast approaching we enter another tricky period. For example I do expect the fertilizer stocks to do very well but "finally" the analysts have gotten their models and expectations raised, whereas much of the past 2-3 quarters they were nowhere near where they should be. So this is how growth stocks get smushed... heightened expectations raised to a point that are impossible to achieve.

		% Price Change
Symbol	Company Name	Last Month
LEAP	Leap Wireless International Inc	58.6
GLYT	Genlyte Group Inc	51.7
ATVI	Activision Inc	47.6
YGE	Yingli Green Energy Holding	47.1
LDK	LDK Solar Co Ltd	46.2
MOS	Mosaic Co	45.8
MELI	Mercadolibre Inc	41.8
ARXT	Adams Respiratory Therapeutics	41.3
HES	Hess Corp	39.5
MASI	Masimo Corp	38.9
BMRN	Biomarin Pharmaceutical Inc	38.5
JASO	JA Solar Holdings Co Ltd	38.3
MOGN	MGI Pharma Inc	37
TT	Trane Ord Shs	35.3
WFR	MEMC Electronic Materials Inc	35.1
CF	CF Industries Holdings Inc	34.9
MLHR	Herman Miller Inc	33
AGO	Assured Guaranty Ltd	32.4
JCG	J Crew Group Inc	32
TRA	Terra Industries Ord Shs	32
RESP	Respironics Inc	32
PCS	MetroPCS Communications Inc	31.9
CTV	CommScope Inc	31.8
ANR	Alpha Natural Resources Inc	31.4
UAPH	UAP Hldg Corp	31.1
AMCN	AirMedia Group Inc	30.6
RRC	Range Resources Corp	30.3
CNX	CONSOL Energy Inc	29.9
VIP	VympelKom OAO	28.3
GNA	Gerdau AmeriStl Ord Shs	28.1
CEDC	Central European Distribution	27.9
MTL	Mechel ADR Rep 3 Ord Shs	27.7
BEAV	BE Aerospace Inc	27.2
CTX	Centex Corp	26.8
FSLR	First Solar Inc	26.8
CLWR	Clearwire Corp	26.6
CLF	Cleveland Cliffs Ord Shs	26
MDR	McDermott International Inc	25.7
STP	Suntech Power Holdings Co Ltd	25.1
FMX	Fomento Economico Mexicano	25

**** Below is the remainder of the list ****

		% Price Change
Symbol	Company Name	Last Month
BUCY	Bucyrus International Inc	24.9
ITRI	Itron Inc	24.8
ADM	Archer-Daniels-Midland Co	24.4
OMTR	Omniture Inc	24.2
JOYG	Joy Global Inc	24.2
DECK	Deckers Outdoor Corp	24.1
VMI	Valmont Industries Inc	24.1
JEC	Jacobs Engineering Group Inc	24.1
CNH	CNH Global NV	23.1
MON	Monsanto Co	23.1
AGU	AGRIUM INC	22.9
IVZ	Invesco Ord Shs	22.7
X	United States Steel Corp	22.7
SID	Sid Nacional ADR Repstg One	22.6
GME	GameStop Ord Shs Class A	22.5
FCL	Foundation Coal Holdings Inc	22.3
CPRT	Copart Inc	22.3
FWLT	Foster Wheeler Ord Shs	22.3
ACI	Arch Coal Ord Shs	22.1
DO	Diamond Offshore Drilling Inc	22
POT	POTASH CORPORATION OF SASKATCHEWAN	22
MTW	Manitowoc Co Inc	21.9
SPWR	SunPower Corp	21.8
TNH	Terra Nitrogen Co LP	21.7
FDG	FORDING INC	21.7
LULU	lululemon athletica inc	21.3
IFN	India Fund ETF	21
OSIP	OSI Pharmaceutical Ord Shs	20.9
CSE	CapitalSource Inc	20.5
ATW	Atwood Oceanics Inc	20.2
CY	Cypress Semiconductor Corp	20.2
MEE	Massey Energy Co	19.3
GRP	Grant Prideco Inc	19.2
EDU	New Oriental Education & Technology	19
BYI	Bally Technologies Inc	18.8
CYH	Community Health Systems Inc	18.7
GEF	Greif Class A Ord Shs	18.4
ITC	ITC Holdings Corp	18
ILMN	Illumina Inc	18
TRB	Tribune Ord Shs	18
OZM	Och Ziff Capital Management Group	18
CBI	Chicago Bridge & Iron Co NV	17.9
DHI	D.R. Horton Inc	17.8
JNPR	Juniper Networks Inc	17.7
JOE	St. Joe Co	17.6
OI	Owens Illinois Ord Shs	17.6
CTSH	Corp	17.6
PZE	Petrobras Energia ADR	17.5
PCAR	Paccar Inc	17.4
R	Ryder System Inc	17.3
PTV	Pactiv Corp	17.3
MA	MasterCard Inc	17.3
CMG	Chipotle Mexican Grill Ord Shs	17.1
COV	Covidien Ltd	17.1
PRGO	Perrigo Co	17
WDC	Western Digital Corp	17
FRE	Freddie Mac Ord Shs	17
LKQX	LKQ Corp	16.9
CBD	Companhia Brasileira de Distribuicao	16.9
RMD	Resmed Ord Shs	16.8
LII	Lennox International Ord Shs	16.5
SON	Sonoco Products Co	16.4
CMI	Cummins Inc	16.4
NVDA	NVIDIA Corp	16.4
HANS	Hansen Natural Corp	16.3
SII	Smith International Inc	16.3
CHU	China Unicom Depository Receipt	16.2
STLD	Steel Dynamics Inc	16.1
NAVZ	Navistar International Ord Shs	16
RDY	Dr Reddy Labs Depository Receipt	15.7
SD	SandRidge Energy Ord Shs	15.7
CRM	salesforce.com inc	15.6
INFY	Infosys Technologies Ltd	15.5
APC	Anadarko Petroleum Ord Shs	15.3
CHRW	CH Robinson Worldwide Inc	15.2
GPS	Gap Inc	15.2
BKC	Burger King Holdings Ord Shs	15.1
KWK	Quicksilver Resources Inc	15
CE	Celanese Series Ord Shs Ser A	14.9
FNM	Fannie Mae Ord Shs	14.9
BTU	Peabody Energy Ord Shs	14.8
FMCN	Focus Media Holding Ltd	14.7
ISRG	Intuitive Surgical Inc	14.7
DE	Deere & Co	14.7
MCHP	Microchip Technology Inc	14.6
MBT	Mobile Telesystems ADR Rep 5	14.6
DCI	Donaldson Company, Inc	14.4
HTV	Hearst-Argyle Television, Inc	14.2
SEIC	SEI Investments Co	14.1
AZO	AutoZone Inc	14.1
AG	AGCO Corp	14
OXPS	optionsXpress Holdings Inc	13.9
OSG	Overseas Shipholding Group Inc	13.9
WDR	Waddell & Reed Financial, Inc	13.9
ES	Energy Solutions Inc	13.8
BID	Sothebys	13.8
SWN	Southwestern Energy Co	13.8
MICC	Millicom International Cellular	13.8
WIT	Wipro Ltd	13.8
UTR	Unitrin Inc	13.7
ARG	Airgas Inc	13.7
VMW	VMware Inc	13.7
JBHT	JB Hunt Transport Services Inc	13.5
RCL	Royal Caribbean Cruises Ltd	13.5
NUE	Nucor Corp	13.5
OGZPY	Gazprom Rep 4 Ord Shs ADR	13.5
SKS	Saks Inc	13.4
SAN	Banco Santander Depository	13.4
BLK	Blackrock Inc	13.4
CVI	CVR Energy Inc	13.2
WJAFF	WestJet Airlines Ord Shs	13.2
PX	Praxair Inc	13.2
ROH	Rohm and Haas Co	13
ETN	Eaton Corp	13
AAPL	Apple Inc	13
SCS	Steelcase Inc	12.9
APH	Amphenol Corp	12.9
ITG	Investment Technology Group	12.8
KB	Kookmin Bank	12.7
NPD	China Nepstar Chain Drugstore	12.6
ECL	Ecolab Inc	12.6
SPLS	Staples Inc	12.6
BMC	BMC Software Inc	12.5
SOHU	Sohu.com Inc	12.4
COG	Cabot Oil & Gas Corp	12.4
AAP	Advance Auto Parts Inc	12.4
RJF	Raymond James Financial Inc	12.4
BX	Blackstone Group LP	12.4
PBR	Petrobras	12.3
CBG	CB Richard Ellis Group Inc	12.2
SNP	China Petroleum and Chemical (Sinopec)	12.2
TSRA	Tessera Technologies	12.1
CVA	Covanta Holding Corp	12.1
BCR	C.R. Bard Inc	12.1
CBE	Cooper Industries Ltd	12.1
AMZN	Amazon.com Inc	12.1
HP	Helmerich & Payne Inc	12
BG	Bunge Ord Shs	12
MUR	Murphy Oil Corp	12

Bookkeeping: Weekly Changes to Fund Positions Week 20

Week 20 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: 13.5% (vs 24.2% last week)
54 long bias: 79.2% (vs 56.5% last week)
5 short bias: 7.3% (vs 19.3% last week)

59 positions (vs 59 last week)
Additions: Atwood Oceanics (ATW), Blackrock (BLK)
Removals: Tesoro (TSO), Best Buy (BBY)

Top 10 positions = 26.8% of fund (vs 30.9% last week)
40 of the 59 positions are at least 1% of the fund's overall holdings (68.0%)

Major changes and weekly thoughts
I entered the weak relatively bearish with nearly a quarter of funds in cash and nearly 20% in the Ultrashort positions. Technically the markets looked pretty bad, having broken down below their 200 day moving averages, and potentially heading to test new lows. Monday the market fell quite hard, but in the face of more bad news Tue, Wed, and Thur - the market refused to slip further. The one number I have been watching (really for the past few months) is S&P 500 level = 1440. While we did test if briefly mid week, the market held that level all week. With the inability to breakdown further, along with the good earnings news out of Research in Motion (RIMM) I had a hunch we'd get a rally Friday [Santa Claus Rally?] and it worked out pretty well. However, we are now at the top end of our technical resistance (1485-1490) on the S&P 500.

In a general sense I slowly went from a high Ultrashort exposure (for the fund) at nearly 20% to less than half that as the week wore on, and moved that to long exposure, along with about half the cash. Unfortunately, we are already at technical resistance on the indexes, as we trade in a very tight range overall, where we go right from support to resistance every time we move 3% up or down.

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. Monday, I closed refiner Tesoro (TSO) after an upgrade from Citigroup; this closed out a losing trade which was based on the price of crude falling (along with a buyout offer from Tracinda). While crude fell, it did not help the refiners rise - and the buyout offer fell through. At this time the only refiner I am keeping is Frontier Oil (FTO).
2. I closed Best Buy (BBY) ahead of earnings - the earnings turned out quite good, and after a sell off Tuesday, the stock rebounded later in the week and ended up a bit higher than I sold it. While I still like the stock and the company, retail is not an area I want to be overweight and this was also more of a trade than a typical type of stock I hold in the fund.
3. Foreign markets took quite a hit last week post Fed, and through Monday so I did some buying - especially in India, and with my 1 Russian stock Mechel (MTL) which had pulled back after solid earnings, and Brazilian homebuilder Gafisa (GFA). I had mentioned in a post just a week earlier that India had really outperformed v China and I felt the names were getting rich, but these are very volatile names and when they pull back, they pull back hard, so I was able to re-up with a new layer into my positions.
   
4. National Oilwell Varco (NOV) made what looks to be a good acquisition with Grant Prideco (GRP), so with the stock off sharply I increased my position. In general when stocks make acquisitions their stocks sit in a narrow range until the transaction is complete, so it wuld not surprise me to see National Oilwell Varco not make a serious move anytime soon, but the valuation is very good and this is the type of stock that will make a move later in 2008 once the transaction is finalized.
5. I restarted a position in one of the 3 deep sea oil drillers I am focused on (and a previous fund holding), Atwood Oceanics (ATW) - in retrospect I wish I had started with a larger stake as the stock took off later in the week.
6. Wednesday, despite a gosh awful chart, I added to my position in Hong Kong cement and infrastructure name KHD Humbolt Wedag (KHD). This is more of a "value" pick, but unfortunately, without price momentum, value stocks can remain "under valued" for a long time.
7. After reporting decent results Wednesday night, LDK Solar (LDK) began a sharp descent, so I added Thursday and Friday. I had a very small position ahead of earnings (smallest position in the fund), and started averaging down Thursday with hopes of getting a price of $46-$47, which was achieved amazingly late Thursday and into Friday. This took LDK Solar from the fund's smallest position to it's largest overnight - at under 5% of the fund. If we continue to degrade down to $40, I will push the position up to 6% or so.
8. Early Friday, as I got bullish on the prospects of a Santa Claus rally, I restarted a new position in financial asset manager Blackrock (BLK) (again a former fund holding), and added to a potpourri of names ranging from Mastercard (MA), iShares Malaysia (EWM), consulting play FTI Consulting (FCN), infrastructure stock Chicago Bridge & Iron (CBI), and coal stock Peabody Energy (BTU).

The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.