Saturday, February 16, 2008

Bookkeeping: Weekly Changes to Fund Positions Week 28

Week 28 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: 20.7% (vs 7.5% last week)
53 long bias: 62.4% (vs 72.6% last week)
6 short bias: 16.9% (vs 19.9% last week)

59 positions (vs 58 last week)
Additions: Shering-Plough (SGP), Arch Coal (ACI)
Removals: Smith International (SII)

Top 10 positions = 32.1% of fund (vs 39.9% last week)
31 of the 59 positions are at least 1% of the fund's overall holdings (52.5%)

Major changes and weekly thoughts
The market made a decent bounce early in the week on hopes for retail sales bounce (if you believe gasoline sales will save the consumer), and a Buffet bailout of bond insurers (if you believe handing the world's best investors a nearly risk free stream of cash will save the market). Reality hit Thursday when Paulnanke testified on Congress - strangely they said nothing new (to me at least) but the market was I suppose waiting to hear the normal Kool Aid of "we see no weakness in the economy and inflation is benign". When it did not get what it wanted it whined and whimpered like the 3 year old toddler it is.

We're seeing some very bad things in the bond market - which per usual the equity market will ignore until it's too big to ignore. Remember, it does not matter until it does. Hopes for bond insurer bailout trumps everything for the bulls now. But it is starting to feel eerily reminiscent of July 07 when the bond market was degrading badly and the equity market went on about it's business going to new highs in happy go lucky manor.
Some wealthy investors got a jolt this week as Goldman Sachs informed them that they would be unable to withdraw their money from an investment considered “safe as cash.” These investments are so-called “ auction rate securities ,” credit instruments now caught in the latest liquidity squeeze. Banks and brokerage houses have sold these instruments to investors, claiming them to be safe. The fact is, they are long-term securities on which the banks hold weekly or monthly auctions to set prices and interest rates. This week's auction was a failure of major proportions.
Citigroup suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to yank more than 30% of the fund's roughly $500 million in assets. To stabilize the fund, which had an 11% loss last year, Citigroup last month injected $100 million. The fund's longtime manager, John Pickett, has left, following a bitter dispute with Citigroup executives and complaints from investors that he put too much money into a single investment that went bad.

Other than those minor issues it is peachy out there, and remember to drink your Kool Aid: none of this matters because it just means more Fed cuts and as we all know (all together now) Fed cuts fix everything.

Technically, as we look at the S&P 500 we are in a narrowing range - it appears S&P 1320 on the bottom, and S&P 1370 on the top side. This is about a 4% range which we are ping ponging back and forth between, and really going nowhere fast. Until a clear trend is established, one way or the other, I remain in high cash and defensive posture.

Right now, nothing is holding a trend for more than a few days other than some commodities and agriculture. So riding a trend is very difficult and it's just a big slog to make money in this environment. If things go to form, commodities and agriculture will take the biggest hit sometime in the next few weeks because nothing works for a long time in this market. And so we'll keep going until (??). For the fund, most of what I am doing is changing allocations among cash and adjusting the short positions up and down. So it's not really stock picking, more allocation adjustments - although I am trying to branch out into areas that should zig when the rest of my type of holdings zag; I've picked up a few financials names of late and a drug company. But the best ideas are still the best ideas - and one day when the market stabilizes I believe they will be rewarded more than this +12%, -8%, +18%, -22%, +11%, -7% environment we are in, which only rewards daytraders. I look forward to that day, because it is a lot of work just to keep above the surface in this current situation. For now I simply am selling them when they make runs, reducing exposure, and trying to buy them back lower - even the best groups. Reflecting this, I have far and away the lowest amount of positions at 1% or greater allocation in fund - usually I hold 70-80% of positions with that stake; now it's close to 50%. And as always we have to risk with short exposure the threat of government intervention in our world renowned "free market capitalist" system.

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 reduced exposure to 2 favorite names, McDermott (MDR) and Suntech Power (STP) - Suntech Power reports this upcoming week and everything I model for the name shows a quite large beat of estimates. But the chart is showing a lot of weakness. So we'll see this week, if fundamentals trump chart. My one fear in this group now is some cautionary tales about early 2008 due to the Chinese storms, which short sighted investors would stomp out in droves upon hearing this "surprise". I still really like both names for the long run and expect to have large exposure later in the year.
  2. After the 2 Indian banks I follow lost nearly 1/3rd of their value in the past month, I began rebuilding these positions (slowly), by moving ICICI Bank (IBN) and HDFC Bank (HDB) from 0.1% type of stakes to 0.6% positions. I am not in a rush to get into emerging markets at this time.
  3. Every day of weakness this week I added 100 share lots to my crop exposure through Powershares DB Agriculture Fund (DBA), Tuesday morning on day 2 of the 3 day "Buffet/great retail sales!" rally I sold down 9 positions across most sectors, to lock in profits.
  4. I don't update all my Ultrashort trades because there are a lot of small adjustments, $3K here, $4K there, but I do talk about the larger changes. After an oversold rally from last Friday in which I noted Technology looked like death, and was due for even a limp jump - the names did rebound, and I took the opportunity raise my smallish stake of Ultrashort Technology (REW) back up from 0.7% to 2.3% of fund; I also cut back on (BIDU) ahead of earnings.
  5. Wednesday, I cut my 1% position in Blue Coat Systems (BCSI) to 0.5% ahead of next week's earnings. This name has been beaten down so badly we could see a 20-30% move up on earnings, but not worth the risk in this environment.
  6. I began a new starter position in Schering Plough (SGP), as the name has been beaten up tremendously and probably offers a nice upside move in the next year - it won't be anything exciting but slow and steady over time; and doubles my "healthcare" stock allocation. I'll look to add to this position on a pullback.
  7. Brazilian homebuilder Gafisa (GFA) jumped a ton for 3 days after a Cramer mention; I promptly handed most of my shares to these lemmings and cut my position; I'll await a pullback to rebuild.
  8. I closed oil service name Smith International (SII) - despite oil holding up the oil service stocks have stunk of late. Will revisit the group at a later date.
  9. I reduced 4 of my 6 infrastructure names for similar reasons as Smith International... no one loves these guys anymore despite very good fundamentals and bright future prospects. I don't want to fight the crowd, but will be back in scale at some point in the future.
  10. I added to my starter position started last Friday in mortgage REIT, MFA Mortgage (MFA) after an earnings "miss", which I thought had a very positive tone to it.
  11. Friday, I began a small stake in Arch Coal (ACI) on the Goldman Sachs downgrade of the group. I am hoping for a much stronger pullback to add more.
  12. I let go some of my short exposure Friday (like many shorts did I am sure), especially Ultrashort Financials (SKF) which I cut in half, fearing the Nany state (government intervention) that can happen at any moment to "save Cramerica!" Viva free markets!

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