Monday, March 10, 2008

Bookkeeping: Weekly Changes to Fund Positions Week 31

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Week 31 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: XX.X% (vs 19.3% last week)
54 long bias: XX.X% (vs 68.3% last week)
6 short bias: XX.X% (vs 12.4% last week)

60 positions (vs 57 last week)
Additions: Homex (HXM), CVRD (RIO), Cleveland Cliffs (CLF)
Removals: N/A

Top 10 positions = XX.X% of fund (vs 33.7% last week)
XX of the 60 positions are at least 1% of the fund's overall holdings (63.1%)

Major changes and weekly thoughts
Please note I was not able to update my statistics this weekend so I don't have the normal data I usually post each week, since I am writing this after a host of new transactions Monday.

Since I am late and I don't have the data this week, I will keep this short. We've been waiting for a break, one way or the other out of this range we've had for 6 weeks. The longer the range the more powerful the move... it was only the direction that was in question but the macro situation in the economy would of pointed down. Ambac (ABK) bailout rumors could only keep this market staying up for so long... At this point we are testing January 2008 lows of S&P 500 1270 which is an area I've been pointing to as a retest area since we bounced off it 6 weeks ago. This is yet another inflection point as I like to call them - meaning, what we do here is mission critical. If we bounce successfully off this level that would be bullish, at least in the near term. But if we either (a) bounce off this level but come back to revisit it later that would be a "triple bottom" which almost never hold or (b) break right through that level, then things get very dicey. Speaking of the triple bottom this is what happened in early January - a double bottom was tested for a 3rd time, and was broken. You know what happened the next few weeks. But that is getting ahead of ourselves - we are not at that stage yet, right now we are simply on the first retest of an old low.




Once again, the flip from greed to fear in this market is astounding as in 2 weeks we've lost 100 S&P 500 points, or 7.2%. I truly believe the advent of the "computer age" with hedge fund computers doing 70% of daily trading causes things to move so much more quickly then they used to, during periods of extreme action. I also expect to hear about "forced redemptions" as (another batch of) hedge funds begin to go out of business, and selling their inventory at any price - this appears to be happening in the bond market - and we saw this sort of action in August 2007 when certain stocks imploded with vicious action.

If we do break this S&P 1270 level, where do we go next? We discussed this a month or two back but let's revisit
  1. S&P 1225, or another 3.5% down (from Monday's close) which would take us back to Summer 2006 levels
  2. S&P 1170, or another 7.9% down which would take us back to Fall 2005 levels
  3. S&P 1140, or another 10.3% down which would take us back to Spring 2005 levels
Sound outlandish? What if I told you 3 months ago the markets would be down 20% from October 2007 levels? To me, this era is far worse than the tech bubble because while the S&P suffered at that time, the real carnage was in 1 sector of the market. Now, we do have true carnage in 1 sector as well (financials), but they are essentially the grease of the US economy. Then throw on top of that the first consumer led recession since the early 80s. Then throw on top of that inflation. Then throw on top of that a Fed who cares less about inflation. And it is just ugly from a macro view. I think the US suffers for quite a while although I expect Quarter 3 GDP to bring Kool Aid back to the market as those rebate checks get spent. The big wild card is what / when (not if) the ultimate government bailouts begin. I have to tell you the action in Fannie Mae (FNM) is simply amazing.... when pseudo government agencies are sold off like this, it truly creates fear.

For the fund, I've tried to keep as neutral of exposure as I can, considering I am a long biased fund. My game plan for now is as follows... assume there will be some bounce at the S&P 500 1270 level, and expand long exposure as we sell off. I plan to scale in, and hope to see some real weakness in my favorite names - the "generals" [Waiting for the Leaders to Fall Before I Buy in Any Scale]. Again this will hurt short term performance but it's been par for the course the past 6 months - take some hits during the teeth of the downturn as my top positions fall 8-10% a day sometimes, and then ride them up for even greater gains as panic subsides in the market. If I am wrong and 1270 does not hold, then buy back short exposure to help offset the next leg down. Again, we approach an important inflection point - one of many over the past 3 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. Well, there is no other place to start than the saga that was Thornburg Mortgage (TMA) this week - it was a disaster and lost 90% this week. This was a 2% fund position that quickly disintegrated to 0.3%. Odds are better than average that the company could go bankrupt which is an amazing statement for a company which posted a profit last quarter. The herd killed this one, and the vultures are picking at the carcass.
  2. Tuesday, I cut some of my commodity exposure both through crops and gold. While I think both areas are long term bull markets, the short term runs in these names has been a bit ridiculous and unsustainable so I locked in some profits by layering "out".
  3. I cut back exposure in financial firm Blackrock (BLK) - simply the best house in the worst ghetto in the scariest city in the world - US financials.
  4. After the market breached support Tuesday but was brought back to life YET AGAIN by the Ambak bailout rumor, I cut my DR Horton (DHI) position substantially, as the market looked poised for a fall, no matter how much CNBC tried to prop it up.
  5. Thursday, Mercadolibre (MELI) had some great earnings and was up 9%. In this market, that's a gift so I sold half my position, anticipating a pullback.
  6. Friday, after some serious selling over the past 2 sessions, I began picking among the rubble, finding some "sales" in Indian banks, Massey Energy (MEE), Chinese travel, and Illumina (ILMN)
  7. I restarted a position in Mexican homebuilder Homex (HMX) - the company had great earnings, the stock punched upwards - in a bull market you buy that action. In this market, you just tap your foot and wait for the selloff - buy and hold simply dies in this market.
  8. I bought another a layer of coal, but stated this would not be the ultimate bottom - simply adding layers on each drop. So here was a layer...
  9. I started 2 positions in miners late Friday - a sizeable position in CVRD (RIO), and a starter stake in Cleveland Cliffs (CLF) - hoping for some more weakness to add to these positions.
This week I did a lot of allocation switches among the Ultrashorts, not mentioned above.

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