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: 27.4% (vs 8.5% last week)
56 long bias: 48.5% (vs 84.4% last week)
6 short bias: 24.1% (vs 7.1% last week)
62 positions (vs 64 last week)
Additions: N/A
Removals: KHD Humbolt Wedag (KHD), MFA Mortgage Investments (MFA)
Top 10 positions = 35.8% of fund (vs 36.2% last week)
29 of the 62 positions are at least 1% of the fund's overall holdings (46.8%)
Major changes and weekly thoughts
The markets continue to trade in listless fashion in my opinion, and we remain in no man's land. After a large rebound post Federal Reserve actions, we seem to be heading back to reality. But what we see now is really nothing new from what we've been seeing for months on end so I have nothing really to add at this point. Congress comes back to work Monday so the drumbeat for homeowner bailouts will continue constantly and when it eventually does come to pass (and some form of it will), the market will rocket as losses will have been passed from the capitalist system to the taxpayer's back (I mean at the debt levels we are at, whats another few hundred billion). And so we'll cheer as investors. That, sadly, is pretty much the roadmap to "victory" for investors at this point. Rob one of your pockets to pay the other.
As I've been stating constantly this week, due to the huge imbalances on both sides of the ledger (downside risk due to "economic reality" combined with "credit contagion" versus upside risk due to "multiple interventions of various types") there is no clear path. Both longs and shorts have risk, longs from natural course being allowed to play out, and shorts from unnatural meddling from outside the system. More important than fundamentals, or risk assessment or any form of analysis - is the simple question of "is the government bigger than the system". Sadly, this is what our markets have devolved to. I don't have any answer so I continue to play conservative and watch sadly as it all plays out. Remember, every form of government intervention into the system i.e. reducing balances on mortgages - raises 20 new unintended consequences... i.e. if we reduce balances now and tell homeowners, don't worry about that $300K you own, it's now down to $200K - what do we say in a year if home prices continue to fall? Another round of principal cuts? And whom exactly qualifies? And how do we ever speak with a straight face to any other country about their need to "let market forces work"? So many thorny issues but I guess a central command economy brings those questions we need to now find answers to. I expect to see continued raging battle between market economic forces (deflation of capital/credit system) vs government interventions being a theme for a long time. We'll see how the market accepts the new round of financial writeoffs relatively soon. Remember, the one thread holding this all together is the belief in powers of the Federal Reserve. If that belief system is shaken, we have a lot to fear. As readers, just keep in mind, you are living through times that are simply historic and the pros/cons of the actions taken by the powers that be will be analyzed and debated for many years to come. We are in a new era. [Mar 22: A Historic 9 Days for the Federal Reserve]
I continue to focus outside the US, and on companies with customers who actually have bright prospects instead of relying on government interventions. Most weeks it works; some weeks (such as last week) when government intervention is cheered and the Kool Aid of a booming consumer coming back in "6 months" it does not. I continue to believe it will work more weeks than not, but I also believe at some point the sheer avalanche of government interference plus liquidity thrown into the market will push every asset up, at the cost of inflation to the man on the Street. But as cold hearted capitalist (who happen to live on Main Street) we have to simply wait for that moment and rejoice in our investor brain while being dismayed with our regular Joe brain. Sadly, most of the regular Joes do not participate in the market except for their $3600 balance in their 401k, so they will only feel the negative effects. But this is the system, so we play by it.
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:
- Monday, as the S&P made a valiant move upwards towards the 50 day moving average, I took a slew of sales in 12 names, assuming this move would fail - while beginning to slow build up my short exposure which entered the week at only 7%. I will continue this strategy over and over (and over). Just like in a bull market, I'd be buying dips into the 50 day moving average, in a bear market I am doing the exact opposite and I will be selling moves up. One day it will be wrong to do so, and I'll miss some gains and have to reverse course. Just like in January 2008 it was wrong to buy the dip as we turned from a bull market, officially to a broken bear. [Jan 16: S&P 500 in Worst Condition in Half Decade]. When those "turns" happen, we'll trail the market for this short period, but they happen very rarely - and the most dangerous thing to investors is to listen to these serial "bottom callers". They've now been wrong for nearly half a year, since the early October highs. By the time they are correct, most of your capital will be wiped out. Remember, almost every pundit you hear has a vested interest in keeping you in the market and buying stuff - Wall Street is a game of selling junk and gathering assets - so of course "hope" is the main thing sold. This is why the market can be so confusing to anyone who doesn't know what is happening behind the scenes. It's basically a used car lot full of people with shiny MBAs and fancy titles. One day this "bottom is in call" will be correct and they'll come on TV or on their websites and say "I TOLD YOU SO!". Continue to smirk and move on.
- I exited KHD Humbolt Wedag (KHD) on its 13% pop. I continue to like this Hong Kong based infrastructure company but want the market to recognize some value in this name, instead of trashing it constantly. With my purchases of some smaller Asian market ETFs and natural gas stocks last week, I am starting to get a larger portfolio than intended in terms of # of names, so I used this week to begin culling some of the smaller stakes. This was one.
- Tuesday, since I was confused about the near term prospects of the market, I sold off some of my commodity exposure and began a move to high cash position. The charts for gold, silver, crops, and the like - while rebounding this week - looked prone to more profit taking and with yet another variable we have no control over (hedge funds forced to liquidate by antsy banks) the risk factor continues to be as high as I can ever remember it (in both directions). Until fundamentals matter again, it is just hard for an investor such as myself to make any sense of this type of market where bipolar changes of 180 degrees happen nearly daily.
- Wednesday, I took Goldman Sachs upgrade of the coal names as an opportunity to lighten my exposure. Again, I still like the fundamentals, and long term - but this is risk aversion - and a market where fundamentals mean little. Many of the coal stocks broke back below their 50 day moving average and spent most of the week trending back up towards it, but still sit below. I'd like to see them move above and stay there before expanding my exposure.
- I continued to add short exposure Wednesday as we seemed to have once again began a failure of breaking through the 50 day moving average on the S&P 500, and created the 8th lower high since October 2007 - I added as the week progressed across all 6 names.
- I closed MFA Mortgage Investments (MFA) - the stock has rebounded (some) from a very rough patch but with the prospects for more credit market dislocations I don't want to take the risk. I bought this name so I could get exposure to the "homebuilding/mortgage" rebound fluff without direct exposure to the homebuilders themselves, but frankly it appears safer to buy homebuilders than any 2nd degree or 3rd degree related stocks. By 2 forays have been disasters.
- Thursday, I added to one of my "placeholder" positions (position so small, I am simply keeping them in the fund waiting for a catalyst) in Huron Consulting (HURN). The stock fell 30% on an earnings warning, so I took the opportunity to materially increase my exposure at what is hopefully a low price. While the bottom might or not might be in, I'd rather own it at $40 than $60.
- I cut heavily into both of my solar names into the 3 day rally this week - Trina Solar (TSL) and LDK Solar (LDK). These stocks are explosive when they do move, but for many months they have been moribund. Despite difficult fundamentals, in my opinion, I expect the speculators to ignore any fundamental issues dealing with the tight polysilicon market and run these stocks up in a massive way at some point in the next 3-6 months. Just a question of when and from what price point they start. I'll be looking to add back to these 2 positions on a pullback, along with expanding to another name or two to rebuild my "solar basket" on a material pullback in the space.
- Friday, I cut back my crop ETF - Powershares DB Agriculture Fund (DBA) - I will sound like a broken clock but risk of hedge fund locusts simply overwhelms return potential at this time. I used to use this ETF as an alternative to cash but at this point until the coast is clear in terms of hedge fund behavior I'll stick to real cash. We have a crop report coming Monday which people will obsess over but frankly all it takes is some bad weather and these crop prices will ramp again - no crop report or allocation study is going to tell us where things will be in 2 months, 4 months, or 6 months but knee jerk reactions are the way of the Street so I'll step aside from now and look to return in the future.
- I did sell down my Foster Wheeler (FWLT) exposure throughout the week as the stock rebounded smartly from its ridiculous fall to mid $40s last week, to near $60. In this market I am going to take those quick gains and head to the exit. I'll look to add at lower prices.
