Bookkeeping: 'Rising Tide' Performance Week 39

Week 39 performance of the mutual fund

Comments: We closed "our" 3rd quarter with yet another week of hear no evil, see no evil. Any good news was great, and anything bad was "not as bad as expected"; hence by transitive theory - also great. Summary: Everything is great. Or will be in 6 months. I've been stating for a long while that the massive systematic inflation (increasing our money supply of late at a rate of 20%) will cause every finite asset to increase over and above it's true value (including stock certificates), and I believe that factor... along with the large cap, multinational strength (who don't need Americans) can keep this market elevated to a large degree. Offsetting that is the weakness in any company facing the US economy without foreign exposure but in "early cycle" moments like we are now, those are in fact the best performing stocks as the market is "forward looking" and can clearly see the great recovery of September 2008 - so the whole market celebrates at those times. Personally what I envision is a long sideways period with a wide range of maybe 20-30% up or down... but no real progress. Hope and inflated asset values (Fed will be printing hard core well into 2009 in my opinion) will keep us up, and the real economy will keep dragging us down. So a few more years of sideways - I mean what's a few more years between friends when we've already lost the first 8 years of this decade? [March 28 WSJ - Stocks Tarnished by Lost Decade] And they said we'd never turn into Japan (who has been in a rut for 2 decades).... well one decade down, 1 to go and we'll catch up!

Since we are not going to change focus 180 degrees for a 5-8 day "early cycle" party, while we called this sector rotation last week, we simply cut back on long positions (which would be sold off during "early cycle, strong dollar" party time), and bought a few names that would participate in said party. If this party lasts as long as the previous ones, we should be nearing midnight... as with the "bottom is in financials" party... of which the time/date was incorrectly posted by CNBC at least 7 times the past 8 months... the "early cycle" party has now been postponed at least 4 times... so now we are in the 5th time... I am sure the 6th time should arrive about a week before the NEXT Fed meeting when Uncle Ben will fight inflation by holding rates steady and furrowing his brow. This will cause inflation to crumble in the States. And the dollar to rocket. He might also write 2 sentences about inflation in his statement. That would cause inflation to leave Earth and move to Mars.

It is still earnings season which is hard to remember, in all the fuss about the "inflation fighting" mid week, but we've continued to (knock on wood) by and large avoid any earnings blowups (hard to do with 50-55 longs) - we did have an incident with Chicago Bridge & Iron (CBI) but she was promptly shown the door after costing us $4K mid week. We actually had some huge % winners this week but most of those names were very small holdings, mostly in China so the overall fund did not advance much off these winners. We did catch a nice trade in Gafisa (GFA), but for the most part we were expecting this sort of "rotation" week as Uncle Ben "fought inflation" by cutting rates 25 basis points and signaled his utmost concern for inflation by typing 7 words about it. This was enough to set off the bevy of NYC traders into "strong dollar is here, Fed is gonna kill inflation now" mood. As always, it's silly but we must wait patiently for our stocks to get trashed those weeks, until sense comes back to the market and the same winners continue forward to be future winners. We did get some nice rotation into tech this week as well, which has been a huge laggard this year but aside from 4-5 names I cannot find any true secular growth stories in that sector - it has become a very cyclical business living off its old glory days. But that doesn't matter on weeks like this one. Our commodity based stocks took a hit, and 7 of the 8 Ultrashorts we carry took hits (especially the ones betting against "early cycle")... we did get some rally on Friday in the coal names but this was just not a week that benefited our type of holdings by and large, as our financials/homebuilders/tech stocks don't offset the rest...

So from here where do we go? We've had the "strong dollar" rally take place - retailers have ramped huge on the riches coming to them from rebate checks, etc etc. Restaurants are flying... I guess people think that's where the rebate checks go next... homebuilder booming... I mean that's where the rebate check goes next (do you notice how every group is really needing that same $600 check?) I think most of this is already priced in and I expect sooner rather than later (by middle of the month, no later) a reversion back to "weak dollar" plays - I mean just today the Fed signaled its "inflation fighting" by agreeing to send out billions more US Pesos in exchange for bonds loaded with auto loans, credit card debt, and student loans. More "strong dollar" ammo. In essence the whole strong dollar theory is: the US Fed is so awesome that it happily threw its middle and lower class under the bus... unlike those stingy Europeans who are still considering HIKING rates [Apr 22: Euro Hits $1.60 as ECB Hints at Rate Hikes].... therefore we will be the FIRST to get back to a "high growth" (read: building homes) economy, while the Europeans struggle with 1-2% growth with less inflation.

Now why would the Europeans consider raising interest rates in their slowing economy? That's not what banks do - they usually LOWER rates in a slowing economy. But you see - these Europeans live in a parallel universe and have a little problem called inflation - luckily our immigration control keeps inflation out of our country; so we don't have the same issue every other country on the globe has. This allows us to cut rates as much as we want. Well that's not completely true - see sometimes inflation sneaks in and our companies complain about how their input costs are rising through the roof... but we have a magic thing called "government reports" and by the time that little bugger meets "the Eraser" (tm) aka government reports.... well inflation just goes away i.e. deported. Anyhow back to the theory.... Since we are SO far ahead of the curve (i.e. our central bankers are soooo smart) and flooded the world with Pesos, it only stands to reason that those laggard Europeans whose economy will slow in the future must now follow our path of easy money. So when they throw their lower and middle class to the wolves with cuts (causing an outflow from their currency), our mighty dollar will rise since our low rates won't seem "so bad" compared to the Euro's rates! Yippee! The race to the bottom (who has the worst currency) will begin anew! Gooooo TEAM USA! It sounds like I am being sarcastic, but folks -- this is truly the reason why people think the US dollar should go up.

Technically the indexes, buoyed by the news of our no/low inflation, full employment economy took stocks up and up... we finally broke out of a long range and crossed over 1400/1405 on the S&P 500. Next resistance is the 200 day moving average up there in the 1430s. But another week of hear no evil, see no evil should get us there... as long as the cult believes that the 2nd half will be a recovery period than we can continue on up... forever. Until evidence comes in to the contrary. But that won't arrive until October 2008 (Q3 earnings). Or January 2009 (Q4 earnings). And by then the herd will have switched to "yeh we were wrong about the 2nd half recovery but now we have the 1st half 2009 recovery"... see, it never really ends. Now if the herd does get their wish about a stronger dollar, than the only oasis in earnings (international sales, and weak dollars) suddenly goes away.... and we're left to rely on (dramatic music here) the American Consumer. Eek! But we can't be worried about that... it's all about the strong (cough) dollar. Keep in mind when CNBC says strong dollar they are simply upgrading the dollar from "near death" to "we removed the breathing tubes". That's strength nowadays. So we'll get back to the circus next week, and see how the market treats its 200 day resistance (about 1435). As I stated above, we could conceivably rally from here to year 2041 on the "2nd half recovery" theme.... I cannot predict when reality will slap the market in the face - even when it does I expect the downfalls to be cushioned by a flood of US peso so falling below January 2008 lows will be tough to do. Keep in mind that Uncle Ben has created US Pesos at a run rate of 20% annualized since Jan 1, 2008 so we'll have 1 new Peso to balance every 5 we used to have by Dec 31, 2008 - that's one way to make sure the market never falls again! not that that causes inflation or anything... just sayin'. [Apr 4: To the Newbie Economists Out there - a Horde of Helicopters has Moved In]

This week both the S&P 500/Russell 1000 gained 1.1% ; Rising Tide Growth Fund lagged with a -0.8% return, so we have up ground both on a relative (vs indexes) and absolute basis. This was another week where hedging positions with shorts & cash hindered more than helped. With that said, I am loving the top holdings in the fund on a 1 year basis. For the next week? They could all be trashed to the tune of 10% for all I know.

Price of Rising Tide Growth: $11.723
Lifetime Performance to date (vs Aug 3, 2007): +17.23%

Comparable S&P 500: 1,413.9 (-3.50%)
Comparable Russell 1000: 771.0 (-3.16%)

Fund return vs S&P 500: +20.73%
Fund return vs Russell 1000: +20.39%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) 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 April 2008.

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