Bookkeeping: Weekly Changes to Fund Positions Week 40

Week 40 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: 18.1% (vs 3.3% last week)
54 long bias: 60.2% (vs 77.7% last week)
8 short bias: 21.7% (vs 19.0% last week)

62 positions (vs 66 last week)
Additions: N/A
Removals: Kinross Gold (KGC), Silver Wheaton (SLW), India Fund (IFN), Huron Consulting (HURN)

Top 10 positions = 30.0% of fund (vs 31.3% last week)
41 of the 62 positions are at least 1% of the fund's overall holdings (66%)

Major changes and weekly thoughts
We went through another week where most bad economic news was shrugged off and stock prices continue to hold their own. As always, news does not matter until it matters - the "gas tax" on the entire US economy is being sneered at, as is all the bad news on Main Street - much of it hidden behind faulty government numbers which paint a far rosier picture. As for the "gas tax" (the inflation that hits all pocketbooks across the US as energy prices inflate), anyone with any vision can see it is going to hit profits but until a bunch of companies admit to it, the minions on Wall Street will continue to ignore it and sweet talk the future. The warning after the bell Friday by Fedex (FDX) is just a harbinger of things to come. While the "credit crisis" has been swept under the floor as "it can't get worse than it was" and "no matter what the Federal Reserve will create billions out of thin air to make sure things don't get too bad" the after effects of such a safety net are now being seen. No free lunch. And in the sound and fury of the credit crisis everyone is ignoring the recession - oh I'm sorry "a few bumps in the road on the way to 2nd half recovery". At some point the market will recognize this, and the hit to profits as oil is literally the grease that skids commerce in the 21st century - but until it is plain in people's faces and they cannot ignore it anymore (as they have so far), I guess stocks can continue to levitate on the fairy tale of 2nd half rebound.

For the fund I spent the early part of the week closing out some outlier positions to clean up the portfolio and begin to make it more concentrated; along with selling off parts of some huge winners we've had which have enjoyed multi-week runs. I do expect to be hit with a commodity related sell off at some point... the drumbeat will be "at some point high commodities will be a drag on global growth" and therefore "demand for said commodities will drop" and thus the stocks will sell off. I expect to hear a lot of that as we go into 2nd half 2008 as Western Europe joins the US in protracted slowdown and Japan... well Japan has been in slowdown for 2 decades. At that time many of our holdings will sell off... and people will turn to stocks that... rely on the US consumer "early cycle" which for reasons mentioned in the first paragraph will be a complete disaster. Sorry, there are just not many shelters in the storm in a high inflation, slow growth scenario - and banks, retailers, and restaurants sure are not it.

In a nutshell I am back in a more neutral/defensive stance - I do not know when reality will hit this market, but as we saw in January - when it does it can turn ugly very fast. Corporate profit estimates for 2008 are far far far too high. As they drop, stock prices should drop with them. But $1.3 Trillion of liquidity has now been "created" (no inflation created of course) to help prop up the markets, so it's a war between reality and liquidity. Further, in my view, complacency seems to have set into this market, with the undying believe in the Federal Reserve as the savior... much like September/October 2007. That didn't work out so well.

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 out my 2 precious metals stocks, Kinross Gold (KGC), and Silver Wheaton (SLW) - I'd rather be exposed at this point to commodities that are used less as a hedge against inflation, as opposed to ones who will continue to benefit as inflation continues plus I think the fundamental story is still not appreciated by the Street. So these are a bit of overlap positions with other commodities I already have.
2. Same logic with the India Fund (IFN) which I closed as well - I own 2 Indian banks which essentially trade in almost identical fashion - right now there seems to be very little discerning between individual Indian stocks and the market as a whole - so it's a bit of overlap.
3. Tuesday, I had a wonderful trading gain in Brazilian homebuilder Gafisa (GFA) last week, and to top it off I was able to buy back my position (much of it sold in $49.60s) near $42 within days of my sale. While I see downside to $38 (or worse if the market crumbles) I was able to lock in a nice jumble of profits in the last week, in a name I really like, and then reacquire my stake at lower cost basis.
4. After Alpha Natural Resources (ANR) reported an outstanding quarter Monday, the whole sector jumped and Tuesday, I cut out much of my "trading" positions I was adding last Thursday, booking 15-20%+ type of gains for a 3 day hold. While this group needs a pullback, it is one of my favorites going forward - so I'll continue to trade around a core position.
5. I added to some fertilizer Tuesday (which I cut later in the week) - this group has been providing a lot of headaches the last week and a half - looking ready to jump technically speaking, but then falling back. So I keep buying a bit, then selling a bit, then buying a bit, and selling a bit as the charts are indecisive. For now I plan to hold off until I see a more solid move - so I will give back some gain but we need to see a pattern emerge. While I expect another huge move later in 2008, I could see this group fall back in the near term - it needs to build a solid base for that next run.
6. I cut solar exposure as well Tuesday, the Chinese solars all report in May so this group will be extremely volatile in the weeks to come. Unfortunately solar investors seem to group all these stocks together, so when 1 reports a good number, the whole sector pops - and when 1 reports a bad number, the whole sector gets sold off. Until we reach the point where winners and losers are sorted out in the sector - I expect the group to continue to trade in this herky jerky fashion.
7. I closed Huron Consulting (HURN) as this company yet again cut guidance (which it seems to do every 5th week - and cut its peer FTI Consulting (FCN) which later in the week reported yet another strong number but after a quick spike sold off
8. Tuesday was busy! I cut back Cummins Engine (CMI) after a heck of a run for a normally staid name.
9. Wednesday, I cut most of what remained of 3 smaller positions after 35-40% runs in 5 weeks... Baidu.com (BIDU), Mercadolibre (MELI), Ctrip.com (CTRP) - while I respect they can continue to go up, I'll let someone else take the risk - and look to buy back at lower prices.
10. Thursday, I cut a few names which I had yet to ring the register on, Mechel (MTL), National Oilwell Varco (NOV), and Cleveland Cliffs (CLF) - all are commodity related and again I am getting antsy that we have not had a serious sell off in this space for nearly 2 months. We are overdue.

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