Bookkeeping: 'Rising Tide' Performance Week 46

Week 46 performance of the mutual fund

Comments: Our furry friend to the right, after taking a week off, made a return to the markets this week. Nothing new really surfaced this week in terms of bad news, aside from a few earnings blowups of some smaller companies and about the 97th warning in a row by FedEx (FDX) - of which the first 96 occurances the pundits told you, nevermind that; government reports show no technical recession - buy stocks. "Good" results (aka better than very bad expectations) by Best Buy (BBY) and Goldman Sachs (GS) Tuesday failed to rally their respective sectors (retail/financial) which is always a bad sign - we've seen these groups rally on terrible news in the past (it's not the news, but the reaction to the news that matters) so the fact the sectors acted poorly on the fact of relatively positive reports was a signal that good times were not ahead. The consumer continues to struggle under the "non recession" and "low unemployment" and "low inflation" situation. Strange - you'd think he would be doing wonderful in such conditions. Rebate checks (aka borrowing money from your grandchildren) should be spent out by end of July and then away we go, relying on tapped out consumers to spend again to keep up 70% of the economy. Weather continues to plague the Midwest, and I suppose the only bad thing missing was pestilence. Maybe next week?

Next week we have the Federal Reserve meeting and for the first time since last summer, bulls can't cry, whine, and beg for a rate cut. All the cuts they whined for so that their accounts could go up 1.2% more on news of the event, are now showing their ill effects worldwide. Inflation is hitting every country hard (except the U.S. of course - source: government reports) - and away we go. Thankfully the "2nd half recovery" is 2 weeks away so as long we survive the next 10 sessions the land of unicorns, mermaids, and butterflies dancing on rainbows awaits us. Did I mention buckets of Kool Aid in leprechaun pots? Or will it just be more US dollars printed by Uncle Ben in those pots? Everywhere I look there is new currency being dropped from helicopters - err, fairies.

Anyhow, we stayed conservative in the fund and it served us well this week after leading to some frustrating moments during May. June has been stellar so far, with the markets down around 6% and Rising Tide Growth up a touch. We've been calling for a rotational correction to mimic the past major corrections since last summer and thus far it has almost played out textbook. The 2nd to last stage is when everything goes down but the commodity generals (in this version it appears to be natural gas, coal, and fertilizer), and people grit their teeth and give in and buy those stocks as safe havens when everything else is crumbling around them. ("Look at me, I own Potash! I'm bulletproof!") Then those people are quickly disemboweled - I am speaking from experience. :) (see our chart in January - in 2 horrid weeks we gave back months of outperformance) And that would lead us to the last stage - the generals are shot. ("Potash is the worst stock ever - I hate it!") Again, it does *not* have to play out that way, but when a pattern is set you keep playing it, until it stops working. Either way I don't want to repeat January 2008 if I don't have to, so I'd rather miss another start of a run in these "bullet proof" groups and leave the risk off to someone else. The worst that happens is you give up some gains. Better safe than sorry - we already are smashing the market for the year so no need to take outsized risks. It does appear that it will require the "cookie tossing" type of selloff for people to part with the generals. Which makes sense since they have the best fundamentals.

However don't we see this scenario developing almost identical to the last Federal Reserve meeting? Uncle Ben changed 3 words in his statement which send the dollar rocketing up 0.00005% and CNBC anchors into a tizzy about how inflation is now going to be fought tooth and nail? (in the 2 months since the last time they told us that, it's worked out real well hasn't it?) The dollar will be defended and after all, commodities are nothing except a hedge against the weak dollar. Yawn. Commodities tanked last time around as hedge funds did a jig over to financials and retailers. That lasted all of 2 weeks and created one of the best buying opportunities in the past few years. Repeat? Don't put it past these traders (and their computers) - they have very short memories. Can we only be half a week away from the first breathless talk by Maria or Erin about how serious Ben is about slaying the inflation beast? Laughable - but we'll play along. If/when crude every does take a break (say $120?) then we can also hear about how gas $3.75 instead of gas $4.15 is going to mean the consumer will be piling into the malls. Crude $100? Gas $3.25? Time to buy airlines! SUV makers! Hurry! Expect a lot of "funny" commentary that is meant for you to give people your assets so they can pile into "undervalued" financials. :) Again, we have reduced our "global growth" exposure but if there is a true commodities correction in the week(s) to come, we will still suffer over and above the market - but hopefully some of our hedging will help to alleviate that. We've navigated the first half? (third? two thirds?) of this correction quite well - so hopefully the back portion does not take back these gains to a huge degree.

There was no victory lap by the Invisible Hand in the last 30 minutes of the week this time around and the S&P 500 finished with a 3.1% loss; the Russell 1000 which has been strangely outperforming of late was down 2.9%. Rising Tide Growth was able to churn out a 0.9% gain, which I can only describe as very satisfying. However, after weeks like this where we outperform to such a degree, I always expect the following week to be a reversion to mean. We are now at double our unofficial goal of beating the indexes by 15%/year (which is ambitious in itself) Hence again, why there is no reason to take outsized risk, to catch "the bottom" as we are 6 weeks away from the end of our year 1.

As always if interested in pledging an investment when fund is ready to launch please attach a comment here, or send me an email (need your state please).

Price of Rising Tide Growth: $12.270
Lifetime Performance to date (vs Aug 3, 2007): +22.70%

Comparable S&P 500: 1,317.9 (-10.05%)
Comparable Russell 1000: 725.2 (-8.92%)

Fund return vs S&P 500: +32.8%
Fund return vs Russell 1000: +31.6%

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