Bookkeeping: Weekly Changes to Fund Positions Week 44

Week 44 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: 31.3% (vs 31.9% last week)
51 long bias: 59.4% (vs 47.2% last week)
9 short bias: 12.2% (vs 20.9% last week)

60 positions (vs 59 last week)
Additions: Intrepid Potash (IPI)
Removals: N/A

Top 10 positions = 31.4% of fund (vs 28.2% last week)
31 of the 60 positions are at least 1% of the fund's overall holdings (52%)

Major changes and weekly thoughts
As we near the beginning of the 2nd half recovery (only 3 weeks away) the market faltered under the clouds of "no 2nd half recovery" - irony is a wonderful thing. As always, the news flow today or this week is not very different from what it was 4 weeks ago or 2 weeks ago or 6 weeks ago, but sometimes bad news is cheered, and sometimes bad news is feared; this week bad news was mostly feared. The dollar's nascent "recovery" (ahem) was torpedoed by our friendly European central banker who declared he'd pull a Volcker and actually potentially raise rates into a slowing European economy. Making things more complicated for him is he oversees 15 economies, all at different parts in the cycle. Not a fun job, but inflation control is the sole mandate for the ECB, so from that perspective one could understand.

After pulling back to the low $120s, crude staged a staggering 2 day rally of $17. We've been saying for a few weeks now that we see a lot more risk in Asia as we saw the potential for demand destruction finally coming there when/if the Asian economies started cutting back their subsidization of energy; at some price point it just becomes too expensive for every country not named China. In short order from that point, the smaller Asian economies buckled and this week India buckled. These still are not full scale subsidy removals, just incremental increases and even that set off (lightly/not reported in US) drama in the streets of India.

• Angry consumers blocked rail tracks and roads and shut down businesses in several parts of India for a second day Friday, protesting a hike in fuel prices by the government.
• The federal and state governments scrambled to contain the protests. India's federal petroleum minister canceled a trip to Japan for the G-8 summit, The Press Trust of India news agency reported.
• The Indian government hiked gasoline prices by 5 rupees (US$0.13) a liter and diesel prices 3 rupees (US$0.08) a liter on Wednesday to partially offset soaring international oil prices. Fuel prices vary between states, which also impose their own taxes. Price of cooking gas went up by 50 rupees (US$1.25) per 14 kilogram (30.8 pound) cylinder.
• Some 300 million of India's population of around 1.1 billion live on less then a dollar a day and millions of others living on the state-set minimum daily wage of about 66 rupees (about US$1.6) cannot afford cooking gas at all.

Also not reported/lightly reported in the US are protests in England, Spain and France (to name a few) - fisherman, truck drivers, et al. Again folks as you now - if it doesn't happen in the United States it pretty much does not matter to the US press (short of a tsunami or historic earthquake - and then we can get back to Brad and Angelina news). But the ingredient that greases the skids of the world economy is causing major havoc worldwide. Just imagine the plight of said fishermen who is paying double the cost for petrol, and getting just a small uptick in fish prices to offset that. What happens? They eventually go out of business, and stop fishing. What happens next? Shortages in that product. ("thankfully" we still have big corporate fish farmers to offset it to some degree) But just apply that example to... everything. Almost everything must be transported. If oil does indeed get to $150+ and stays there we are pointing ourselves to global recession (except in the US where of course our government will show positive GDP) :) But the rest of the world, too bad for you...

• Belgium: Fishermen from France and Italy demonstrated against soaring fuel prices on Wednesday. French fishermen say they will go broke unless they can buy diesel at half the market rate.
• Britain: Hundreds of truck drivers blocked London roads on May 28, causing chaos. Almost a week later fishermen's groups massed in the capital to demand urgent government aid to ease rising fuel costs.
• Bulgaria: More than 150 truck drivers and dozens of bus drivers converged in a convoy on the capital Sofia on May 28, saying high fuel prices meant they were operating at a loss.
• Chile: Thousands of Chilean drivers parked their trucks along national highways last week to protest soaring fuel prices and diesel taxes in a tacit rejection of the Government's US$1 billion cash subsidy on consumer fuel prices. They lifted the strike on Friday.
• Italy: Commercial fishermen went on strike on May 30, closing down the industry on both coasts.
• France: Lorries and taxis blocked a major motorway in Paris and called for low-cost diesel. Fishermen, truckers and farmers have staged numerous protests over the past month to pressure the Government into helping them after oil costs doubled in a year.
• Spain: Almost the entire Spanish fleet, Europe's biggest, stayed in port on May 30, calling for the Government action to lower fuel prices.

And so we go in the US markets, relatively oblivious to what is happening in the rest of the world, trusting and holding dear the information that the government provides us while ignoring all the anecdotal stories that pile up (to the roof) of people struggling to deal with the rising cost of life, combating it with 3.5% wage gains. All will be well... in the 2nd half, so who really cares what is going on in the real world - the imaginary 2nd half recovery world lies right ahead of us (so buy stocks). If oil dares to put on another $10 spurt Monday or Tuesday, I can only imagine the spinmeisters giving us the Goldilocks economy spin.... "hey we STILL see growth in the GDP figures, why is everyone up in arms - just read the reports - everything is fine".

For the fund, we remain in high cash position - let me reiterate now since we have a lot of new readers of late - I'm not a hedge fund that will be going 70% short even if I think the market is in trouble. I am comparing myself to the mutual fund industry which is long biased in nature - I will be long biased in nature. But in turbulent times I will have a meaningful short exposure, and heavy cash exposure. We will still suffer along with the rest, but hopefully less than the rest (over time). Again I don't see much different in the news flow today, that has been in the past few weeks/months - so we never know when the market is in "ignore the news" mode versus "fear the news" mode, so timing these things is nearly impossible. But technically we are in precarious position, so I'll mostly just be sitting and monitoring until some of our favorite names begin to break down and then we'll begin to layer in more on the long side. My goal, if this sell off does continue (no guarantee it does, remember everything is fine starting in 3 weeks as the 2nd half recovery begins), is to have some cash waiting there at that moment we all hit when the market does the type of dip where we want to toss our (long) cookies. Usually purchases done at or near that point, while the most painful to execute and follow through on, yield the best gains over time. Unfortunately (or fortunately) most of the names I want to purchase have yet to see any meaningful selloff... so until we see price weakness we won't begin layering into the long side in a heavy manner.



As far as a technical game plan, I will assume the medium term is now down, after our 7 weeks of happiness from the "Bear Stearns" bottom in mid March. Using the S&P 500, we are at 1360 - the 50 day moving average (exponential) is at 1375. Any bounce to that level I'll be adding some short exposure I let go on the Friday selloff. Could we bounce off this 1360 level (no man's land) and go straight up? It would not follow any textbook but frankly "anything" is possible is our new and exciting managed markets where things seem to go the Invisible Hand's way more often than not. But I'm still playing by the old fashioned handbook that worked 20 years previous to the Invisible Hand's prominent display of pre-market buying (I think futures have turned positive to flat between 8:30 AM and 9:30 AM almost every session but 4-5 since the Bear Market bottom) and last 30 minutes buying (3 times last week we had miraculous buying to keep us over the 50 day moving average, twice on quite negative down days). So we just never know, and hazarding a guess is even more difficult with a cornered Invisible Hand :) If normal patterns were allowed to play out we'd look first for that mid April low in 1320s and then off we go to revisit March lows. Ironically most of my short exposure is actually in stuff that has held up well, because if past patterns repeat the strongest sectors are the last to go... so again I am following the old patterns and we'll see how it works out. I continue to believe if this market were registering any sort of logic to what the plight really is out there in middle America (ex farmers, ex miners, ex oil industry, ex railroad) we'd be materially lower on all indexes. But $1.3 trillion thrown into the market from central banks does have a way of helping the market stay propped up.

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 of the blog under archives.

Some of the larger changes (chronologically) to the fund below:

1. Monday, I mentioned the solid quarter from Intrepid Potash (IPI) and the potential upside to full year estimates based on guidance given from the company. Later in the day I began a starter position in the $48s range. I really like the action in the fertilizer group right now - a nice period of consolidation, where the companies faded from the attention of CNBC and most daytraders/momentum traders. If the market were more stable I'd be increasing my exposure materially to this group right at this moment as it has all the markings of a new breakout - but it is simply hard to do that with the headwinds facing the market, and knowing if we do have a sustained move down, these "favored" groups sustain NASTY reversals, quite out of the blue. I continue to use coal and fertilizer (and natural gas) as the "leadership groups" - when they go, we should be in the heart of a nasty time frame for the markets. But so far they have held up. We'll see if they can survive this week.
2. To that end, on Tuesday I had increased my exposure to all my 3 previously held fertilizer names, as they bounced smartly from last week's "dip". I also increased exposure to Brazilian homebuilder Gafisa (GFA) on it's pullback.
3. I started to slowly rebuild positions in my mini basket of Indian banks - I had really cut this position back a while back and have been watching the group get pummeled; while the charts are awful the pullbacks have been severe so we will begin buying now and build up these positions on continued pullbacks.
4. Wednesday, I took profits in Chinese hog producer Zhongpin (HOGS) on a large spike in the shares - this stock acted very well through the end of the week, and I still find the valuation to be very low but this is a thinly traded stock that can move 5-7% in a heartbeat. We'll see how it acts if the market continues to be weak.
   
5. I cut back Chinese gaming company Perfect World (PWRD) in the $26.20s as the stock approached multiple resistance levels; saying I'd buy back if it cleared these levels and or pulled back to the lower to mid $20s. I got my wish within 24 hours as PWRD fell to the $23.70s Friday, so I bought back what I sold. While I really like this name for the long run, the next quarter could be dicey as investors fear some fallout from the 3 day shutdown from the period of mourning (earthquake).
6. Thursday morning I mentioned the week's performance would be tied to Trina Solar (TSL) earnings report Friday; the stock went on to put on a 10% gain Thursday and was all set for rocket take off, if it had just reported a nice solid 10-15 cent beat of analysts 48 cents. Well it beat allright - it beat its shareholders in the gut... the company decided it was time to move to US dollars instead of Chinese Renminbim so a 67 cent quarter was lost, and instead we were handed a 51 cent quarter. And our Energy Conversion Device (ENER) type run was lost in the ether due to management at TSL. Thursday's gain was completely erased and we reverted back to Wednesday's levels. I did buy more in the $45s-$46s BUT when this sector sells off all its participants generally get whacked, so despite a huge chasm in valuation versus peers, if solar goes, so will Trina Solar.
7. Friday, I began adding to holding positions in the 2 investment banks and 2 housing stocks - these have been battered the past few weeks, and if past patterns hold - just about the time commodity stocks start selling off, hedge funds will pile into these names, driving them up with some huge 1 day spikes. The question is, from that level... I still think they go lower first, so we're taking a very slow as you go approach. If we see more carnage in this group this week, I'll be adding more.

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.