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: 24.0% (vs 15.6% last week)
51 long bias: 54.7% (vs 58.3% last week)
9 short bias: 21.3% (vs 26.1% last week)
60 positions (vs 60 last week)
Additions: Powershares DB Agriculture Double Long ETN (DAG), Ciena (CIEN)
Removals: Powershares DB Agriculture Fund (DBA), Morgan Stanley (MS)
Top 10 positions = 28.3% of fund (vs 30.9% last week)
38 of the 60 positions are at least 1% of the fund's overall holdings (63%)
Major changes and weekly thoughts
It has been a rough few weeks for the markets - the S&P 500 is now down over 8% from its interim peak reached about a month ago, and 6% in the past three weeks. I have misspoke on some earlier entries when I wrote we have broken the March "Bear Stearns" bottom; in fact we are just at the April lows in the 1320s on the S&P. Aside from 1 day of panic selloff (Bear Stearns Monday) the market has bottomed out at mid 1270s both in January and March 2008. So if we continue downward this is the technical level everyone will be looking at. I would expect the market (if it gets there) to make a stand there as "those in the know" realize this level must be held or all the hedge fund computers and technicians will be throwing in the towel (read: selling) if this threshold is broken. That said, markets that sell off this harshly typically have some vicious bounces in the opposite direction (up) which tend to punish those who are pressing the short side, so I can assume it will be a tricky market for bears and bull alike. When we do have rallies, shorts can lose a lot of money in a very short amount of time, even if the interim trend is down.
As for this week, looking at the calender Wednesday will dominate the news as the Federal Reserve meeting takes place and everyone will be pinning their hopes for some magical elixir from our favorite sugar daddy, Uncle Ben. The Federal Reserve continues to be in a box - can't cut rates because they've already stoked structural inflation, and can't raise rates because no one has been that courageous since the Volcker era (raise rates into a slowing economy) This is a much more political "independent" body, than in days past. If I were Ben, I'd actually raise rates by 25 basis points and then at least signal to the world I had an ounce of credibility on inflation - that 25 basis points would mean nothing in the big picture but at least would be a decorative move to show inflation is now a concern. Instead, I assume we will get "strong language" in the statement. Big deal.
Further on Wednesday we have a slew of earnings reports from some of the best companies out there so we could have a good psychological day. Monsanto (MON) on the agriculture side, Nike (NKE) on the global brand side, Oracle (ORCL) on the big cap tech side, and Research in Motion (RIMM) on the must have gadget side. So it is quite easy to get overly negative here, but nothing in a straight line (even if you are a full blown bear) - we should expect head fakes along the way, causing pain to whatever side of the tape you are. I personally would like to see capitulation type (what I call "waterfall" selloffs) where almost every well know stock drops 8-12%, and the stocks that have held up the best finally are trashed. This would jack up the fear factor and from these events come at least intermediate bottoms. Most of my favorite names both in the portfolio and names on my "to do" list in terms of what I want to add to the portfolio have still stubbornly held up, so I am still awaiting price targets to add to these positions, or introduce new names to the fund. As always, we won't catch the bottom - and some of our buys (if we do indeed get some waterfall selloffs) will immediately go underwater but without a crystal ball one just must scale in, into the painful selloffs - and look 3-6 months out and realize the best names will recover. This strategy has generally served us well. Most of the fund trades of late have been with asset allocation (moving cash/short/long exposure around as the market ebbs and flows). I do expect, if we do get a more serious sell off in the week(s) ahead to have a lot more transactions into the teeth of the selling. This was a relative quiet week.
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:
- Monday, we took some solar exposure off the table as both Trina Solar (TSL) and Yingli Green Energy (YGE) made what I considered to be dead cat bounces. I'd like to increase solar exposure at lower prices, and broaden out the exposure to new names - unfortunately the ones I was interested in, made some huge gains early this week so we missed them this time around. This is a volatile group and if we do get waterfall selloffs, these names can drop like a rock.
- Similarly on Tuesday, we cut some ICICI Bank (IBN) on an identical technical bounce to the solar names, stocks below key moving averages that bounced too (and subsequently failed to move through) resistance. Right now touching anything Indian is toxic as the country grapples with inflation.
- After mulling over the fact we called this move in corn almost perfectly but did not have a pure play available to us to take advantage of the 40%+ move, I switched our agriculture commodity exposure - not by much, we simply entered a vehicle that has 2x the movement of the old vehicle we once owned. This allows us to control the same "movement" with (in theory) half the exposure. If the greater market sells off, I'll be interested to see how these commodities react - will they move down in tune? Or move in the opposite direction. Either way I believe food is going to replace oil as the inflation of back half 2008 that is most talked about.
- Wednesday, after a review of Morgan Stanley's (MS) results, and just how poor they were in relation to Goldman Sachs' (GS) I closed out the position and put some of that cash into Goldman Sachs. While I believe the companies hit the worst will rebound the most once the tide turns in financials and hedge funds start buying this sector (and don't forget how quickly short covering can move the worst stocks up), I am willing to give up some of that in return for the "relative" safety of the best of breed. So we are changing from a "mini basket" of 2 investment banks, to just one - the one.
- I don't normally highlight individual Ultrashort transactions because I move the position sizes often but since this was a relatively large change in direction and counter intuitive to market strength, I mentioned the increase in both Ultrashort Basic Materials (SMN) and Ultrashort Oil & Gas (DUG). I'd rather short some individual names as hedges, but since we cannot short, we have to use this method which is a very blunt object instead of a fine instrument.
- Friday, I began increasing my financial exposure (again counter intuitive) with one of our other long held names, asset manager Blackrock (BLK).
- I went through a list of about 25 tech names, to pick one to add exposure to this sector as a "non commodity" idea that could be in favor as hot money might try to escape commodities sometime in the next few weeks - I went back to a beaten down former fund holding Ciena (CIEN) - mostly because unlike analysts I liked their earnings report, and the stock just reported earnings so we do not have earnings risk for another 2.5 months unlike most of its brethren. In other words, hopefully much of the carnage is already in its past... the stock did behave very well Friday but in waterfall selling nothing will be safe - its all "relative". I am not sure how long I will hold this position - for now it is more of a trade. Truth be told, I'd rather buy more of our current tech holdings, but wish for lower prices to do so.
4 comments:
Additions: Powershares DB Agriculture Fund (DBA), Ciena (CIEN)
Removals: Powershares DB Agriculture Double Long ETN (DAG), Morgan Stanley (MS)
I was about to follow your footstep of moving my DBA to DAG, but now I see that you gone back to DBA. Any particular reason for that?
UP YOUR SHORTS!
RBS issues global stock and credit crash alert
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.
"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.
RBS warning: Be prepared for a 'nasty' period
Such a slide on world bourses would amount to one of the worst bear markets over the last century.
RBS alert: Quotes from the report
Fund managers react to RBS alert
Support for the euro is in doubt
RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.
"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.
advertisement"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.
RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.
"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.
US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.
The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.
Morgan Stanley warns of catastrophe
More comment and analysis from the Telegraph
"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.
Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.
"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.
Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.
Oil price rises to above $136 a barrel despite Saudi Arabia's pledge
By Angela Monaghan
Last Updated: 1:20pm BST 23/06/2008
The price of crude oil rose to more than $136 a barrel, $3 dollar's shy of a record, today over fears that Saudi Arabia's pledge to increase production would not make up for the amount lost in Nigeria after pipelines in the country were bombed and production halted.
At an emergency summit of the world's oil powers in Saudi Arabia yesterday, the country confirmed well-trailed plans to raise production by 200,000 barrels to 9.7m barrels a day - a 30-year high - at yesterday's emergency summit.
Saudi Arabia's King Abdullah and Gordon Brown at yesterday's summit in Jeddah
However, oil traders warned that a lack of other concrete measures, threats by other OPEC members to decrease production in response to Saudi Arabia's move and news that Nigeria's production had been further hit by rebel attacks on pipelines could drive prices up even further.
"There is the danger that the markets will be disappointed and the price will increase again," said Germany's economy minister Michael Glos.
West is paying political price in oil
Treasury is one of few UK winners from oil
Oil prices: The complete Q&A
OPEC president Chakib Khelil dismissed Saudi Arabia's pledge to increase oil production, saying that it was not a lack of supply that was driving prices up but speculative investment. Asked if he thought that oil prices would fall after the meeting, Mr Khelil, the Algerian oil minister, said: "I don't think so."
Jeroen van der Veer, chief executive of oil giant Royal Dutch Shell, agreed that there would be no "silver bullet" solution to curb spiralling oil prices. "What I've heard so far are basically all good ideas, but it will probably not change the price tomorrow morning," he added.
Signs of a growing split between OPEC countries were clear, with Venezuela, Libya, Algeria, Iran and Qatar opposed to an increase in oil production on the grounds that speculative investment in financial markets was to blame for the price hikes, not a lack of supply. Libya said that it would consider reducing production in response to Saudi Arabia's statement that it would increase supplies. Kuwait, however, suggested that it would follow Saudi Arabia and increase production.
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Venezuela's finance minister Ali Rodriguez, a former head of OPEC, also said that he expected prices to rise further.
The meeting in Jeddah was attended by 35 countries, seven international organisations, and 25 oil companies. It was called by the Saudi government to discuss spiralling oil prices, which have doubled to almost $140 a barrel in the past year. Prime Minister Gordon Brown and US energy secretary Sam Bodman were among the high-level delegates who attended.
Christopher Bellew, a broker at Bache Commodities, said: "The decision in Jeddah really just confirmed what Saudi Arabia had already said they'd done."
A large number of delegates at the urgently convened meeting called for greater regulation of oil investors.
The head of Libya's national oil company said that it was unrealistic to come up with a quick fix to such a major issue: "We are coming to discuss a very important subject, supposedly, and expected to get an important decision in three hours," he explained. "That's impossible."
Mr Brown called for greater market transparency, and reiterated the view, shared by the US, that oil-producing countries should produce more.
He also called for an increase in the supply of alternative energy sources, including nuclear power, and invited foreign oil producers to invest in renewable energy production in the UK, and the next generation of nuclear power.
Mr Brown also offered to host a follow-up meeting in the UK before the end of the year.
While Saudi Arabia, the world's largest exporter of oil, is seeking to increase oil production, it emerged that Nigeria, Africa's second largest oil producer, is producing at its lowest level in 25 years after rebel attacks on facilities operated by Royal Dutch Shell and Chevron.
It is estimated that Nigeria's output has been cut by around 300,000 barrels a day as a result of the violence. "Onshore production has been shut in order to protect the environment. We're hopeful that production can be restored as soon as possible," said Chevron.
Over the weekend Chevron said its Abiteye-Olero pipeline had been attacked by rebels on Thursday, halting the shipment of about 120,000 barrels of crude oil a day
loki, thanks - just a typo.
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