Comments: This week we worked on stopping the hemorrhaging. All things considered, aside from a bad day Monday, it was successful. We're still not making money, but we didn't give away a bunch of our previously achieved gains again this week, and took a minor loss. The markets went nowhere, but there was a lot of sector rotation and individual stock movement. Bad news was rewarded in retail.... when exactly the thesis changes from "lower oil is a great thing for the consumer!" to "hey, what is lower oil really signaling (bad economy)?" is an open question. But when that moment hits I expect the market to tank (again). Until then - despite looking promising early in the week for a break over the 50 day moving average - we could not sustain a movement over. A bull would say "building a base, just give it time"; a bear would say "well, duh". I'm still in the latter camp until proven otherwise, but you do have to respect a series of 5 higher lows. We should have an inflection point either way in a short time from now, making the path forward more clear.
Credit markets continue to devolve into the abyss, as the smart guys who once owned pocket protectors say "hey equity guys did you already forget what happened when you didn't listen to us in October 07, December 07, and May 08?" And it's Friday night so you know what that means, a greater than 70% chance the federal government will be shutting down a bank somewhere across America. But don't you worry - that is a sign of strength (healing and all). The economic figures continue to stink - housing, credit, and inflation but when bulls want to they simply explain it all away as "backwards looking". They pulled that line out fall 07, winter 07-08, spring 08, so why not use it now? The only thing backwards is their use of Kool Aid to justify their "economic view". In the metro Detroit area gas has now fallen from $4.19 to $3.89 - if I could only convey how full the malls are now, and houses are selling like firecrackers. I can only imagine what would happen if eggs fell by 5% in the next month. It might be the second coming of China around here. I am sure it's the same nationwide. The nasty thing about inflation is once producers pass through price increases, they sure don't want to give them back (good for Wall Street, not so good for Main Street)For the fund, a day like today (Friday) as we were positioned a week or two ago would of led to substantial losses - instead we were down 0.1%. Progress. Especially considering we own so little retail, no airlines, no auto companies - all the sexy sectors ;) (how quickly things change - just imagine saying that 8 weeks ago) We are, however, quickly becoming Rising Tide Healthcare & Solar Fund of late. This market continues to be a "reversion to mean" market with the most heavily beaten down stocks gaining and driving the indexes upward. It is very hard to get on the bandwagon of most of these stocks for a sustained period unless you believe the economy will show a serious recovery in 6 months. Obviously, we're not in that camp. Next step after bandaging areas of major blood loss (hemorrhaging) is figuring out a way to return to making money in a sustained manner. Still working out that part.
Ironically in this "buy the carnage" environment, I'm going out on a limb and saying we should be due for an oversold bounce in commodities soon. After the prescient call in oil in late June made us 6 for 6 on major turning points (not that it helped us escape the carnage) [Jun 26: Can a Near Term Top in Oil be Far Away?] I'm going with the group think that $110 or at worst $100 should provide an intermediate floor in oil. And with that the panic will subside (for a while at least) in all commodities. Other reasons? First, only 1 person emailed me today to ask if I was buying fertilizer. So most people have given up :) always a good (anecdotal sign). Second, we are starting to see the complete opposite of what we saw 2 months ago - (then) commodity price going up but stocks not following (oil/natural gas) (today) commodity price going down but stocks not being decimated. The next step will be commodity prices flat or down and stocks flattish to slightly up - look at the chart for XTO Energy (XTO) for example.
And the coal prices and fertilizer prices simply are not going down; so unlike natural gas down 40%, and oil down 20% - these have been the babies out with bathwater. But fundamentals don't matter - only quant hedge funds programmed trading. But that will end at some point and the hordes will scurry back. At least for a trade so they can goose their quarter. Now with that said, the charts are gosh awful in some... err many.... err most cases, so we'll see how sustained the rally is. Last point? Valuation. Mosaic (MOS) now trades at just over 6x May 2009 earnings. But they say in commodity land, sell when valuations are cheap and buy when they're expensive, so one could explain that away too. Maybe when Mosaic starts trading at 2x May 2010 earnings we can sell even more - because it will be even cheaper ;) But we do see some charts that appear to be bottoming - could it be Mosiac (MOS) made the 2nd part of a double bottom today? Too soon to tell.
So long story short - I actually am warming up to these guys again but not trying to catch the exact bottom. And I have no idea how sustained the move will be, when the reversal inevitably happens. Aside from the hedge fund liquidations the velocity of this sell off just was 'shock and awe' and in my mind, even a slowly drifting downward (for natural gas or oil) environment will eventually be fine for these stocks - but this initial leg was so traumatic people just want out. Understandable. But even for long term secular bears - nothing straight up... or down. Just ask bank investors over the past year. We had some major oversold rallies in a major downtrend, and even if you believe fertilizer is the next subprime lender - it won't be a straight shot down, and the oversold rallies in banks provided some huge moves. I expect the similar movement here since to quant funds these are all just random stock symbols - the fundamentals of each group mean nothing so if we can drive up Bank of America (BAC) 40% in 2 weeks, why not Massey Energy (MEE) - they both have 3 symbols and make my microchip happy.The S&P 500 gained 0.1% and the Russell 1000 was up 0.3%. Rising Tide Growth had a putrid Monday but kept pace with the markets in a general sense otherwise, but gave back 0.5% this week. Most of our best gains were in retail, health care, or solar this week. Commodities continued to punish us.
As always if interested in pledging an investment when fund is ready to launch (shooting for late 2008) please attach a comment here, or send me an email (need your state please). We are now approaching $4 million pledged - thank you. I'll have an update out Monday on newest totals.
Year 2 Metrics
Price of Rising Tide Growth: $10.602
Year 2 Performance to date (vs Aug 1, 2008): -3.71%
Comparable S&P 500: 1298.2 (+3.01%)
Comparable Russell 1000: 709.9 (+2.83%)
Fund return vs S&P 500: -6.7%
Fund return vs Russell 1000: -6.6%
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 July 2008.
Basis for indexes for year 2 is closing price August 1st, 2008.
SP500 : 1,260.3
Russell 1000 : 690.3
Please click here: fund performance for previous updates
*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)
5 comments:
Mark you should have window dressed the end of year 1...you know buy the hot stuff of July.
people will think you're dumb holding MOS/POT/ANR/APWR/SKF with all that profit expsosure...come on, the kool kids own stocks that bleed money..cash is "out", write-downs are "in" (dilution is hot too)
you should have widow dressed/bought the hot stuff before year 1 ended...UYG, DAL, C, KSS, you know you need more exposure to booming USA or you will be in the bottom 10% permanently ;)
;) LOL so facetious but true....this market is pathetic. I would normally think it would stop soon but then we wont see a good market around election time.
You know...I'd be pressing shorts now but i cant see us going down because then we wont go up in time for the election...did you ever think about like the timing and the election?? (you mentioned it once briefly)
well since
market change= -(oil price change)
if ur right about oil bottoming week before election then we may drift up until october and then drop off right after mccain is elected. Sorry for the long post but i just have this timing issue i cannot reason out, and its keeping me from shorting immediately on this stumbling market (bearish)
Hello Mark,
Well, it year 2, congratulation for survive this market thus far. The only thing i see now is you have no theme compare with last year. So it going to be tough for you. Last year, it was long commodity, short the market. Now what??? You don't buy airline, auto, bank, bottom fishing which i think only work short term. May i offer a new theme: both market and commodity go down, it just a matter of which one go down more and the timing between the two. Of course we still see the sea saw, but i don't see the benefit in holding long term stock here: any stock. To me, the biggest benefit will be to alternate short commodity and short stock. You look at all those commodity stock from Mos to Pot, so on and so on, they are all great short. Of course they will bounce but only to establish lower high and lower low. As a fund manager, it's going to be tough since you can't short in a downward market, but anybody follow Mark will have their head chop off. My prediction, by this time next year, your fund will be down, but at least down less then sp500. I am not mocking you, i am just present the fact that your hand are tied without the ability to short.
Thanks ;)
I should outperform my peer group handily if your prediction is accurate since I at least carry ETF shorts while most funds are 100% long with 0-2% cash. So I have that going for me, eh?
Well definitely, i would like to hear what is your trading plan for the next 6-12 months, you know it's going to be tough, look at what you do with aapl, rimm or the commodity stocks, it's very hard to play the bounce, and lately, you have been gun shy on your call. beside that, holding 60 position is going to be tough, playing the bounce, it's a guarantee losing proposition, may be less position, more %, and which sector benefit from a long term down trend of commodity in general.
gains are much tougher to come by now - I agree. 2 months might seem like an eternity but its not really that long so I'm not ready to say "its time to buy the US economic sensitive stocks" just because they are up for 7 weeks. They've done this before in both Sep/Oct 07 and Apr/May 08 before being trounced within 30-45 days. Let's see they continue a trend for 6 months before we call it "real"
For now it appears it is better to buy on the downtick and sell into resistance. The only issue is catching the downtick at appropriate time. Aside from healthcare (which also is ahead of itself most likely) we probably have no great trend - I see a lot of value in China but the stocks are trading for miniscule values on great growth and hence that tells me institutions are not that interested. This coming from someone who was bearish on China in the fall as it ramped up to crazy heights.
There is secular growth, solar is another example - it doesnt need oil at $120 as it competes with coal/nat gas actually but its been unrewarded for many months. We'll see how it goes - always a challenge. Might just have to be like a boxer and stick and jab in the growth sectors - buy when beaten, but get out within 3-4 weeks knowing they will be sold off, while maintaining short exposure elsewhere and relatively high cash. This is different then riding growth sectors up on trend as trends are shortened now.
We'll try to adjust as we go. Honestly a 30% down market would be ok because we'll outperform 99% of funds out there in that environment just by the nature of the type of things we hold and having short exposure ;) But only ok on a "relative basis" not an absolute basis.
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