Bookkeeping: 'Rising Tide' Performance Year 2, Week 3

Year 2, Week 3 performance of the mutual fund

Comments: Same old, same old. Hostage to oil and financials; certainly one must not make heavy sector weightings in this type of market where sentiment changes on a daily basis at times. Best to have a few positions in most every sector because you wake up each morning, not knowing what the quant hedge funds will want to buy that day. Really no change from much of what we've seen. Unfortunately it makes it very difficult to outperform the indexes in this environment since the action is so random and you need to have a hand in every pot.

The U.S. economic situation continues to degrade but we're at the point we're taking solace in the fact the rest of the world is also joining us in the stew. Only in the markets is that "good". I'm not sure how that is "good" considering the only leg holding up this economy has been the export market, but you can't argue with a bunch of pundits who insist world weakness means you must buy US stocks. We continue to have a relentless wave of investors who try to find silver lining in every report, and "out-anticipate" the "anticipaters" who want to be buying 6 months ahead of a real recovery & are constantly jumping the gun. Again, the vast majority of today's hot shot traders in their late 20s, 30s, and early 40s have never been exposed to (a) a consumer led recession or (b) a recession that the Federal Reserve did not "alleviate" within 2 quarters (note: printing press). So despite historic dislocations and historic acts by government to stop the pain, they still are of the belief the only game plan they know is accurate. (apparently no one reads history anymore - the 60s and 70s might as well be the 1860s and 1870s to these folks) So hence the constant buying in the face of bad news because "in 6 months everything will be fine". We (the market) continues down that path over and over, and then every few months a very bad group of events happens (or facts show no recovery after all) and these people are sent back to their foxholes. From which they emerge a few weeks later to once again tell us "we were wrong last time, but this time I am sure everything will be fine in 6 months! My playbook says so!" Or they lean on the nanny state bailing us out (who can blame them- it is starting to become ingrained in our culture over the past 15 years) as yet another reason to excited about stocks. And so we'll continue to go - I believe for quite a long time.

What's old is new again - I remember fearing going heavily short into any weekend in both the winter and spring due to government interventions. And now we have to fear it again because the seals will be clapping at the state of our "free capitalism" system as the socializing of losses (among the sheep and away from the power players) will soon be upon us again. On the short side if we are not fearing surprise Fed cuts, we're fearing new Federal Reserve facilities. If we're not fearing new Federal Reserve facilities, we're fearing market overreaction to new Treasury housing bailout initiatives. If we're not fearing that, we're fearing individual company bailout news (Bear). If we're not fearing that, we're fearing announcements about how we are going to bail out Freddie and Fannie. So it gets old after a while and you can see our "talk" that we spin to other countries (let the free markets work) is just a big hoax. When push comes to shove, we've abandoned the party line of free markets, and frankly it makes gaming any sort of conclusion in the near term impossible. You cannot model this constant intervention - but you can just shake your head sadly. It is sort of funny because in China with a 60% drop in their market, there have been repeated calls for the government to step in and "help". Aside from 1 change in tax treatment I have found very little that the "central command" has done to appease the whiners - in a socialist/communist country. Here in the home of capitalism? A completely opposite response. It is all laughable ... if it were not so pathetic. Try to imagine where this market would be if we were not flooding the system with dollars and propping up entities, slashing rates, changing rules, etc. As they say the Chinese have become the best capitalists in the world - and we're working our way to becoming the best socialists... at least economically for the top parts of society. If times are tough for the lower and middle class - fend for yourself, this is a free market society! Didn't you get the memo?

Back to the markets - we've turned back down from the 50 day moving average on the S&P 500 that we seemed to poise to finally break through about a week and a half ago. Now we sit in a tight range and we continue to have a ceiling overhead as that average falls lower and lower (1300 now). The primary trend is still down but it's a stubborn market that continues to cling to old playbooks. It is not really easy to generate much return even on the short side if you cannot short specific names - so in a market without large moves that continue in 1 direction for sustained periods, and without consistent sector "favoritism" it is a big grind to generate returns. We continue to sit in a lot of cash (I consider our bond ETF to be cash of course), and try to jab in and out for gains here and there. Frankly we are only using about 60-65% of our portfolio either long or short since there is no rhyme or reason to this market and little trend. Outside of big rally days - when we will lag (such as Friday) - that should help preserve us.

Once we break some support levels and/or the euphoria from the government riding in on its white horse to bail out another part of our financial economy passes, I believe the easier path shall be on the short side so we'll move cash there. But I don't want to give away gains left and right on the short side during "Kool Aid" moments. Hence we got some bad days early this week for the market, and by Thursday we were cutting short exposure because the market changes its mind daily. We continue to drift along trendless in the market and I find very few solid charts that one can trust for more than a few weeks. We made our money this week in solar stocks, and our short exposure in the 1st half of the week. We gave back some gains Friday since we did not sell everything that was up Mon-Wed, and quickly move it into everything that was down the first half of the week :) Here is an example of the current environment and pretty much sums it up:

"The dollar got pounded yesterday and everybody rushed to buy commodities as a safe haven. Now the dollar is strengthening so everybody's dumping commodities again," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Despite a big rally Friday, the S&P 500 simply was paring losses for the week (i.e. we got nowhere fast but with a lot of volatility) and finished with a 0.5% loss; the Russell 1000 followed suit. Rising Tide Growth had a good week ex-Friday (ironically) and gained 1.6%. We made up some much needed ground on the indexes this week, and pared the early losses for our 2nd year.

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 at roughly $4 million pledged - thank you.

Year 2 Metrics

Price of Rising Tide Growth: $10.768
Year 2 Performance to date (vs Aug 1, 2008): -2.21%

Comparable S&P 500: 1292.2 (+2.53%)
Comparable Russell 1000: 706.6 (+2.35%)

Fund return vs S&P 500: -4.7%
Fund return vs Russell 1000: -4.6%

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%)