Friday, October 3, 2008

Bookkeeping: 'Rising Tide' Performance Year 2, Week 9

Year 2, Week 9 performance of the mutual fund

: Not much bright to say. Nowhere to run, nowhere to hide - continues. It was the worst week since we started for the indexes and for the fund. I looked back at the carnage of the past 14 months and the worst week on the S&P was a -5.4%, and this week approached double that. Double digit loss on the Russell 1000 in 1 week. Combining the past two weeks we have a nearly 13% loss in the S&P 500, and nearing 14% on the Russell 1000. So it's a slow motion crash. The way the market closed ....Monday, frankly, is foreboding. I think every sentiment figure is at multi decade extremes but there is no accounting for deleveraging through an entire financial system - we don't have historical precedent for this - mutual funds cannot use leverage so you know who is causing these issues. It's not "Ma and Pa" retail investor.

Fundamental analysis has been useless for months; technical analysis has become useless the past month and even the highly touted "dart throwing" analysis is becoming moot. This leaves "seek shelter" analysis, which is obviously gaining favor by the day. I don't have much to add about stocks right now - I just recall buying a 5 PE stock and losing 40% in 1 day, and just today buying a 7 PE stock around 10 AM and losing 20% by 4 PM on that minor purchase. For the fund, we lost more than the market but considering some of the carnage individual names took - I guess it is all relative. We literally lost 4.6% alone between 2 PM and 4 PM today as the market went from +3% to -1.4%. That's how quickly things can turn - yet another 4% move which are now becoming "normal". The only place I feel somewhat safe is under the protective wing of the government - banks they will protect at all cost. Or cash.

I did see an interesting post by Cramer late in the day which I can agree with 100% - I've been a bear on the US consumer since fall 2007 [Stuff I've Been Negative on Since Last Fall] and he outlined an attack plan that hedge funds can now engage in for next week, which is identical to what they did to financials...

I found a new game plan for after the wipeout of the insurers and the industrials -- the retailers.

Buy credit default swaps on Macy's (M) and JC Penney (JCP) debt, maybe add some Nordstrom (JWN) or Kohl's (KSS) and then spread the word that they won't be able to get a line of credit to buy goods for the holidays. You may not even have to do much here, as the numbers next week will be awful and the stocks will most likely trade lower on their own weight.

It is a natural, plus it is an easy sell to the media once the swaps are bought, the puts purchased and the "no uptick, short common" trade gets put on.
Thing of beauty.

I have to agree - the credit default swaps market is supposed to be used as "insurance" not a form of attack. But it's totally unregulated - remember we love that in the United States because regulation stifles innovation. Some of these hedge funds want to keep their existance past Dec 31, 2008 so they need to generate profit somehow - so what is the easy game? The same one that worked in financials for months on end. We've seen this dog and pony show before and outlined it on the blog multiple times as Cramer just mentioned: buy up the credit default swaps (which signal danger), buy up a ton of puts (which signal someone thinks something bad is going to happen), spread rumors in the media to "explain" why the credit default swaps are exploding and why put buying is exploding, let the media cause fear and you get the natural selling of fearful longs, which the credit agencies will them jump on as a reason to downgrade the credit, which causes another round of panic and selling, and lo and behold you have your nextLehman Brothers, AIGs, Bears, Fannies. And unlike financials, the government won't care about retailers - so these can all go to pot.
A splendid move in our land of deregulation and letting "markets look after themselves". Can Buffet buy every major retailer not named Walmart and Target in America? Makes me thankful I sold that Polo yesterday; heck even Buckle (ahem) "buckled" today and it's been the best of breed in retail.

Again, cash is king (or is it? Potash has a ton of cash - does it matter?) - any company that is OWNED by hedge funds in scale or HAS debt whose credit default swaps can be manipulated to create a panic mania is toxic.
I will say some financial stocks actually did hold up quite well today... even late in the day.

Last comment, I am laughing to self a bit as everything the market has whined for over the past 15 months (give us rate cuts, give us individual company takeovers by government, give us mother of all bailouts) it has gotten - and it still goes down. The whiny toddler keeps demanding more and more. It looks like the market is going to find it's natural place - one way or the other. But really... let's regulate that credit default swap market before every company in America with $1 of debt is destroyed. Only people who actually hold the DEBT should be able to INSURE the debt - but without a regulator I guess you can't really put in such rules. Laughable.

So we await to see if any surprises come to us Sunday night and/or Monday premarket. Otherwise I think Monday could be quite treacherous - Mondays in October always hold potential for bad memories. Until confidence comes back it just seems fruitless to buy almost anything since anyone buying seems like they are on a deserted island nowadays. They say huge volatility comes at tops and bottoms. If this is not the (intermediate) bottom I'd hate to see what type of volatility we will get when we "get" to one. Right now holding anything for more than 24-48 hours on the long side feels like whack a mole - except the ones holding the stocks are the moles....

The S&P 500 lost 9.4% this week and the Russell 1000 lost 10.0%. Rising Tide Growth generated a 11.5% loss. Nothing positive to say this week - just happy to have 25%+ cash or it could of been worse. Multiple names in the fund fell 10, 20, 30%+ this week.

*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)

Year 2 Metrics

Price of Rising Tide Growth: $8.656
Year 2 Performance to date (vs Aug 1, 2008): -21.39%

Comparable S&P 500: 1099.2 (-12.78%)
Comparable Russell 1000: 594.5 (-13.87%)

Fund return vs S&P 500: -8.6%
Fund return vs Russell 1000: -7.5%

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

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