Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 12

Year 2, Week 12 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 (1 position [SHV] + cash): 28.1% (vs 32.8% last week)
31 long bias: 53.1% (vs 65.8% last week)
7 short bias: 18.8% (vs 1.4% last week)

39 positions (vs 39 last week)
Additions: Linn Energy (LINE), Illumina (ILMN)
Removals: Portfolio Recovery Associates (PRAA), MFA Mortgage (MFA)

Top 10 positions = 45.6% of fund (vs 39.7% last week)
23 of the 39 positions are at least 1% of the fund's overall holdings (59%)

Major changes and weekly thoughts
To reiterate a theme we've been repeating for the past few months; the market is simply acting unlike anything most people alive have seen. We are at standard deviations of unheard proportion in terms of sentiment, fear levels (VIX, VXO), % of stocks below this moving average or that moving average, % the indexes are below the 200 day moving - signal after signal that point that we should at least have a cursory snapback rally that lasts more than 4 hours. But we never get that move that in theory would happen over a sustainable period of time.

Even more alarming is there appears to be no asset class that is working as we see in the hedge fund world. Some of the best of the best, such as Citadel, are down 35% in their top 2 funds, and has also moved to 30% cash. This is with only about half their money ever devoted to equities i.e. currencies, debt, et al - none of it seems to be working. Plus they're "hedging" against their own positions and still suffering. Ken Heebner, noted as the most savvy mutual fund manager over the past decade is down 36.5% in 4 weeks; and 45% in the past quarter. These are 2 representative samples of both the hedge and mutual fund industries, but we see it repeated in countless other places. Stories such as CALPERS selling stock to raise cash are making the rounds.

• California Public Employees' Retirement System, the largest U.S. public pension fund, is selling stocks to ensure it has enough cash to meet its obligations, the Wall Street Journal reported on its website on Friday.
• The pressures come as the fund, known as Calpers, has had to raise cash to meet commitments to private equity firms and real-estate partners, the Journal said.

All these would, from a sentiment standpoint, indicate some bottom must be here or near. But many have been thinking that for a few weeks - in fact on Oct 10th many long time bears, Ritholtz, Hussman, Jeremy Grantham to name a few changed their tune to bullish - to no avail yet.

The list of well-known names identifying value on the U.S. stock market at current levels is growing by the day and includes the likes of Jeremy Grantham (GMO – “Careful buying is justified"), Warren Buffett ("Buy America. I am"), John Hussman (Hussman Funds - "Why Warren Buffett is right") and Barry Ritholtz (The Big Picture - "Another buy in"). Even perma-bears such as James Montier and Albert Edwards (Société Générale - "Turning more bullish") are increasing their equity exposure, albeit only for the short term.

Some of the smartest names such as Sam Zell are in there buying, and seeing positions smashed within days. One would think a margin call would play out relatively quickly (weeks) but it appears there are so many interconnections that when trigger A hits in section 214 of the financial markets, it sets off some unforseen trigger B in section 405 part of the market. The lack of visibility into all of this, much like the lack of transparency into the financial institution (who a year ago were assuring us everything was fine) creates complete lack of trust.

Basically this is like the twilight zone and nothing that has worked in the past is working now. Bloomberg reports - $10 trillion has been lost worldwide in October and half the world's markets have lost 50% or more year to date. And that it's time to get long Morocco apparently.

• More than $10 trillion has been erased from the market value of shares worldwide this month
• All 48 of the developed and emerging markets tracked by MSCI have declined in 2008, with 22 losing at least half their value.
• The 73 percent plunge by Russia's Micex Index is the steepest. Benchmark indexes for China, Greece, Ireland, Peru and Austria retreated more than 60 percent. The S&P 500 dropped 40 percent. Morocco and Jordan have done the best, falling 6.4 percent and 19.2 percent, respectively.
• The 73 percent plunge by Russia's Micex Index is the steepest. Benchmark indexes for China, Greece, Ireland, Peru and Austria retreated more than 60 percent. The S&P 500 dropped 40 percent. Morocco and Jordan have done the best, falling 6.4 percent and 19.2 percent, respectively.

Even being bearish I find worrisome because it is the easy trade and one day like the Monday 11% rally we had two weeks ago can kill a month of gains in 7 hours if positioned wrongly. I remain high in cash but after last week's experience of having little short exposure and paying a high price for it I got some back late in the week. Not sure if it will help at this point since individual stocks are falling so much more than the indexes.

The larger weekly changes (chronologically) to the fund below:

1. Monday, an analyst note came out saying a standstill agreement between Cargill and Mosaic (MOS) expired on the 22nd. This drove the stock up and off of last Friday's lows it was up near 30% so we took "some" profit (not enough in retrospect) and put some into Potash (POT) which was only up a bit that day... of course that proved to be a money losing expenditure within days as well.
2. I closed two positions, one in Portfolio Recovery Associates (PRAA) and one in MFA Mortgage Investment (MFA) - as with almost any sale the past few months these were good sales - because the stocks cratered later in the week. PRAA's chart is incredibly horrid and makes me wonder if "something is amiss" or someone is being liquidated; 45 degree angle down from $37 to $30 this week.
3. Tuesday, first thing in the morning, I cut Apple (AAPL) going into earnings to avoid risk of knee jerk reaction - the stock dumped all day falling from high $90s to low $90s during the session. Despite a nice earnings report (and tepid guidance) the stock popped later in the week but only to regain where it started the day Tuesday. I kept liquidating the rest of the week in small piece because the stock held up. This is a very backwards situation to normal practice as we would usually look to stocks that hold up as beacons of strength but in this market you are happy to sell anything without a huge loss. This is a sign of the times.
4. We've tried good news, we've tried buybacks, the last thing we can try are companies with huge dividend yields. This way if the yield is 20% and the stock drops 20%, at least we are "even" a year later. Based on multiple sources of information, I went into Linn Energy (LINE) as a starter position with a 16%ish yield when we got in. This area has many many many names and different flavors of the same idea - high yield "partnerships"; I am not an expert on this group but people who follow this area seem to be seeing some historic yields and valuations - nothing else is working so we will try it.
5. Wednesday, we restarted an old position for us, healthcare diagnostic company Illumina (ILMN) which was down 17% on earnings (although at the time I could not identify a culprit) and 38% from where we sold it about 6 weeks ago.
6. Thursday Alliance Data Systems (ADS) reported solid earnings, jumped up 5% to around $50 - and we took that profit immediately because that is all we can find nowadays. By the next afternoon the stock had fallen as low as $42s. Just a pathetic situation.
7. We added to our pawn shop, EZCORP (EZPW) which was down to the mid $13s from the mid $16s, just 48 hours earlier - i.e. 18% loss in 2 sessions. There seemed to be some negative reaction to competitior Cash America (CSH).
8. We added to contract research organization ICON (ICLR) which was selling off nearly 20% on competitor Covance's (CVD) earnings? I guess. I have no idea what ICON was beaten so severely when just this Tuesday it reported stellar earnings. 48 hours later it's being hammered on a competitor's commentary. Again, proving the frustration in this market as no amount of good news seems to provide a shelter for long.

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