Bookkeeping: Taking Some More Profits on the "Mark Up Rally"

The institutions did a great job of marking this market up into the year end - we put nearly 4% on in the past day and a half. If the 3 PM shenanigans return they might even be able to tack on more and as I stated this weekend mark the market up >5% to get it to 920 on Dec 31st at 4 PM. I wrote in this weekend's summary

Now if I were a cynic, I'd still cling to my year end "mark up" theory - that is hedge funds using the last few days to push the market up to make their books look a lot better than they are.

So within a range of 850 to 920 we're at the lower end and a nice 3 days push of 5% on the S&P would take us to the top of the range - have us close at/near the high of the past two months, we can talk about "great strength to close the year", "January small cap effect", "mustard seeds", "the government will take away most of our ills" and "President Elect Midas is coming". But only a cynic would believe the market could be manipulated like that and clearly we don't see abhorrent behavior like this in the casino. It would be much too obvious....

This is the type of garbage that showcases why I am cynical about everything to do with this "efficient market". Folks, the longer you are around the market day in and day out the more you see how much of a Wild Wild West (with no sheriff/regulator) it is. I mean, this one was obvious - the institutions play the "mark up game" going into every quarter end - everyone just sort of winks about it; even the CNBC folks just chuckle. So of course in the worst year in decades the odds are high they are going to play the "mark up" game going into the last few days of the year. Then we can all feel somewhat less worse about the horrid performance numbers most of these guys put up in 2009. Somehow even I can see this game and predict it ahead of time, but our regulators do not... but it's the casino and the casino owners make sure the regulators have little power.

So let's clap and cheer and watch the 3 PM jump the shark moment - why not, one more to finish the year? I'm going to continue to be a doubter - basically faith in Ben Bernanke and Obama are all the bulls really have. Yesterday the government gave money to GMAC and GMAC promptly went out and is giving 0% 5 year car loans to people with subprime credit. That's the ticket! Sadly that is the how we are planning to revive this economy - return to the ways that got us here in the first place. But this time around the Federal Reserve will be buying those bad loans and we'll take the hit as taxpayers - both on the front end (giving our tax dollars away so companies can make bad loans) and back end (when we take in these bad loans so that the Fed can "stimulate" credit markets - remember they are going to buy some hundreds of billions of car loans, student loans, and the like as they print free money for everyone). Capitalism!

If we close above S&P 920 for a few days after the retail report next Thursday and employment report Friday and shrug off everything due to the best inauguration speech ever coming on the 20th I'll reconsider and add more long exposure. I actually feel sorry for Obama - the expectations on this guy are so enormous; by next summer when all the dreams of the nation are not fulfilled he might get a backlash. That would be unfair but right now he is expected to part the seas.

Some transactions today...

(A) Emergent BioSolutions (EBS) continues to give us trade after trade - the gift that keeps on giving. We added to it Monday when it fell to the 20 day moving average (we added in the $23.50s) I wrote

Increasing EBS exposure from 2.3% to a 3.4% stake, adding in the $23.50s. These replace the shares sold on Dec 22nd at $26.16; or a 10% reduction in cost base in a week on this batch of shares. Again, I'd like to stress there could be trouble ahead due to the failure to break through $26.

So I am just repeating the exact same trade I did previously - selling in the $26s, with hopes to buy lower. Or if the stock finally breaks clear of $26 a new "leg" of gains should be ahead of us and I'll pay up to get our position size back. For now I dropped this from a 3.7% stake to 2.3% with sales in the $26.10s. This stock has been perfect with a core (always keep a core) and edge (trade the edge) strategy. We're booking a two day, 11% gain in the "edge". So once more the 20 day moving average has moved up to $24 - I'd like to be a buyer there or if the stock gets to $27 or so... EBS has stalled out at 26ish about 8 times the past month so until proven otherwise that is the ceiling and I'll let go exposure each time we hit our head there.

(B) Life Partner Holdings (LPHI) is one of those "stocking stuffers" that a couple mutual funds must be buying today to show their investors "look how smart we are - ignore those 40% losses in your 401k statement! We've held the best stocks all quarter - trust us!" At 11:30 Am or so it took off in a 45 degree angle and its jumped from $41.00 to $43.70s. This is one name I have never owned enough of, but I am going to sell off most of my remaining holdings into what I perceive to be window dressing - the 20 day moving average is down at $37 (where I'd like to buy more) so it's quite a ways away from any support after today's move. I'm going to cut this from a 0.8% stake to 0.1% with sales in the $43.70s - one of the best charts out there and again, my main mistake here is not owning enough.

(C) I am cutting Mosaic (MOS) by two thirds going into earnings next Monday. I expect the phosphates business to continue to be weak and Potash (POT) even warned on the potash side of the business; that said it could all be priced into the stock. Mosaic is sitting right under its 50 day moving average (low $35s) so we're exiting in the $34.90s. We're reducing it from a 1.7% stake to 0.7%. I'd like to see this name cross over recent highs and get to about $40 to have conviction that its ready to be anything more than a trade. For newer readers I do not play the "earnings game" (pile into a stock ahead of earnings, pull the slot machine arm and hope I get a "beat!")

To offset this I added to iShares Xinhau China 25 (FXI) and Jacobs Engineering (JEC) - both these have held support and as we said in this weekend's round up, we were willing to jump back in if they did so. We cut both back last week as they tested support - now they have held, so we're willing to get some of our exposure back.

Long all names mentioned in fund; long FXI/JEC in personal account