Bookkeeping: Taking Some Profits - Thanks Obama

Ironically there is a great role reversal as commodities/global growth have taken over what financials/housing/retail was in spring and summer 2008. That is, a very hated group that after being sold relentlessly enjoyed enormous short term bounces.

We are now in day 3 of the "Obama will save us with infrastructure" specific bounce - so I am going to be start taking some commodity exposure off the table here. The "monolithic" trading (student body left and right) within sectors continues. Every stock in said sector is the same - the stock name is meaningless - either the sector is good or bad.

1. Cutting A-Power Energy (APWR) from a 3.4% stake to 2.4% stake (taking 30% of position off the table) as the stock rallies to $5.20s. Note, I believe fair value for this stock is far (FAR!) higher but this is just a trading call - when the stock gets back over its 50 day moving average this will be a far larger stake in the fund as I think fair value lies in the $20s+. The market disagrees with me. Much of this was bought in the upper $3s to lower $4s, so we have about a 30% gain on that batch (still at a large loss on the overall position) Obama is so powerful he even impacts Chinese infrastructure stocks.
2. Cutting James River Coal (JRCC) from a 0.8% stake to 0.2% stake with sales just over $13. Resistance lies just over $14. Pundits told me Obama is an enemy of coal, but since Obama causes all our ills to go away with a snap of a finger his midas touch can even cause sectors he is out to destroy to go up. He is just that good.
   
3. Cutting Mosaic (MOS) from a 1.8% stake to 0.9% with sales in the $34s; resistance lies near $40 where we'll cut the rest.
4. Cutting Potash (POT) from a 2.2% stake to 1.1% with sales just under $67; resistance lies in the lower $80s where we'll cut the rest.

If none of these continue upward to their next resistance that is fine too, as we've taken some of our profits and we will be ok either way.

That's all we really have left in the global growth area - I probably should own Ultra Basic Material (UYM) as the upside hedge to the Ultrashort we own (in very small % currently) since it's all about ETF trading nowadays. Frankly we got caught flat footed on this Obama trade since I thought everyone was aware he was all about infrastructure. We even highlighted this group last week [Back of Envelope Look at Infrastructure] and yet did not catch the move - which is why it's a lot easier being a strategist than an investor. We'll be buyers on pullbacks and begin to add infrastructure exposure again on the next leg down because thesis is more important than reality. Once more our favorites would probably be Fluor (FLR), Jacobs Engineering (JEC), Foster Wheeler (FWLT) and for valuation KBR (KBR). One also has multiple basic material names to own in this space, cement and the like. Ironically all the things that were running on either the US housing boom or BRIC country growth. With that said, the "rule" is new bull markets are not led by old leaders and this was the leadership group for 2007 and 1st half 2008, so I would find it hard to believe they become the new leadership group.

I am scratching my head why solar stocks have not had a huge run hear since Obama "hearts" solar. Maybe if a television interview catches him saying it explicitly (which is the only time the market seems to reacts) "solar is very cool" we can get 200-500% moves in those names in 3 sessions.

Outside of those names, I continue to cut back Ultra Financial (UYG) and Ultra Real Estate (URE) - I don't normally discuss each ETF trade because they are more hedges than positions but since ETFs have become more important than individual stocks I guess I should spend more time talking about what I'm doing with them. After the "good" reaction to the jobs report I got these two up to 4.75-5.25% stakes and they spikes together up to about a 12% stake Monday. I've been liquidating them through the week and now the former is down to a 2.4% stake and the latter is a 1.2% stake. So in a snap of a finger (48 hours) we've gone from 12% exposure to about 3.5%. I don't see any fundamental reason, outside of government intervention for the financials and "hope" for the real estate for the rally - but I am not going to turn down a profit making opportunity when Kool Aid brings it. Both have stalled at key resistance and I am itching to get some more of the Ultrashort that bets against both these sectors but not until the market weakens. Or, being flexible, if we rally straight to inauguration day - once these break above current resistance (blue line) above we'll jump back in and cheer until the red line (50 day moving average. Then short ;) It's all about sentiment baby - certainly nothing to do with fundamentals which in fact appear to be degrading fast.

I'm monitoring other positions to sell; remember the higher we go, the game plan is to get more in cash (but not begin to short) until the market turns back from hope to reality. The "easy" money of this move has now been made and I'll forgo the next part of the move up, if there is one, for safety. We had about 11-12 earning warnings the past 48 hours and the market shrugs it all off. That is good from a "stock market" perspective but as I said repeatedly we will swing from hope to reality throughout 2009, and we are not going to get caught in the hoopla of hope. There are real people with real problems being caused by all these job losses in an economy driven 70% by consumption. The idea that road projects and broadband upgrades that are LONG overdue is going to save us in 2009 is silly. But it's thesis, and thesis is all that matters. What we wanted to see is a change in character - when the dip comes will the buyers surface or run away? So far they have surfaced so we have to remain constructive to the upside while intellectually shaking our head. Just as we don't want to stand in front of a stampede of razor clawed bears, neither do we want to stand in front of drunken (on Kool Aid) bulls.

Those of you who caught the DryShips (DRYS) move, I salute you. This apparently is now the daytraders choice of plaything. Just don't be greedy - you caught 3 years of gains in 3 days.

I will be looking at some other names to sell off as we build up cash if the market continues its Obama Love Fest....

Long Mosaic, Potash, James River Coal, A-Power Energy, Ultra Financial, Ultra Real Estate in fund; long A-Power Energy in personal account