Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 17

Year 2, Week 17 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 (2 positions [SHV/BIL] + cash): 38.0% (vs 37.0% last week)
32 long bias: 53.1% (vs 55.0% last week)
7 short bias: 8.9% (vs 8.0% last week)

41 positions (vs 45 last week)
Additions: N/A

Removals: Joy Global (JOYG), Lennar (LEN), CME Group (CME), Alliance Data Systems (ADS)

Top 10 positions = 31.6% of fund (vs 30.7% last week)
30 of the 41 positions are at least 1% of the fund's overall holdings (73%)

Major changes and weekly thoughts
In the continuing "best since..." and "worst since" patterns we've enjoyed all of 2008, last week was the "best weekly return since the Great Depression"; in a very short week to boot. No surprise since we are coming off a 3 month "worst of". Similar to what we've seen all year some very sharp "V" shaped reversals that can sap the gains of the shorts in hours. If you were short Citigroup (C) a week ago Friday you were down 100% Monday; if you were long Ultrashort Real Estate (SRS) you were down over 50% within a few days, etc. So when anyone says it is "easy" and "just be short" during a bear market - nothing is so easy. This market remains not for investors and only for traders - and only the very quick and nimble types. Frankly a mutual fund with large girth has little chance in this type of environment where moving in and out of positions means more than any knowledge of companies or fundametals. The casino lives on....

While last week felt better because we were going up instead of down, almost none of our conditions for investing improved.

1. reduction in volatility
2. separation of "benign" sectors from "poor" sectors
3. separation of "solid" companies from not so solid within a sector
4. the end of "student body left" (sell everything!) and "student body right" (buy everything!) trading
5. the ability to invest in 98% of stocks with more than a 2-48 hour time frame
6. the emergence of any sort of sustained leadership
7. stocks that go up on bad news (bad news priced in) .... or at least stocks that respond to good news!
8. individual company metrics mean more than government announcements
9. a 20 second comment on CNBC doesn't move the stock market 5%

The only item I can say improved was #7; so that's 1 out of 9... nothing really positive there. Volatility remained off the charts; instead of "student body left" (down) we went "student body right"; on up days you just throw a dart and your stock goes up (same as on down days); no leadership (last week was led by garbage sectors like homebuilders, and financials), every day an Obama press conference led to 'confidence' in new leadership and a 'reason to buy', and we wake up every morning wondering what the government will do for us - last week was a Citigroup bailout on Monday followed by a $800B announcement for consumer loans on Tuesday. It appears they actually took Thursday and Friday off. So I can't really sit here with a straight face and say the action was positive; it was just up, instead of down. The metrics below the surface did not improve.

On the positive front; it does appear technical analysis is working - or worded differently I think the remaining institutional investors are just trading the heck out of this market based on nothing more than technical action. Fundamentals have been abandonded for a long time, and remain so. We are using S&P 840 and 870 as our guideposts - on closes north of 870 we remain positive leaning, on closes south of 840 we remain negative leaning; in between we have white noise. From a portfolio management point of view what we did last week was take off some positions that had enormous gains - we had some huge moves in Lennar (LEN), Ultra Real Estate (URE), James River Coal (JRCC), etc. We also took the move up as an opportunity to lighten up on individual long positions and since I don't have the ability to have stop losses, I moved long exposure from individual equities into an index ETF (Ultra Russell 2000). This does not mean I am super bullish on small cap stocks or anything of the like - it's a structural deficit in Marketocracy.com - if I could put stop losses in every long position I would; since I cannot - I am just taking money off the table as things run and then I only have to focus on 1 position instead of a bevy if the market reverses. Which it is apt to do on a moment's notice.

Last Thursday night I wrote

I have a hunch Americans will "come through" on Friday and shop 'til they drop due to the sales, but later into the Christmas season the numbers will be disappointing. But when the figures roll in Monday from the weekend, we have a good chance of hearing "the pronouncement of the death of the American consumer may have been premature" and we can all drink Kool Aid together. Until January 2009 when we see reality strike in terms of how bad Christmas was.

Lo and behold American consumers "came through" and Black Friday sales were up 7%+ish year over year. And what do we hear this morning - the American consumer is not so dead; the gasoline "tax cut" is helping, blah blah blah. Check back in January as I said above when we see the reality strike.

Things I'm watching specifically

1. Gold. This looked very healthy last week as the commodity spiked up and in a healthy market you buy that spike, thinking it is part 1 of a larger move. However this market is anything but healthy so despite "wanting" to buy this on a theoretical "reinflation" trade, I did not - today gold is down 5%. This has been a problem all year - buying almost any trading vehicle on breakouts has been a loser's games. Frankly this has been my personal bread and butter for years so this environment is a total game changer for me - and many others. We like to buy "strength" - an object in motion tends to remain in motion. Stocks/ETFs in uptrends tend to remain so; but not anymore. If you buy on day 3 of a breakout in the current environment you already missed the move, and are subject to a heck of a nasty reversal. Which goes back to the point I repeat above - this simply is not a market for investors; only short term traders.
2. Bonds. Despite the "health" of the market last week, bonds continue to be bid up - it is quite amazing what we are seeing - 10 year bonds are now yielding near nothing in relation to inflation. What SHOULD of happened last week as the market was acting "well" was a flight away from safety - bond prices down, yields up. Instead the opposite happened. I consider that strange and telling. From my viewpoint this tells me smart money is still very afraid.
3. Infrastructure stocks - I am sort of snorting to self watching these infrastructure stocks bid up on "New Deal 2.0" hopes. If you have been a long time reader you can remember my snorting this summer at "buy technology stocks - they are a safe haven!" or "buy consumer stocks because gasoline dropping from $4 to $2 will cause a flurry of mall shopping and home buying!" These both "worked" as thesis by traders for a few weeks until they broke down completely - this is what the market is all about nowadays - thesis. Find something, create a story and sell it to news media as reason the stocks are up. Then 6 weeks later when the stocks crater you look foolish but hey the trade worked for a few weeks - technology ended up "not so safe" and the consumer didn't quite come back from the extra $15 a week in her pocket. But that's ok, we can still run up these stocks for foolish reasons. Just as now, many infrastructure projects which AT BEST will generate meaningful revenue 18 months out are being bid up anticipating the $500-$700Billion being tossed around as the next stimulus plan. It is laughable - but this is what the market is. Again, nothing to do with fundamentals.
4. Bank of America (BAC) - with that Countrywide portfolio; I think they will be the next one the shorts target. They should be the next target of our tax payer generosity.
5. Government - more bailouts on the way; the more I read the more I think the Federal Reserve is just getting warmed up for it's big act in 2009.

Once more let me repeat - the economic news is bad, will be bad, and remain so for a long time. I think the market and pundits still underestimate the type of recession we are going through - they keep pushing out a recovery everytime their dream of one does not come to fruition, 6 months out. Now the sexy thing is "2nd half 2009". There will be no recovery then in the real economy. But for many more quarters to come we will have bouts of "hope" and "reality"... for example we have another jobs number this Friday. It shall be awful. But if it's "in line" or "better than expected" the stock market will "rally" - it is all nonsense as all these job losses are going to be real pain in the economy but we'll be told to "look through the abyss - it can't get worse" - from the same people who told us to buy the Bear Stearns bottom, housing won't ever drop nationwide, to buy stocks now that Fannie/Freddie are taken care of, blah blah blah. So the point being; there is no reason to be overly exposed to stocks for a long while. We'll have these violent oversold rallies but other than very short term traders this does not remain an environment to be exposed to... there is no investing going on here. Only casino action. And a market that relies on it's nanny - the government - for the ok to buy.