Tuesday, September 9, 2008

Do Earnings Matter?

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I've said for a long while now fundamentals do not matter in this market. I've compiled a list of stocks below with P/E ratios of 2009 estimates which in most cases are about 15 months out. I like to compare earnings versus growth rates. I use my estimate for the next 3 year growth rate, but what I used below is a 1 year growth rate. So while we hide under the bed about the death of the global economy (ex the USA) we see companies that should be slowing from 30,50,100% type of growth down to 20-30% over the coming years. Those are valued at forward PE ratios of 5.

Meanwhile at the bottom I listed companies which are reliant on the strong and improving US consumers - the so called sexy sectors, 1 homebuilder, 1 airliner, 1 retailer, and 1 bank. These are trading 3x the valuation (if they are profitable at all) the stocks we are fearing are going to tank from 50%+ growth rates to 30, 25, 20, heck 15%. 15% growth would be superior to just about anything the current 'sexy' stocks will be able to put up.

So again, I understand the rotation, I understand the thesis, I understand the liquidation. I can only hope one day valuations matter (and yes I realize commodity stocks are cyclical and someday they might have lower earnings than the previous year - but you can apply the same logic to housing stocks, retail stocks, airline stocks or banks)

I will be, as I stated earlier today, interested to see if M&A activity begins to really perk up if the "investor class" continues to value such merchandise at these prices - the "business class" obviously would have a different view on valuation.

But for us measly investors - the theme remains the same: valuation means nothing. Fundamentals mean nothing. "Invest" on hope and rotation thesis of a 'recovery' in '6 months', no matter what the data says because everyone else is front running a 'recovery'.



Allen Iverson Can't Sell his Home

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Speaking of housing, let's take a lighter look at the news - it appears A.I. (for those non basketball fans, that's Allen Iverson's nickname) cannot sell his home - he bought it in 2003 for $5 million and now has it listed at $4 million. He listed at $6.3 million - hah! Mr Iverson this isn't 2006 my friend. So even the high end is having a tough time, eh? Unless you are in Manhattan and foreign buyers are willing to pay any price with the US Peso (despite its "surge") down for 6 years in relentless fashion. Elsewhere, prices are in some cases back at 2003 levels. So Mr Iverson is as we say "underwater" joining a good many (more by the day) across the country. If he holds out a year, the government in its desperation to stop the housing/credit/financial contraction, might just buy it from him. We're just not at that stage yet... :)
  • Two NBA All-Stars who listed their houses last year have cut their prices -- Allen Iverson by 37% in the Philadelphia area, Rasheed Wallace by 6% in Portland, Ore.
  • Mr. Iverson and his wife, Tawanna, put their house on the market after the Philadelphia 76ers traded him in 2006 to the Denver Nuggets. Built in 1991, the six-bedroom, 14,000-square-foot house is in Villanova, about 20 miles northwest of Philadelphia. The four-floor French-style house has arched Palladian windows, a movie theater and a guest suite, according to the listing. The four-acre property includes a poolhouse and a stream.
  • The 33-year-old guard paid $5 million for the house in 2003, records show, and listed it for $6.3 million; he's now asking $4 million.
Here is a link with a lot of nice pictures for those readers in the Philly area who are interested.

Here is the official MLS listing.

If you do end up buying, remember I have a 1% referral fee. Your welcome.

Bookkeeping: Adding Back Lennar (LEN)

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It's a traders market. We cut homebuilder Lennar (LEN) yesterday in the low $15s saying

When given gifts, take them - especially in this market. Cutting homebuilder from 1.7% stake to Lennar (LEN)0.1% stake on this gyration up to $16. Cut it in the low $15s. We'll see if we can get it back in the low $13s or lower.

Well it is now in the low $13s, trading in the $13.10s, about 24 hours later. That's over a 13% drop. So we're taking it back UP to a 1.2% stake.

Again, I don't believe for 1 moment the housing industry will be fine in 6 months but pathetically this has been among the best performing groups since hedge funds need to find something to ride. Today there was another in a long litanty of bad news items out of the group (1 month ago pending sales was "good" and everyone screamed the bottom was in - now today the number is bad and no one mentions it)
  • Pending U.S. home sales fell more than expected in July as the housing market's struggles continued, an industry group said Tuesday.
  • The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels.
  • Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.
  • Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 88.6. The index, which sunk to a record low of 83 in March, stood at 92.2 in July 2007.
  • Many in the real estate industry are hopeful that these standards will be relaxed with Fannie and Freddie under government control, but the outlook remains uncertain. (hope. You see that word everywhere. Reality is not useful. Hope is)
also a sector downgrade today
  • Homebuilders continue to suffer declines in buyer traffic even as their stocks have rallied, said an analyst who downgraded several homebuilder stocks Tuesday.
  • Credit Suisse's Daniel Oppenheim lowered his rating on the homebuilder sector to "Market Weight" from "Overweight" in a client note. He also cut four individual stocks to "Neutral" from "Overweight": DR Horton Inc., KB Home, Toll Brothers Inc. and Pulte Homes Inc.
  • An in-house survey of real estate agents indicated declines in buyer traffic in August due to fears of falling home prices, concerns about the economy and difficulties finding, or qualifying for, an affordable mortgage, the analyst wrote. (this is reality - remember summer is the biggest buying season - what happens in "6 months" otherwise known as winter)
  • Oppenheim added that the recent bailout of mortgage giants Fannie Mae and Freddie Mac will lower mortgage rates, but not by enough to spur sales. (don't you worry, this will be used as a reason for another rally in the near future. And yes it does help, but we have such larger problems that it's just 1 offset to a multitude of problems - i.e. unemployed people don't really buy homes, people without savings don't buy homes - unless its 2003-2006)
That said, reality does not matter in the virtual hedge fund world - just making trades. I am hoping for it to go back even lower and then we can build it up to a larger stake. Until then, we'll trade it if it remains range bound like this. This is nothing but a rental, we don't believe in the fundamentals or any bottom anytime soon in the "real economy" although the stocks might be calling a bottom 3 years in advance. This is all we are left with as stocks with real fundamentals are systematically destroyed since too many levered hedge funds own them. Hence these underowned stocks are "safer". I've debated buying multiple home stocks but again this is not a stock pickers market, its a sector allocation market. Owning 1 homebuilder is the same as owning 40. So instead of buying a basket, we'll just own 1 and start making it a larger stake. Since no matter what reality is, we will be shouted down by the "home buying will rebound soon" crowd (who has a lot of money) we will continue to buy this on pullbacks. But hopefully larger pullbacks than this. ($10s or $11s would be nice)

Now that we have the government internvetion out of the way, hopefully we can go retest those July lows without the invisible hand messing up what will happen anyhow.

Long Lennar in fund; no personal position


Smart Money is Buying - So Should You! (Revisited)

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A reader was nice enough to email me an article from John Mauldin which has this very excellent chart about the losses suffered by sovereign wealth funds aka "smart money". I mocked the buys at the time wondering if the fact you sit on a pile of dead dinosaurs qualifies you as smart money, but the pundits would have none of that. They screamed for us to get into financials because "this clearly marked the bottom; once smart money is buying, so should you". You can see how that turned out below.

(click to enlarge - via Mauldin newsletter)


So if you are doing poorly, don't feel so bad - these sovereign wealth funds got terms for their capital infusions that a normal investor would never of gotten, and still are losing on average 30-50%. That's just what "smart money" does. Again give me a call when the CEOs of banks across the board are buying in big swaths. They are the "smart money" - they know (to some degree, some seem clueless) how bad their situation is. Why are they not out there buying stocks left and right of their own companies? That says it all.

I won't rewrite my thoughts because I outlined them quite well in June [WSJ: Where will US Banks Beg Next?] so I'll just repeat it below for newer readers. Note - the pundits were finally correct for at least a month off of the July 15th bottom that financials were the place to be, but not after destroying their capital for months on end. See, when you lose 40% you need to make back over 60% just to break even. That's the problem with taking huge losses calling multiple bottoms. And again here is the scary thing - we have about $500B+ of losses in the financial system and have burned "smart investors" throughout the world who bought our cra... err, astute financial institutions.

(click to enlarge - this came from same Mauldin newsletter)


If many of the people who have called this correctly so far are right [Aug 20: Nouriel Roubini: "Told you So"], we have at minimum another $500B in losses to come. Where will the money come from? I will tell you right now. As things degrade there will be only 1 entity in the world who will provide the capital. That entity will be you. Otherwise known as the U.S. taxpayer. Freddie/Fannie is not the end of the 'capital infusions by US government'. It's still in the early stages. We cannot be allowed to have deflation - the government fears it - so it will create as much inflation as it can to stave off deflation - that means creating dollars out of thin air (printing press) and borrowing more and more from our friends across the globe. So instead of asking our friends to invest directly into our broken banking system and lose 30,40,50% - we will give them US Treasuries and a nice safe interest rate. And then we'll take their money and lose 30,40,50% ourselves :) Or buy mortgage back securities (we are already doing that as of Sunday night) And eventually we could be buying homes directly (we are currently not allowed to do that, but the rules have been changed for many things in the past year - this will in my estimation be the end game for the US government - literally buying mortgages directly) Will this cause the US deficit to balloon even further? Yes. But we can't worry about that as a government since we just look out for our short term interests. We kick the can down the road and will keep up appearances today. The problems we cause for the long run are someone else's troubles. This has been the policy for 30 years now, so why not keep it going. It's worked like a charm so far.

Here is my post from early June below -

This is an amusing story from today's Wall Street Journal; but before we go through it let's review 2 specific type of "conventional wisdom" that was shoved down our throat by pundits in the late fall through winter - the "follow the smart money" thesis. We've had call after call after call (after call) about "it's time to load up financials since it cannot get worse and the bottom is in"' this started last summer in fact. All those pundits have frankly destroyed their clients accounts. They have used multiple reasons over the quarters. but one flavor of the day was "smart money is buying, so you should to".... smart money being mostly Arab money (but some Asian money as well). In fact after a sell off in November 2007, we set the stage for a December rally when Citibank sold a stake (at terrible terms) to Abu Dhabi [Nov 27: Citibank (C) Sells Stake to Abu Dhabi] I wrote

You can tell how desperate the situation is because if this were 2 years ago, people would be raising a fuss, and worried about those "darn foreigners" buying our assets. Now, we are greeting this with hero worship - thank god, someone showed up to buy our crap.

I recall people SCREAMING this marked the bottom in financials (2 months before emergency cuts by the Federal Reserve, 4 months before the Bear Stearns bailout) Not so much, in fact we saw a continued stream of capital injections [Dec 31: Merrill Lynch Tapped Singapore - Next China and Middle East] I wrote

One of the themes I have been mentioning lately is the mainstream press clamor for how this must be the bottom for the financials because the 'smart money' is in... by smart money they mean mostly people sitting on eons of dead dinosaurs. I actually make the argument that the more money you have the more risk you can take, because heck, if you blow a few billion here or there - well there are more dead dinosaurs producing petrodollars tomorrow, and the next day, and the next. As for China, well that trade surplus is not going anywhere soon... so if you blow a few billion, US consumers will send you a few more billion next week. So in fact 'smart money' doesn't have to nail bottoms or tops very accurately. It is people with limited capital that actually have to be a lot more careful.

Just because you have a lot of money from one arena doesn't mean you are a smart investor, especially if your money is through no work of your own. We've seen many people (think Paul Allen of Microsoft fame) who took huge sums and proceeded to destroy much of their wealth in their future investments. Is that smart money? Are heirs of fortunes from their parents "smart money"? Do you think Paris Hilton's investing prowess is something to be excited about? Are people who just happen to be sitting on huge amounts of long dead dinosaurs suddenly "schrewd"? That's the talking points we are handed by the financial media. I'd rather listen to Buffet myself. Remember, when you print billions of dollars each day due to your dead dinosaurs you can afford to be "early" or "buy high" for the "very very long term". For the rest of us, we don't have those benefits, so we need to invest accordingly.

In February I mentioned that as one type of "smart money" was piling in, another type of "smart money" was piling out of financials [Feb 18: Eddie Lampart Selling Out of Citigroup While Arabs/Asians Piling In] I wrote

Now in an interesting twist it appears we have smart US money selling to smart foreign money as hedge fund king Eddie Lampert was selling a third of his stake of Citigroup (at a severe loss), most likely at nearly the exact same time the foreigners began piling in. So which smart money do you follow? ;) What is interesting about the Lampert move is one of the conventional wisdom themes that I do believe in... cut your losses. Eddie was buying in mid $40s to mid $50s and was selling large stakes somewhere in the $30s. Citigroup today? mid $20s. So in the short run it at least saved him from some more losses, even if he locked in some very bad results.

But back to Citigroup and the financials, is if an imminent rebound is coming by "2nd half 2008" why would Lampert not sit and wait out for the return of the roaring good times everyone is talking about by this summer/fall? Food for thought. Lampert has had a bad time of things lately but since the late 80s he has been one of the best in the business, so I'll still take his mind over those who benefit from sitting on dead dinosaurs or huge trade surpluses. And Buffet is not buying anything but stocks he has already been in, Wells Fargo (WF) and USB. I don't see any picking of carcasses there either. Strange considering we are going to be booming by 2nd half 2008.

And need I say anything about the "smart money" buying Bear Stearns? [Mar 13: "Smart Money" is Buying, So Should You!] I wrote

One of the propagandas constantly offered by the financial media is "you should buy because smart money is buying". We heard this throughout the fall in the financials as Arabs/Asians were buying stakes... just do a search for "dinosaurs" on the blog for earlier posts about how dangerous this line of thinking is to your portfolio. Even non Arabs/Asians are being blown up by the financials. Back in September 07, Joseph Lewis, a billionaire was adding to a huge stake (now nearly 10%) in Bear Stearns (BSC). The stock was trading $105-$120 or so at the time, down from a 52 week high of $160. Trumpets blaring, the financial media (and many investor managers who appears as pundits in these outlets) told us "the bottom is in", "kitchen sink quarter" and "smart money is buying" financials - so should you!

Conclusion: Oops. Bear is down to nearly $50 today on solvency fears. Ouch. Now if you are a billionaire with a nearly 10% stake, this stinks, but you still have your 8 houses, 3 yachts and private jet. Life will go on. If you are a regular Joe investor and you listened to the hype - well you just took a bath that is going to take a long time to recover from. Now in today's era you could call your government representative and ask for a bailout of your stock losses as it's the "in thing" to do nowadays, but I digress.

So now that we've had the benefit of time, we can look back to see just how silly these calls were - even though they were advanced by just about every "expert" they paraded on financial TV (not to mention throughout the print press). The apologists will now revert to the time old tradition of saying "we didn't mean things would get better in 3 months, 6 months, 9 months, we meant 5 years". Tell that to your account which has been pummeled... or tell that to the Arabs and Asians.... so now we wonder where we will go next? Here is the article but the last phrase sums it up, beggars can't be choosers - and that's the state of our financial system... a bunch of beggars.

Bookkeeping: Closing Atwood Oceanics (ATW)

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Atwood Oceanics (ATW) is an oil driller which now trades at 11x Sep 2008 earnings of $3.30 and7x the estimate for 2009 ($5.32). However the market sees this as a vastly inferior stock to say comapnies that don't make any money but the hope is by 2010 they can. One day we'll look the charts and laugh that we sold this in the $36s... how outrageous. How stupid. That is the best time to buy we'll say! But much like the financials 90 days ago, there is now relentless selling pressure and even if you "buy in" a few days too early from the ultimate bottom (I know because I took some major pain buying Ultra Financial (UYG) literally 2 days too early) you take a lot of pain.

Right now until these hedge funds completely get clocked, emptied out, closed down - whatever they need to do, fundamentals continue to not matter. Readers will know I've been typing that for many months now. Either we are trading on hopes/dreams (economic recovery in "6 months") or "guess what hedge fund is being forced to sell non stop and which positions". I prefer not to trade on hopes that I do not believe in, nor can I guess when the hedge funds finally empty their holster. Even though I am quite clear when we look back a year from now, we'll look at a chart and say "my gosh people were selling ABC fertilizer stock for 5x 09 estimates? This coal stock was sold at 4x 09?? Why?" And we'll forgot the current environment.

On a fundamental basis there are cheap stocks hanging out all over the place. Buying these cheap stocks only is losing us money day after day. So for now we'll trade the "dream stocks" (housing/retail) on pullbacks since all that matters in the market now is enough hedge funds chasing a sector, no matter how wrong the thesis. Just like they chased into technology 60-70 days and drove those stocks up for no good reason. So now they are doing in the hopes/dream stocks - because as we all know as gasoline drops and we get another $15 a week in our pockets, homes, autos, clothing, et al will start selling like hot cakes. But only in the U.S. as the rest of the world will be immune to the benefits of lower oil prices. So says HAL 9000.

We started Atwood Oceanics in October 2007 and once had a mighty gain. That gain had its teeth kicked in and we exit with a $2200 loss, selling our 1.2% position. It has now made a COMPLETE round trip from where it was a year ago. Oil was in the $60s/$70s when I bought it - now its a full 50% higher yet the stock is lower. As I hear Republicans throughout the land cheer "drill baby drill". This is the market of illogic. Until we can use logic on a sustained basis the market is simply unbuyable. Again, I repeat, we'll look back at the chart in 1 year and say "why the heck were you selling at $36??" Answer: If a stock can trade at 11x estimates for 30% growth, it can trade at 8x, or 5x, or 2x earnings for 30% growth. Once the hedge funds abandon you, I guess there is no hope in this market. Off to find another homebuilder to buy! :)

At some point in the next week or two, much like financials in 1st half 2008 I expect this complex to gain 15-20% in 2 days across the board. People will moan and say "why didn't I buy! It was so clear the bottom is in!" That is so easy to say in theory, but in reality unless you time it well, you will just be making up losses. It is very easy to forget the "reality" of the past 2 days when the stocks reverse and put on those huge oversold rallies.

And away we go... Pulte Homes (PHM) or Toll Brothers (TOL) come to papa!

p.s. What do you get for $200 Billion, a move to socialism, dumping losses on taxpayers, and a huge potential increase in the federal deficit? a 0.1% net gain in the S&P in the past 36 hours. The government is trying to do its best to buy a rally but each iteration of bailout/surprise fed cuts/new Federal Reserve tactics is having less and less of an effect. Sort of like a drug addict ... each hit has less of an effect. Boo Yah.

Long Ultra Financial in fund; no personal position


Bookkeeping: Locking in Profits on Buckle (BKE)

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One of the hottest areas in the market is the American consumer (remember, we're buying now in anticipation of the 2011 recovery, the market is a "forward looking" mechanism) - one of our winners has been Buckle (BKE) which has just put on a $49 to $59 move in 2 weeks. That's 20% and in this market that is like gold. No wait, gold goes down 5% a day, so it's better than gold. So we are going to lock part of this gain in, and we'll look to add back to this stock on a pullback as it's nowhere near any longer term moving averages. Hopefully we can pick some up in the lower $50s in the future. It is funny as the stock did a major headfake after it's last earnings report, when it initially acted badly in the face of stellar earnings [Aug 21: Buckle (BKE) - Great Results, Bad Stock Reaction]

We're cutting our exposure from 1.6% of fund to 0.6%

Now that we have less positions I plan to go "bigger" into the ones we do have so when we harvest gains from winners they will have a more material effect on the fund performance. By winners I mean financials, retailers, and housing stocks of course. But only those in the United States since we're impervious here to slowdowns.

[Aug 7: Initiating Position in Buckle]

Long Buckle in fund; no personal position


Bloomberg: Stocks at 25.8x Earnings

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Ouch, that can't be good. The irony is the expensive stocks are being bid up on hopes that their low earnings will improve in the future whereas the cheap stocks are being sold relentlessly because of fears their earnings will degrade in the future. I am more of a fan of future earnings rather than trailing earnings, since the past is the past but it's an interesting story nonetheless. Traditionally the market will trade at around 14-16x earnings so one could argue we are almost 80% overvalued? If... I repeat... if you believe the economic recovery (not that there was ever a downturn, I mean we just printed a 3.3% GDP quarter!) begins very early in 2009 than you can ignore the valuation and say this is "trough" earnings and the forward earnings will be much higher, and thus the market is "cheap" on forward earnings.

However, that was the same thesis for the '2nd half of 2008' back in the early part of the year (yes the market is expensive but based on our projections for 2nd half 2008 the market is cheap). I said that was a fantasy and it would be proven once we got "there" (here). Remember, back "then" they were predicting 60%+ year over year earnings growth in the fourth quarter of 2008 versus fourth quarter of 2007. So now we are here and many of those earnings are being slashed (for the 3rd quarter, but they still cling to hope for the 4th quarter) and now they are kicking the can into 2009 and using the same logic - i.e. the market is cheap if you look forward 6 months. I suppose we can do this over and over, and keep saying things are fine because in 6 months earnings will rebound. One day the pundits will even be correct.

We still live in denial. The US market rallies as the rest of the world drops on the belief "we will rebound first" So decoupling does not work on the way down, but it will work on the way up? We will somehow decouple from the rest of the world, despite having the worst of the issues (housing, credit, bailouts, federal budget deficits, consumers with 0% savings rate?) and rebound while the rest of the world suffers? Denial.
  • Since mid July the S&P 500 has gained 4.4 per cent. In contrast, MSCI’s EAFE index, covering the developed world outside the US, is down 3 per cent and its emerging markets index is down 8.3 per cent. So this rally saw the US gain at the rest of the world’s expense.
  • The best already may be over for the U.S. stock market this year. The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.
  • Wall Street forecasters, who were too optimistic about earnings for the past four quarters, predict income at America's biggest companies will grow by a record 62 percent in the final three months of 2008, according to data compiled by S&P. (so in a housing slump, credit contraction, consumer retraction economy - we will have record earnings growth next quarter? got it - Kool Aid time)
  • ``The market is pricing in the expectation of a good quarter, but we just don't see it,'' said Philip Orlando, who helps manage $350 billion as chief equity market strategist at Federated in New York. ``The fundamentals are going to be poor, earnings are going to be bad, and there are going to be more huge writedowns. We think stocks probably need to work 5 to 10 percent lower over the next month or two.''
  • Analyst estimates were at least 26 percentage points too high since the fourth quarter of 2007 as they failed to anticipate more than $500 billion of subprime-related bank losses and a slowing economy, according to data compiled by S&P and Bloomberg. (missed it by THAT much)
  • A combination of rising prices and falling earnings caused S&P 500 valuations to surge more than 20 percent this quarter, the biggest increase of any major market, making them the most expensive since November 2003. (remember, this is all based on the theme that as the world devolves into chaos and anarchy, the U.S. will rebound first and carry the torch - I doubt that very much - I believe the rest of the world will need to rebound and pull us out of the muck. Remember, we are the nexis of all the problems in the first place - how the heck are we going to lead anything?)
  • The index's price-earnings ratio rose above 25 three times in the last five decades, data compiled by Bloomberg show. The last was in 2001, during the bear market that followed the bursting of the dot-com bubble. The increase in valuations preceded a plunge that helped erase about half the market value of U.S. companies. (so we're at a level only reached 3x times in 50 years - that's not good)
  • S&P 500 companies will report aggregate earnings of $21.69 a share in the current quarter, a gain of 3.9 percent from a year ago, and $24.62 a share in the final three months of 2008, 62 percent higher than last year's fourth quarter, based on projections compiled by S&P. (Kool Aid)
  • ``The U.S. economy, while not strong, has a greater visibility of the bottom,'' said Gayle, the Richmond, Virginia- based chief investment strategist at RidgeWorth, which oversees $70 billion and went ``overweight'' U.S. stocks a month ago. Outside the U.S., ``the risk factor in the earnings estimates is a little higher than you might see on Wall Street.''
  • Should analysts overstate profits in the second half by the degree they did last quarter, earnings for S&P 500 companies will fall to about $72.17 a share. That would be below the level of 2005, when the S&P 500 was on average 5.9 percent lower than today. The U.S. economy won't support the earnings analysts predict, said Walter ``Bucky'' Hellwig, who oversees $30 billion at Morgan Asset Management in Birmingham, Alabama.
  • The most bullish profit forecasts are for U.S. financial companies. In the fourth quarter, brokerages and insurers will boost earnings almost fivefold from a year ago, analysts say. (gosh... cmon now - don't we ever learn) ``I don't believe we're through this credit crunch,'' said Stephen Wood, New York-based senior portfolio strategist at Russell Investments, which oversees $213 billion. ``Credit portfolios are beginning to deteriorate. Financials will continue to exert downward pressure on earnings for the balance of 2009.''
  • Michael Steinhardt, who returned an average 24 percent a year for almost three decades when he ran his New York-based hedge fund Steinhardt Management Co. (wow), said forecasts for an earnings rebound are a false hope. ``My intuition is that they are too early,'' he said. ``In an ordinary cycle, this should be the time to start thinking about buying. This isn't an ordinary cycle.'' (Bingo - this is what I keep saying. Most of todays 20/30/40 year old trader types only know the company led recessions of early 00s and early 90s - they don't remember, nor bother to read, about what a consumer led recession - 1970s and early 80s - looks like or how it works - so they are constantly buying "anticipating" the bounce that keeps failing them. And they continue to do so - as they have done much of the past year - not only a consumer led recession for the first time in 3 decades but one with a historic debt bubble and housing depression? And that will all get fixed in a span of 15 months?)
Had not heard of Steinhardt before but 24% annualized over nearly 3 decades is great - he ended his career in 95 so it was a different era, than the current 10 years of "Lost Decade" (0% gains in the S&P over past decade) but still interesting. [Mar 26 - WSJ: Stocks Tarnished by Lost Decade] More info on him here. And here.

Bookkeeping: Shrinking Further - 3 More Positions Out

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The commodity space continues to be demolished. Unfortunately, rhyme or reason is useless right now and when I look at long term charts I now see stocks which have given back most of their 2008 gains. I do understand the "slowdown" theme but when people are running into Home Depot (HD) for 2% growth with a nearly 20 multiple and selling stocks at now 10 multiples which will be "slowing" from 40-60% growth to 25-30%, there is really no justification. This is simply forced selling by hedge funds.



At some point these stocks will be excellent buys and much like the banks will enjoy a tremendous oversold bounce but the selling is simply relentless. Really jaw dropping I have to say. I've been selling 2-3 "global growth" stocks a week for the past 5-6 weeks and still the ones that remain in the portfolio cause a lot of damage. The time frames for "wins" in these names are simply too short - I got in some late Thursday/early Friday hoping for a 48-72 hour bounce and by Monday AM many were down 8%+. So it simply "too hard" to own these, and the irony will be when everyone gives up on them, they will rally.

Again, these are either signaling (a) massive delevering of the hedge fund community or (b) the type of global recession you will want to stock up canned food at this moment. The fact that the stocks of the commodity companies are being pummeled to the tune of 10-12% a day while the actual underlying commodities are now holding up or even going up (at worst flattish the past week or two) is pointing to the (a) condition. Like I said - someone who times the buys perfectly is going to make a lot of money at the bottom, but right now the bottom seems endless. It is really amazing to see, the same action in a group with profits and growth, as we saw in financials and retailers and the like over the past year.

I'm selling 3 more names since this market is currently making no sense to me. I do "get" the rotation thesis, but when you have to know which hedge funds are liquidating what stocks every day - that has nothing to do with investing anymore, and hence makes the market impossible to invest in. I'm an investor, not a hedge fund tracker. So this is not the market for me as I now have multiple stocks with forward P/Es of 10 or less being sold off to the tune of 8-10% a day.

Right now we have given back 13 months of work, and are right back where we started - pathetically that is outperforming 99% of equity mutual funds over the past 13 months but it feels like a big waste at this moment. I'm a fundamentalist at heart even if I talk about charts all the time, and fundamental investing is simply being mocked right now. Fast money is moving too quickly and building on trends is worthless unless you are going with the "hope" trend i.e. buy these stocks because we hope in 6 months the housing, financial, credit, and economic conditions will be just fine... in the US only of course. The rest of the world? It will die off.

Chinese search/gaming stock Sohu.com (SOHU) we are leaving with a $900 loss. The stock has pulled back to its 200 day moving average, and might be a good buy here but frankly when you are beaten over the head so many times you don't feel like even testing something to see if its a good buy when there is a 80% chance you will lose money. So I'm "capitulating". We started this position in February 2008 and exit the 0.8% stake in the $65s.

The ETF for cattle/hogs is iPath DJ Livestock ETN (COW) - my thesis here is grain inflation will pass through to meats. I still believe that to be true but truth matters little in this market. This has actually held up ok but only due to the fact our original purchase was at a decent price did we not lose a lot of money. We started this in April 2008 and leave with a $900 loss as well. Another 0.8% stake.

Another commodity stock leaves with iron ore maker Cleveland Cliffs (CLF) - while iron ore prices are keeping up, showing little of the weakness that natural gas or crude oil has shown, it simply does not matter. Hedge funds piled into this name and now are being forced out en masse. What I would really like to see and be interested is seeing takeover activity in this space - since these companies actually have hard assets that are of value, if these selloffs continue some larger companies in the sector should be coming in to buy assets on the cheap. We shall see if it happens. Next year analysts believe this stock will earning $16, whic is more than double 2008 earnings - this means it trade at 5x 2009 estimates. Obviously that does not matter in this market. Charts say this could be $40 tomorrow and if you are going to trade at 5x 2009 estimates why not 2x? or 1x? Maybe we can get this to $0. Why not. Better to buy Macy's (M). We gave back a ton of gains in this one but leave with a $4400 gain after starting the position in March 2008. This is a 1.20% stake that we just pushed up from 0.3% late last week.


As bad as the situation is, the reality is we've sold a ton of these type of commodity/global growth stocks, and cut back on a lot of others. But by simply re-entering the group for a "trade" late last week we've been neutered within 24 hours. This is simply not a market worth bothering with at the moment. Again, I expect these stocks to rally when everyone has simply been disgusted and sold out. That's typical of the market.

No positions

Will Danoff in Kiplinger Magazine

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Will Danoff is one of those "best of breed" fund managers I follow, he runs Fidelity Contrafund (FCNTX) - he does not run a concentrated fund strategy but considering the size of his fund (now I believe the 7th or 9th biggest in America) he has had a very good run, although he skews to the larger cap type of stocks. I enjoy reading his thoughts when they are published in major publications and Kiplinger Magazine has an article about him this month. Like most, he has struggled this year, down nearly 17% year to date (down an additional 5% since the mid August interview) but I am posting some excerpts from the article below

His top 10 holdings are focused on technology and energy, specifically technology. From reading the article we have some similar thoughts on foreign companies, the standard of living drop in America that is coming (happening), and a recent push into healthcare stocks. He is also still avoiding financials due to their inability to grow earnings.... obviously the fast money is moving in opposite direction.
  • When we interviewed Will Danoff three years ago, the gregarious manager of Fidelity Contrafund was in the midst of a terrific year. His fund earned 16% in 2005, beating Standard & Poor's 500-stock index by 11 percentage points -- not too shabby for a fund with $60 billion in assets. Contra made money the next two years, trailing the market by four points in 2006 and clocking it by 14 in '07.
  • But Contra, now swollen to $71 billion and closed to new investors, has been unable to escape the bear's claws. Year-to-date to August 11, the fund lost 12%, lagging the market by almost two percentage points. "Clearly, this has not been a good year for shareholders of Contrafund," says Danoff, 48.
  • His long-term record remains solid. Since Danoff began running Contra in 1990, it has gained an annualized 15%. That tops the S&P 500 by an average of four percentage points per year and the average large-company growth fund by about five points per year.
  • Danoff excels at sizing up the big picture on the one hand, talking up company executives on the other, and using these inputs to fashion an investment plan.
Q&A Format below

KIPLINGER'S: How do you manage Contrafund in this kind of market?

DANOFF: The big picture is that the housing crisis is slowing the economy. That applies to the U.S., the rest of the developed world and to emerging markets. Demand is slowing, and costs are rising. You know that profit growth is going to slow for many companies, so in that environment, whom do you want to bet with? Do you want to bet on the number-four or -five player in an industry, or do you want to bet on the market leader, which has a sustainable competitive advantage?

The way you put it, the answer is self-evident.

Right. I'm trying to upgrade the quality of my portfolio every day. And right now, one of my main themes is big, multinational blue chips. A weak dollar helps the multinationals. Continued growth in emerging markets helps the multinationals. They tend to have very good business models and generate a tremendous amount of free cash flow. And they're under-owned, probably by institutions and certainly by hedge funds. Meanwhile, their share prices have bounced around the past eight or nine years, while their earnings have grown steadily at 10%, 12%, 14% a year. I'm thinking of companies like Coca-Cola, Procter & Gamble, PepsiCo. Their price-earnings ratios are half where they were at the start of the decade. In a tough environment, these types of companies often have better outlooks relative to other companies.

Your interest in multinationals suggests you doubt "the greatest global boom of all time" will end anytime soon.

Correct. But the U.S. consumer is facing the day of reckoning. If you're a U.S. worker who's making a product that isn't competitive, you can't expect to have two SUVs and a big house and a great pension. That world is ending. The U.S. standard of living is probably going to decline relative to the rest of the world. And the U.S. dollar will continue to weaken. But that's not so bad, because U.S. manufacturers are now very competitive. And the developing economies are going to want U.S.-made stuff, such as Nike sneakers and western foods and Coke.

You haven't increased the fund's cash position much -- cash is just 7.5% of assets.

I've always run relatively fully invested. Cash never goes above 10%. If it gets that high, I say to myself that I'm not hustling hard enough. For instance, I should have been much more aggressive in buying health-care stocks this year.

Why?

If the economy is weak, you can still make a case for innovative med-tech companies and innovative biotech companies. Of course, people are worried that if Obama wins the election, there will be more controls on medical care. But as people around the world get more and more wealthy there will be greater demand for health-care services. And the demographics here and in other developed countries suggest that people will need more and more pharmaceuticals, so that's an area with big opportunities. This isn't so much a sector call as an expectation that this area will attract a lot of innovative com-panies. Genentech has been an example of a world-class, innovative company in this sector. However, it recently became the target of an acquisition by Roche, which wants to buy the part of the company it doesn't already own.

Contrafund is light on financial stocks. Have you been tempted to load up on this battered sector?

Early in my career, some of the great investors here at Fidelity helped me see the importance of earnings, and that is something that has not changed. I believe very strongly that stocks go up because a company's earnings go up. (how quaint - not in this market) So I have a very simple approach. I ask, "Is the story improving?" And you can define that in many ways, but usually it's, "Which way are the earnings going?" In the case of the financials, the earnings estimates have been going down and so I, luckily, have mostly stayed away in the past 18 months. My experience is that after a sector has performed so poorly, there's a significant period of time before it begins a sustained recovery. I'm not convinced that we're going to see a multiyear period of outperformance by the financial stocks.

But you do own some financial stocks.

What I have tried to do is to upgrade, to find the best companies in that broken sector. So when I look at buying financials, I start with Wells Fargo and JPMorgan Chase. Wells Fargo has had some issues. It's had a lot of home-equity loans. But it's also had a strong balance sheet and a very strong management team. JPMorgan has the First USA credit-card franchise. That's been a good business, but you're probably going to see a lot more credit deterioration. Chase's Jamie Dimon has been a very good CEO. But look, there are at least 2,000 banks in the U.S. I would like to see significant consolidation.

You've been overweight in energy stocks. When we spoke with you three years ago, you said we were in the fifth inning of the energy boom. Where are we now?

The short answer is, I don't know. As the price of oil went to $145 a barrel, you could sense that there was euphoria. You started to see more merger activity, and you started to see some of the weaker players go into the capital markets to raise money. That kind of activity is usually going to lead to more supply, and that usually results in prices going down. But it's getting harder to find oil. ExxonMobil, one of the biggest oil companies in the world, has been having trouble replacing its reserves. As far as demand goes, the incremental consumer is in China and India. Wealth is increasing in those countries, and the people there want to own cars. And damn it, they have a right to own cars. So we may be entering into a period where oil bounces around from $100 to $120 and the stocks bounce around before there's another lift-off.

You have a large stake in Petrobras, the Brazilian oil company. What do you find so appealing about it?

In the resources area, I have learned that you want to focus on the assets. Management has been good, but it's the quality of the reserves that really matters. Petrobras has found some big reserves.

Does the order of your biggest holdings reflect your enthusiasm for the stocks? For example, Google is your biggest position.

The stock has been a big disappointment in the past couple of years. Google started hiring people like it was going out of style. And then all of a sudden, the company's growth went from 80% a year to 50%, so expenses started to grow faster than revenues, which meant profit margins were under pressure. And, yes, some advertisers are not advertising as much now. But the business model has been tremendous and Google has been very profitable. Where else could I have found 30%-plus growth with significant free-cash-flow generation and a stock that's trading at 20 times estimated 2009 earnings?

You own $2 billion worth of Apple. There are a lot of questions about Steve Jobs's health.

It's a concern. The guy is probably one of the world's ten greatest entrepreneurs. I'm assuming that if there were a real issue about his health, Apple would make an announcement. All I can tell you is that he started Apple, then he created Pixar and now he's back at Apple, where he created the iPod and the iPhone. When Apple introduced the iPhone, my main insight was that this meant that millions of people would go to Apple stores to look at the iPhone and then they'd look at Macintosh computers and that Apple's market share of computers would go up. It did.

Apple has certainly helped Contra's results.

If Apple thrived for the next five years, that would make my life easy. I need more companies for the fund that will do as well as Apple and Google have -- great, innovative companies with bright futures.

What excites you amoung stocks that aren't among your top holdings?

One is Activision Blizzard, which was formed by combining Activision with Vivendi's interactive-game business. This was a very shrewd deal engineered by Bobby Kotick, the CEO of Activision. He basically traded into the "World of Warcraft," a massive, multiplayer, online role-playing game. There are something like 12 million people playing 15 hours a week and paying $10 or $12 a month. It's a social thing, and it's a lot less expensive than driving to a movie theater, paying for the movie and hiring a baby sitter. And Activision also has "Guitar Hero," which has become a social phenomenon. People now are getting together with their friends and playing music with a video game. I should have bet more Activision stock. My challenge is to bet bigger earlier.

You own nearly 400 Stocks. Why so many?

I like owning lots of names.

Your crosstown rival, CGM's Ken Heebner, does just fine with 25 or so.

I want to be more like Ken Heebner. He's my hero.

Really?

His performance is staggering. What he does very well is marry the discipline of owning just 25 names with the idea of wanting to be the best performer. That leads him to the very-best-performing companies. He has an incredible knack for finding the market's true leadership.

At last report, you had 28% in foreign stocks. Why so much?

I'm leveraging one of Fidelity's strengths. We have a small army of analysts, including people in London, in Tokyo, in Hong Kong. And they help me find great companies that happen to be domiciled overseas.


Monday, September 8, 2008

S&P 500 Winners and Losers

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Hmm... here I thought we were positioned well for a big up day, having cut back our short exposure and getting quite long Friday. How very wrong.

Always interested on days like this when we are trailing the market so badly to see what is winning and what is losing - below are the best and worst performers of the S&P 500

Best - Banks & Homebuilders - and home related (Masco/Lowes/Whirlpool)

Symbol Company Name % Price Change Today
STI SunTrust Banks Inc 7.8
KBH KB Home 7.7
ZION Zions Bancorp 7.7
MAS Masco Corp 7.2
BK Bank of New York Mellon 7.2
RF Regions Financial Corp 6.8
PRU Prudential Financial Inc 6.4
DHI D.R. Horton Inc 6.3
MCO Moody's Corp 6.3
CMA Comerica Inc 6.2
WB Wachovia Corp 6.0
AW Allied Waste Industries Inc 5.9
PHM Pulte Homes Inc 5.9
AN Autonation Inc 5.9
GGP General Growth Properties 5.7
LOW Lowe's Companies Inc 5.6
LEN Lennar Corp 5.5
CME CME Group Inc 5.4
WHR Whirlpool Corp 5.1
MI Marshall & Ilsley Corp 5.1
STT State Street Corp 5.1

Worst - Lehman, Coal, Technology

Symbol Company Name % Price Change Today
LEH Lehman Brothers Holdings (15.43)
CF CF Industries Holdings Inc (9.76)
SNDK SanDisk Corp (9.75)
MEE Massey Energy Co (8.44)
CNX CONSOL Energy Inc (8.25)
BTU Peabody Energy Corp (6.14)
ATI Allegheny Technologies Inc (5.98)
X United States Steel Corp (5.60)
TIE Titanium Metals Corp (5.28)
GOOG Google Inc (4.14)

Somewhere HAL9000 is snickering to itself...

Bookkeeping: Continuing to Close Small Positions - 5 More Out the Door

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Much like on Friday I am going to close some small positions - even in names I like. I have to say the action in the market is so arbitrary it is worrying me. I'm finding fewer and fewer names to like from a technical perspective as the bear market claims more and more victims....

#1 Illumina (ILMN) is a healthcare technology stock that has treated us very well, a $10.5K gain since inception in December 2007. However this is a case example of a stock the bear has finally found, and has not been participating with the general healthcare space. It is very expensive but that has not stopped it in the past. We like this name and we'll revisit it later - but that appears to be a double top I spy (hence making it a short from a technical perspective until proven otherwise). We're selling the remaining 0.1% stake today.

#2 Gafisa (GFA) is a Brazilian homebuilder of extremely cheap valuation which cannot catch a break - despite an awful chart we made money on this name by taking profits much higher; $3.1K gain. This is a case example of why to take profits when the going is good - we sold a good bunch in that May spike, while losing money on most of the other parts of the position. Most of what we owned of late we punted into that spike north of $30 last week, so we are selling the remaining 0.1% stake today. We've have held this since November 2007. We'll be back to this name in the future and at some point I expect to make a lot of money here. Sadly, we're making more money with US homebuilders at this time because that's where the hedge funds are.

#3 Millicom International Cellular (MICC) is a telecom name that serves smaller Latin American countries as well as parts of Africa, etc. This name we've held twice; the last time around we rebought on July 31st under the theory of "buy stocks that are beaten down" but it has not rebounded from that $75-$76 area we bought. We selling for a very small profit as its in the $76s today and exiting the 0.2% stake we had remaining.

#4 Baidu.com (BIDU) is the Chinese search engine giant; another very pricey stock but another name where valuation means little - it trades on sentiment. We've been in and out a few times - I cut some earlier today and the chart looks to be in (potentially serious) trouble so I'll exit for now and re-assess later. $275 could turn into $225 without much work at all. This is the last 0.1% stake. We have a $9.0K gain overall in this name.

#5 Perfect World (PWRD) is a Chinese video game company that trades at a very large discount to growth but no one wants any piece of it. We began this position in May 2007 and are exiting the remaining 0.2% stake and taking a $5.2K loss. Aside from being a decent trading stock between $23 and $25 the near term future does not look too bright.

Usually I'd keep these sort of stocks in the bottom of the portfolio as "holding" stakes but the idea is to buy them on stronger action/breakouts - which has not been a successful strategy over the past few months in the market. So we're going to exit for now - all told this is only 0.7% in total of the portfolio but 5 less names to fuss over. I continue to like them all fundamentally, but fundamentals simply mean nothing at this point as I keep repeating. This makes investing with my methodology almost impossible.

To be blunt I could probably cut another 10 names with similar charts. This is why the market continues to have me worried. There are very little charts of strength. Most big up days are simply oversold stocks rebounding to technical resistance before they begin selling off again. That is very bearish action despite looking good when the nightly news reports tell you what the stock market did that day.

No positions

Troubling Action in both Technology and Commodities

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Despite the underlying commodities being up (agriculture and oil) the stocks in the commodity space are down. To me, this points to continuing liquidations / forced selling. It is remarkable that for much of the past year there seems to be a shortage of capital (delevering?); even on a huge up day only certain sectors are up, as if there is not enough money to push everything up at once.

Even more troubling is NASDAQ flat on the day? I find this worrisome and cut back Apple (AAPL), Research in Motion (RIMM), and Baidu.com (BIDU) to the bone - 0.1% stakes. I thought we'd at least get some sort of bounce here off of Friday and into today- nothing.

The action right now is completely head scratching. The dollar should be down, not up, on printing presses of American working overtime. But I've been saying the action has been random and abstract for many months now.

I continue to believe money flows of hedge funds are dominating price movement more than anything else - as leveraged bets are being forced to reverse, price action seems to be against any common sense rules. Perhaps some funds with the "technology" trade on, are now also being liquidated.

It remains a very dangerous market. I cannot find any rhyme or reason out there; the rip tides under the surface are telling a completely different tale than what appears on the surface.

Long all names mentioned in fund; long none in personal account

Some Crazy Action in Airlines Today

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Wow. I wonder if this falls under the SEC's new "rumor mongering" initiative - or does that only work when shorts attack financials with rumors? Say you are short airlines and you want to start a rumor than UAUA (UAL) is going bankrupt. Apparently this can move the stock down 60% in a few minutes.

4 minutes ago UAL says bankruptcy story completely untrue
6 minutes ago Shares of UAL halted

I wonder if the SEC will investigate to see who "covered" in the past 15 minutes. Or better yet any interesting put activity in the past 24-48 hours. I doubt it - they appear to be a toothless entity. Someone just made a lot of money from $12 to $4.

1 day chart below


EZCORP (EZPW) Acquires 11 Nevada Pawn Shops

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I guess EZCORP (EZPW) is considered a financial since it is flying this morning - or perhaps it's this news. Either way I am going to take this opportunity to cut the position by 1/3rd, selling in the $16.60s on the "gap up". We're reducing from a 2.4% stake to 1.6%.
  • Ezcorp Inc., which makes pawn and payday loans, said Friday it will buy 11 Nevada pawn shops operating under the Pawn Plus and ASAP Pawn brands in a $34.5 million cash-and-stock deal.
  • The transaction includes about $6.6 million in pawn loans, $2.2 million of inventory, $1.2 million in auto title loans and the remaining operating assets of the stores. Ezcorp said it will pay for half of the acquisition with cash and the other half with Class A nonvoting common stock.
  • President and Chief Executive Joe Rotunda said in a statement that the shops, which are located in Las Vegas and Henderson, Nev., will complement its four existing Las Vegas stores.
  • The company anticipates the shops will add 5 cents to 6 cents per share to its fiscal 2009 earnings.
Remember, this stock lost over 20% of it's value when it walked away from a deal that would of added 1 CENT to its quarterly EPS and full year EPS. [Aug 11: EZCORP Down 8% on Termination of Value Financial Deal] Therefore if the market were logical, a deal adding 5-6 cents should increase the value by $20% x 5-6 = 100-120%. Somehow I doubt that ;)

[Jul 24: Cash America (CSH) and EZCORP (EZPW) Both Report Today - Starting Small Stake in EZCORP]
[Jul 10: Another Payday Loan/Pawn Shop Breaks Out on Higher Guidance - A Trend Seems to be Afoot]
[Jul 7: Missed Opportunity in Cash America]

Long EZCORP in fund; no personal position


Bookkeeping: Cutting Lennar (LEN)

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When given gifts, take them - especially in this market. Cutting homebuilder Lennar (LEN) from 1.7% stake to 0.1% stake on this gyration up to $16. Cut it in the low $15s. We'll see if we can get it back in the low $13s or lower.

Long Lennar in fund; no personal position


Sector Allocation Comparison - 60 Days

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Since there is no easy sector analysis tool in Marketocracy.com I have to do this work by hand; but I like to look at the portfolio by sector quite often. Since we have a small window here where the fund is not 30% cash, 20% short and actually own some long exposure, I thought I'd take a look at where the allocations stand today versus the last time we looked in early July. We did not know it at the time but that was the beginning of the "end" for commodities. Below I have a side by side comparison of sectors, followed by 2 pie graphs.

As we see there are 2 new categories we now list, which are Healthcare and Retail (I threw the 1 restaurant we own in retail as well) The coal, fertilizer, and oil services allocation of "now" are also misleading because these were upped significantly in the past 2 sessions, so they obviously lagged far below what is currently showing for much of the past month, but it's a "snapshot". Ironically, the fund's financial and homebuilding exposure back then was higher and in a twist of fate I probably unloaded those a bit too early, as the lows in those groups came within 10 days. I remember taking a lot of punishment in those sectors then as I was positioned for a counter trend rally that seemingly never came - how quickly things can change. Oh yes - and why were the markets so weak, especially financials, back then? Two friends call Fannie/Freddie ;)

Technology is another other group with a huge variance - this was before I culled Ciena (CIEN) which was a name added to give us more technology exposure. Remember at the time, technology was the "safe" place to be as it was where the hedgies ran each time oil faltered. We have much lower allocations in Apple (AAPL) and Research in Motion (RIMM) as well due to chart conditions but added a bit to the latter Friday as well. Metals has been severely reduced with some sales, most notably Vale (RIO), and natural gas is out the door (although I could see a near term rally in that sector since it is so beaten). Obviously cash is far higher, and retail is a newer allocation.

9/5 Allocation (click to enlarge - sorry it is hard to read)

7/6 Allocation


Where we are in 60 days from now is anyone's guess with this market of no memory and random action, but I'd expect sustained high cash, and a lower long exposure as we are currently in the "darting in" portion of our "dart in and dart out" strategy. My one concern is this market has a nasty habit of doling out punishment to every sector and with healthcare's "relative" outperformance, it might get a visit from the Grim Reaper on the next leg down (if there is another leg - of course).


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