Year 2, Week 13 performance of the mutual fund
Comments: Another volatile week in a series of incredible volatile weeks... 2 months in fact. With a big rally this week we avoided living through "the worst" month in stock market history and instead have been upgraded to "one of the worst" months in history. At this point, and this is just a gut call, the market feels empty - it can be moved so quickly and direction changed on a whim. This would make sense from the perspective that the marginal trader in this market the past half decade especially has had the margin call of a lifetime, and those that remain around have moved to high cash positions. So this allows the hedgies that still play to have outsized weight on the market. Even today which now "feels" like a calm day would of been considered head spinning 6 months ago. From top to bottom we only had a 4% range (and I use the word "only" in relation to what has been going on to the past few months), but we rallied up 4% then at 3 PM down 1.5%, and then spun and made an about face with 10 minutes to go for one of our traditional "multi % move in 10 minutes or less" that have characterized the last hour of trading for a while now. Something is going on in the background, but I don't know what it is and the SEC sure won't bother to figure it out.
What I see in the market is continued "student body left" and "student body" right trading. Everyone is keying off the S&Ps (or their index of choice) and if it's going in the right direction every stock is "good" and if it's going in the wrong direction ... well every stock is "bad". This is still not a healthy thing. We need to see separation among stocks and sectors. Further, the VIX is still above 60 which any other time in history would be "historic" and "emergency panic" - today it's a "calm day". Much like we'd complain about $2.40 gas two years ago, now we say "whew! that's nothing versus where we have been lately" - this is the same parallel I see in the market now. It's still not really too healthy.
The leadership is also poor - by leadership I mean there is none. Today for example it was mostly retailers. Earlier in the week commodities. Neither are leadership - they are completely broken sectors that were oversold by historic levels, rebounding to a more normal reversion from the mean. The only sector I see working consistently is airlines - which is nothing more than an anti-oil trade. I'd also like to ask out loud how come with all the debt airlines have NO ONE is buying their credit default swaps and crying in the media that they won't be able to roll over their paper and hence the stocks should lost 90% of their value within 3 sessions. I mean they are even doing that to casinos nowadays but somehow the airlines are bullet proof? Some of the most debt laden companies with the best performance - only in this market of nonsense. But the larger point is where will the leadership come from - you can't go to global growth names because of the global slowdown and you can't really believe in US centric names unless you're going to pull out the same old tired thesis the bulls pulled out this summer about how $1 less per gallon will save the consumer. So after this initial move from a deeply oversold condition I'll be interested to see where the bulls plant the flag in terms of the "new leadership" group.
I pointed out last week's intraday highs on the S&P (985) as the point I'd like to see the market pass to become more bullish - we made an attempt today and lo and behold 983 was hit, before a rejection ensued. But the action seems a bit more positive - but again we're comparing it to what was shaping up to be the worst month in history. Next week we have the Tuesday US election and more important the monthly labor report. Obviously if you are paying attention you see large job losses announced left and right, 3000 here, 5000 there, 7000 over there. This will be filtering into the claims over the next 1-6 months and we're going to see some quite scary numbers. How quickly they filter through is anyone's question but it's not the news but the reaction to the news that matters. At some point you get numb to the bad news just like we did earlier this year when financials rallied as no amount of write off mattered anymore - we had become numb to it. So when you start seeing good stock reactions to bad news - you have a rally you can believe in. But still within a bear market. On the "positive side" ideas we've been presenting in the blog for the past 16 months are now spoken about EVERYWHERE - so at some point it gets discounted. It is when these thoughts are only whispered on some "doomsday blogs" (i.e. us) that we should of been more worried - when everyone else caught the drift of the severity of the situation the reaction even surprised us in it's severity (along with the Margin Call of the Century). So now everyone knows things are rotten aside from a few remaining pundits they trot out on CNBC - now it's a matter of degree, severity, and duration. I don't know the answers myself - we'll have to see how the 21,181 solutions presented by government work and if banks stop hoarding. If so, we'll just have a lengthy recession in which we'll exit with a much tighter credit world. If not, we have a lot worse backdrop. I think we'll know within 3-4 months which fork in the road we'll take.
For the fund I spent most of the week selling into the strong rally. We made money this week which I guess cannot be complained about but we lagged due our performance Tuesday. We almost always lag the huge up days in the market since we are always carrying cash and some short exposure but we had quite a bit on the short side Tuesday and hence all our long gains were extinguised by the short side (i.e. we were "perfectly" hedged) and we made nothing on a day the market was up 10%+. I can only imagine the calls coming into the office by enraged shareholders Tuesday night... every other day of the week we either kept pace with the market or outperformed despite holding very large amounts of cash and not being very exposed to the market. But Tuesday led to under performance versus the indexes.
The S&P 500 gained 10.5% and the Russell 1000 gained 11.0% on the back of Tuesday's monster rally. Rising Tide Growth gained 4.7%. We actually had a very quiet week - Monday while the market was down 3%+ we were down 0.3%, Tuesday while the market was up 10%+ we were up 0.3% and so on and so forth. Made some up of Tuesday's lack of participation in the back half of the week, but we had almost no volatility this week while the market acted like a 3 year old on a sugar high. So we're back to trailing the market in our year 2 after being ahead for a short while. We've trailed the market mightily the past 2 weeks as volatility whips us around.
*** Year 1 Results here: +10.1% vs -14.0% S&P (+24.1%)
Year 2 Metrics
Price of Rising Tide Growth: $7.902
Year 2 Performance to date (vs Aug 1, 2008): -28.24%
Comparable S&P 500: 968.8 (-23.1%)
Comparable Russell 1000: 523.3 (-24.2%)
Fund return vs S&P 500: -5.1%
Fund return vs Russell 1000: -4.1%
Last week's results here.
Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of July 2008.
Basis for indexes for year 2 is closing price August 1st, 2008.
SP500 : 1,260.3
Russell 1000 : 690.3
Please click here: fund performance for previous updates