Monday, September 7, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 5

Year 3, Week 5 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 72.5% (v 65.8% last week)
22 long bias: 14.1% (v 12.2% last week)
9 short bias: 13.5% (v 22.0% last week) *includes long term puts

31 positions (vs 36 last week)

Weekly thoughts
After a moderate selloff to start the week, (almost) all was forgiven by a rally late in the week including the traditional post 3:30 PM mark up Thursday, followed by the traditional "all economic news is good news" rally after the jobs report Friday morning. There was a few scary moments early in the week where it seemed economic news mattered but thankfully that ended in short order, and we could get back to what is rightfully ours as a nation - an upward trending market.

As we can see by the charts, this was the 2nd week in three where the major indexes broke below the lightest of the support lines (20 day moving average) but there is simply too much demand for stocks to even allow the markets to fall to the 50 day moving average.

There is nothing to complain about technically and since this market has completely shifted to HFT trading (mostly within 5 stocks that would not exist if not for government support) for 5 hours a day in between the "spike into 10 AM economic reports" and "crush those shorts in the closing 30 minutes spike", any talk of fundamentals is a bit silly. For portfolio positioning we are just awaiting to see what the market does when it invariably tests recent highs (approx S&P 1040)- a break over will surely lead to a new leg higher and away we go. On the 1.8% chance the market is allowed to fall, there can't be much read into it unless a serious breakdown happens - i.e. below S&P 980. Anything between 980-1040 remains white noise unless you are HAL9000. There are still gaps to be filled lower in the charts but in this market, as long as Citigroup, Fannie, Freddie, AIG can make up a third of the volume on the NYSE ... we're good.

While I think US markets are expensive, now that I see European markets trading well over 40x earnings I suppose a case could be made that the US is dirt cheap. With so much liquidity being created by central banks worldwide, and so little going into the real economy - it is going where it is most needed. To the hands of market participants to speculate ... we're back baby. Don't talk to me about the end of the financial system or 35:1 leverage... that was 6 months ago. It was like a Bobby Ewing dream - I already forgot it. The backstopped by Federal Reserve market and subsidized by US government economy is back to its heydey; in fact better than their heydey - this is like the steroid era. Yeh, sure we'll have more bailouts coming down the pike for the drugs we are taking today but that's for someone in another election cycle to deal with.

As I reflect on what the Chinese sovereign wealth fund manager said this week, I now see the light. I've mistakenly chosen to think about long term consequences - but this market is so much simpler when you don't care about the future and only care about now. To paraphrase - savers are destroyed with paltry 1%ish returns on savings, and speculators are worshiped - bid up assets and let us "not lose" together.

It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose.

We have every world government and central bank on our side - why look a gift horse in the mouth? Hopefully we can jam Europe up to 100x earnings by the time this is over... that's 100% upside from here.

We entered last week with the blasphemous thought that the market might take a short break (I like to call it a pit stop on the way to ever more prosperity) and our wish came true. Like clockwork the market petered out after the 6-7 week mark - just as it has done on intervals since early March. However, it took the full 7 weeks this time and then finally we "sold the news"... for a few days anyhow. We took the opportunity to take profits on some of our short exposure and get out of a 2:1ish short:long weighting , to a more balanced 1:1ish. We had some 15 limit purchase orders awaiting but only 1 hit this week, CNinsure (CISG) so while we are desperately trying to partake in "we can't lose because bubbles are supporting bubbles" prosperity, we still are lost in our old school ways of thinking that we need to buy at decent valuations.

On the docket this week are a slew of economic reports which for the 25th straight week we can be "surprised" at (to the upside of course), no matter what the data is. Really the data today is immaterial as we await Congressional approval for the $15,000 Cash for housing allowance to be approved post the November expiration of the $8000 1st time credit, and then the next round of Cash for clunkers which should hit in the winter time. I am also hoping for a new $500B type of stimulus by spring 2010 but only if we are very good children and behave (i.e. spend) between now and then. As an army of Americans demand more handouts since jobs are "so 1980s", we'll just continue to smile while accepting gifts from a very kind government and crow about the effect on economic reports. ("look at that GDP! America is back! Told ya!") I believe this is where I interject with "Boo Yah!". It's a short week so there is not much to be "surprised" about - but we have Beige Book Wednesday, weekly jobless claims (to be ignored since they are backwards looking) Thursday, and yet another consumer sentiment report Friday. Whatever the sentiment on Main Street has proven to be immaterial, just get this stock market up and that's the important thing.

To finish this report on prosperity, one last bit of news from the parallel universe of Main Street a nice human interest story in the NY Times on the "uncounted" in the monthly employment report that I have been harping on since blog inception - remember in America after you throw in the towel for 4 straight weeks on the job search ... you are no longer unemployed. Congrats fellow Americans, I see you've discovered green shoots.
  • As interviews with several of them demonstrate, many desperately long for a job, but their inability to find one has made them perhaps the ultimate embodiment of pessimism as this recession wears on.
  • Some have halted their job searches out of sheer frustration. Others have decided it makes more sense to become stay-at-home fathers or mothers, or to go back to school, until the job market improves. Still others have chosen to retire for now and have begun collecting Social Security or disability benefits, for which claims have surged.
Some quotes so you can feel the "prosperity" soaking through the land... I hope the reporters in the story reinforced to these story subjects, that their situation is simply backwards looking and hence we could care less.

“When you were in high school and kept asking the head cheerleader out for a date and she kept saying no, at some point you stopped asking her,” he said. “It becomes a ‘why bother?’ scenario.”

“There are thousands of people applying for every job I’m looking at, and potential employers won’t even give me the courtesy of acknowledging I applied,” he said. “The entirety of that causes me not to bother. It’s a waste of my time and theirs.

He reads Robert Ludlum novels. He sleeps. To fill his time, he is looking into volunteer work. The other day, he cut the grass on his small lawn using just a pair of clippers.

Ray Rucker came home from a job interview several months ago, sat down in his living room with his suit still on and wept. He is 62 years old and, as he puts it, “I look 62.”

Mr. Rucker said he was done looking. His wife, who works at a small nonprofit organization, protested, saying there was more he could do to look. “You don’t know what I’m going through,” Mr. Rucker said he told her.

But the process of searching for work and coming up empty has also left her feeling spent. “I was just discouraged, fed up and angry, feeling like my career had betrayed me,” she said.

“I stopped looking because that feeling of being rejected again and again is hard,” she said. “It’s just like somebody punching you in the face.”

“You figure out it’s just like when you toss a piece of meat at a pack of hungry cats,” she said. “I just gave up because I could not compete.”

You know my position here - unfortunately we still have a brainwashed populace who things they need to work and support themselves. Cmon folks - it's a new day; this is what monthly checks from Big Brother are for. Further, American workers are only a drag on corporate profits. If we can have completely hollowed out public corporations where there is only a CFO and CEO (with 80%+ of the pay) and the rest of the workers in Vietnam or central China (sharing in the other 20%) just imagine the heights this market can go. I believe Bill Gross of PIMCO would call this a "win win win" scenario.

The quotes and stories above are anecdotal, I'm sure and do not represent all the good things I am hearing about on CNBC. And even if they are not anecdotal - it is irrelevant (or backwards looking - whichever excuse works best for you)... enough money printing and any problem can go away through asset inflation. At least for those with assets. And if you don't have any assets - don't worry, a house or car shall soon be yours - by 2014 the government should reach the point it is paying us the full amount (rather than partial subsidization ) to buy these things. Just need to hold on for half a decade more and the eventuality we are heading to shall blossom. Can't wait.

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