Monday, November 9, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 14

Year 3, Week 14 Major Position Changes

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

Cash: 70.4% (v 85.9% last week)
22 long bias: 26.3% (v 11.8% last week) [includes 1 option position] 
4 short bias: 3.3% (v 2.3% last week) [includes 1 option position]

26 positions (vs 24 last week)

Weekly thoughts
Quite a change in character from where the markets sat a week ago; at that point both the S&P 500 and NASDAQ had broken below both the 20 and 50 day moving averages, and finished at lows for the week.  One would certainly not expect 5 consecutive up days, with vicious buying ahead of the Federal Reserve announcement AND labor reports but that is exactly what happened.  Volume continues to be generally weak on up days, and strong on down days; that should be bearish but has been the case for many months.  So very quickly we've moved below the 20 and 50 day moving averages to above, at least on the 2 major indexes.

The Russell 2000 has been a laggard much of the past month, signaling weakness in small and mid caps and after the rally this week sits right below key resistance.

Seeing the "RUT" join S&P and NASDAQ would certainly put another arrow in the quiver of the bull case.

Due to the movement in the NASDAQ and S&P 500 but also because of the non confirmation of the Russell 2000 we've moved from a very protective stance to more of a neutral view.  After breaking some key supports many of our individual stocks have also either recaptured the 50 day moving average or rallied to just underneath it.  Hence we're at a crossroads of sorts - perhaps the early stages of a head and shoulders formation or just another weigh station on the path to new highs.  We'll move to a more bullish stance if the market makes new highs for the year (>S&P 1100) which obviously would mean the Russell 2000 resistance is also broken.   And bearish on any new lower low; due to the influx of buying last week the S&P bottomed at 1030, 10 points over the previous low of 1020.  So no "lower low" - hence the bears were stuffed back in the closet.  As we saw last week the technical condition can change 180 in a moment as we dance around resistance/support areas.

As for economic news, compared to last week it's very quiet out there this week - not much to move markets.  We're in the latter third of earnings report season and we'll begin having a much more heavy emphasis on small and mid cap, as well as foreign names - so more of our cup of tea.  These reports don't move markets like the large cap multinationals, but they obviously affect individual stocks.

Outside of that it's the same old, same old ... everyone is a currency trader who keys all moves off the US dollar.  We've reached the point (I believe) where bad news for Main Street = good news for Wall Street.  The more the real economy lags the longer free money remains for speculators; the longer savers are thrown to the wolves with no interest on 'safe accounts'; and the more stimuli coming down the pike.  The minute the 2008 Bush stimulus passed in spring 08 I said we'd get another.    The minute the 2009 Obama stimulus passed in spring 09 I said we'd get another.  I've repeatedly said we'd get much more stimuli as this economy does not recover organically, and we're going to get it.  I am simply laughing at what I am hearing about the next stimulus (just don't call it a stimulus) ... it will deal with infrastructure and job creation.  Wow, the exact same tag words for the LAST $787 billion stimulus.   The one that if we passed, unemployment would not get over 8%.   But that's what happens when you give nearly a trillion dollars to Congress to divvy like spoiled children.   But don't worry - they will get it right this time around ... it just takes a trillion of "trying" (Bush + Obama stimuli in 08+09) first.  And let us be honest here, we are bailing out states - who are required to run balanced budgets - with these "stimulus".  We said in 2007 this would be a massive crisis, running alongside the housing crisis, as local governments spend every last penny they have assuming real estate, employment and sales taxes "today" would be the same forever.  The budget crisis at the state level (counties/cities) will be even worse in the coming fiscal year.... so much more of the next stimulus will be a cover for state bailouts.   Since the states can print money, the federal government will do it for them.

I continue to believe that there will no interest rate hikes until 2011; the market right now is pricing in the first in late spring / summer 2010.  If I am correct, that means easy money continues for another year... and even when the Fed does raise rates I expect them to be Japan-like for an extended period.   We're drunk on easy money.  So it simply looks like another game of blow up the bubble and then crash from it in some period down the road; timing it is the only question at this point - the path is set.  Building bubbles and devastating people in their aftermath has worked so well for the nation the past decade, why not do it bigger and better?  And since we're using our currency this time around, we will take the whole world with us.  Mark my words - the same people celebrating Ben Bernanke today are the same ones who celebrated Alan Greenspan for 2 decades.  And now that the view of Greenspan has changed for the worse once time has passed - the same will happen to Bernanke for what he is doing to us... give it 5-7 years.  The wizard behind the curtain is just Greenspan 2.0 on steroids.

But until the next excesses build up to a point to create the third "black swan" in 2 decades, we ignore the long run and celebrate that our leaders give us anything and everything we ask for, and there are no costs.  They can make our 401ks and house prices go up... and create the "wealth effect"; however fleeting.  We are the chosen ones, a magical people - unaffected by any economic rules or ill effects.  I am sure I will be typing the same things in 6 months, 18 months, and 30 months.  We never learn.

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