Monday, July 20, 2009

Fund Performance Period 7

Data is through last Friday's closing prices....

For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.

Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)

**PLEASE NOTE - as of about 4 weeks ago this link has been disabled due to updates on the website; hopes are in the next month they will make the data available again - for further information please see the notice we posted about this subject here ---> Account Balance Tracking

In lieu of that "not working" link, below is a "screen shot" of the account balance as of Thursday the 16th (Friday the 17th is not ready yet for some reason so I'll swap it in when it is) - click to enlarge


I will post an update of performance versus Russell 1000 every 4 weeks; we've moved over to a new tracking this year as the old system would not allow shorting of individual stocks, among other "technical issues" that often came up. Hence we're "starting over" in terms of performance with portfolio "B" as of early 2009. Detailed history on on the first year and a quarter can be found on the above mentioned tab.

Under the new tracking system, our seventh 4 week period is now complete.

(click to enlarge)

The first 3 weeks of this period were part of a month long skew downward in the market, that took off about 7% of value on the S&P. The 4th week of this period was a straight shot up rally that completely offset the month long 'correction' as the markets enjoyed 7% gains. The reflation trade was hurt most of this period but gained some fans again late last week; healthcare and technology were outperformers. The "speculation" into dollar stocks that marked much of the previous 3 months mostly ended. We also had a much more calm market with a heavy amount of "premarket" surges or drops; most of the action was DURING the day for a change. We swung back nicely this quarter as almost everything went "right" - all losses were small and contained and we had some nice winners, as well as hedges working for us.

For the 7th "four week" period we returned +16.6%, versus the market's +2.2%, so an out performance of +14.4% during the past four weeks. On a cumulative basis we are now +16.9%, versus the Russell 1000's +1.5%, so an out performance of +15.4% for our "year to date" if you will. (thus far 28 weeks)

Please note we did not start on Jan 1st... so this is not an apples to apples "year to date" performance but close.

As mentioned in the previous update we had one of the coldest streaks I can ever remember in terms of duration (12 weeks). Going back 5 years I cannot recall a similar period where almost so many steps were "not so great" - that said; we still were ahead of the market for the year due to a stellar beginning of the year. In this period we just reverted back to "Mark's mean" offsetting 12 weeks of below average performance with a good 4 week period. So we're back where we were a few months ago in terms of RELATIVE performance (versus the market), and at our high for the year in terms of ABSOLUTE performance. As always our outsized goal is to beat the markets by 15% a year, something we did with ease in 2008 and now we're back on track to do it for 2009.

*** Long/Short Discussion below

I will continue to say I disagree with those who believe its a stock pickers market. I think it has NOT been a stock pickers marker since summer 2008. It's been an allocation market - be "in" the market at the right times, and be "out" (or short) the market at the wrong times and the specific instrument you use means very little. Our correlations are at record highs and almost everything moves together now. This is again why I focus so much on the indexes - if you put probability in your favor on which way the market will trend in the near term, I think 70% of the battle is over with. This is a very different situation than 3, 5, 7 years ago... so much of our good times this period was being conservative (high in cash, with selective short exposure) at appropriate times as the market weakened through the first 3 weeks of the period. Then as important, when the S&P was at the "neck" of a potential head and shoulders formation (if it broke, we could of fallen quite severely) we did not press on the short side (only some nominal exposure) and indeed we were looking for a bounce from S&P 870s anywhere up to S&P 910 as we outlined in our weekly summary. Well, our goal was surpassed but more importantly we were positioned correctly.

The week before this period started I wrote in [Jun 18: Top Position Reviews]

I am going to have to be a lot more strict on positions until this ship is turned around in the right direction - I've been lax in placing stop orders and taking on some water on positions. The past week I've been more firm on that, but I want to go through the major positions and show via chart where I am going to cut the chord (cut back sharply). Of course placing stops exposes you to being shaken out of a position on a volatile day and then missing out on a rebound, but at this point I need to be conservative.

I took this to heart, and both on the long side we placed tight stops and in our shorts we placed tight stops. This goes back to rule #1 of making money: Don't lose money. While we were stopped out of some longs that continued upward, we kept all losses small and when positions turned against us we were out - quickly. The biggest % loss for this period was Yingli Green Energy (YGE) at 20% but it was a small position that we had a previous gain in the period to offset against. Next biggest was Mosaic (MOS) where we lost 10% overnight on a buyout rumor. Can't do much about that. Next biggest was Las Vegas Sands (LVS) at 7% on a gap up overnight but we had just made 7% shorting it a few days before, so they offset. All other losses were 2-3-4% in nature; if the position turned against us, we left. No questions asked.

In terms of positioning we had a bit of good fortune not only to be in large cash levels as the market 'corrected' (and while the index was only down 7% a lot of individual names fell 15-30%) but we bought some "insurance" out of the money puts at the right time. I actually touched on that earlier today. That benefited us. I outlined our major long positions last week [Portfolio Review - State of the Longs], but we harvested gains of 20-30% in quite a few names this period - all in different position sizes. Further, some of our big losers from previous periods such as Allegiant Travel (ALGT) bounced strongly in this period; another benefit. Last, we had some intraday trading with some ETFs/options that helped to supplement the core strategy as we had many TREND days [Trend Days] (down in the first part of the period, and up the last week of the period) where once the pattern was set by 10:30-11:00 AM the market just continued in that direction all day. So we took some trades for 2-5 hours and got back in cash by end of the day.

Overall a simple story: overall positioning was correct week after week, we did not go long at the top of the range nor short at the bottom. We benefited from longs that were in good chart formations and (a) held up well during the correction then (b) bounced strongly during the market rebound. We benefited from well placed "insurance" in some out of the money puts in late June. These paid off in under 10 sessions. Our losses were almost entirely short and sweet and taken very quickly. And last, we were simply very overdue to have a good period after a losing streak that stretched for far too long. So go forward, let's try to keep doing the same and get back to what we were able to do most of 2nd half 2007, 2008, and the first few months of 2009. And less of what we did this spring and early summer.

[Jan 30, 2009: Fund Performance Period 1]
[Mar 2, 2009: Fund Performance Period 2]
[Mar 30, 2009: Fund Performance Period 3]
[Apr 27, 2009: Fund Performance Period 4]
[May 28, 2009: Fund Performance Period 5]
[Jun 21, 2009: Fund Performance Period 6]

WSJ: Industry Pushes New Iron Ore Pricing Plan - Quarterly Rather than Annual

We just talked about the iron ore industry last week [Jul 11, 2009: NYT - China, Australia: Where Iron is Bigger than Gold & Oil] so this is an interesting development. Apparently, instead of the annual negotiation that used to be good enough in the "old days" when prices of commodities were not being shifted +/- 10% on a weekly basis by computer speculation on the behalf of hedge funds and investment banks - market conditions change so rapidly now that the industry is considering a move to quarterly pricing. And of course as we wrote last week, China demand is pretty much driving the entire market now.

The upshot? Much like the wild swings in oil [Jul 7, 2009: NYT - Swings in Price of Oil Hobble Forecasting] are creating havoc for any long term planning in industries that rely on it, I could see this creating a lot more uncertainty in industries that rely on steel i.e. autos for example. That said, less of our economy is about "making stuff" and more of it is about speculating on said movements (i.e. pushing electronic paper around in millisecond movements to create profit) so I guess it's not that much of an issue for most US companies anymore. Steel usage is sooOooOoO 1970s.

As an aside it sets up an interesting conflict between Vale (VALE) and BHP Billiton (BHP) - the latter prefering shorter term contracts and the former longer. Rio Tinto (RTP) which is the 3rd of the "big 3" in mining has not ventured an opinion.
  • The world's biggest miners and steelmakers are on the brink of forging a new system for setting iron-ore prices that is expected to increase the volatility of steel prices, but perhaps make the process more transparent.
  • The new system would set iron-ore contract prices on a quarterly basis -- rather than annually as it is currently. Quarterly sales of iron ore -- used almost exclusively to make steel -- is likely to mean global steel prices will be more volatile.
  • Theoretically, steelmakers would pass on any lower prices to their buyers (yeh right!) and raise them in the reverse. They also might be likely to rely more on market supply and demand, and less on secretive criteria, as currently is the case.
  • Miners and steelmakers are in a battle for power for control of iron-ore prices. Over the past few years, the commodity boom has given most of the power to miners, who constantly raised prices. But since the global economy slowed late last year, steelmakers, particularly in China, have been pressuring for lower prices.
  • Last year, steelmakers were locked into annual pacts when the price of iron ore fell. The spot price of iron ore is about $80 a metric ton, compared with this time last year when prices topped $120 a metric ton.
  • Steelmakers are betting the price will continue to fall, and so prefer longer-term contracts. Likewise, big buyers of steel, such as auto makers, prefer longer-term agreements when prices are favorable because it allows them to rely on a predictable amount of steel coming into their plants, ensuring efficient operations.
  • For miners, the proposed changes may make profits fluctuate. But in the long run, the short-term pacts could shake out high-cost ore producers.
  • Ian Ashby, chief of the iron-ore division at Australia-based BHP Billiton, the world's largest miner, says lower-cost producers of iron ore, such as his company, function better in a quarterly system.
  • "The spot market is where buyers and sellers meet to find the true market price for iron ore," said Mr. Ashby, quoted in a transcript from a bank-investors meeting in Australia in May. "From my perspective it should be clear to everyone that the changed market dynamics, created by China's voracious appetite for iron ore over the past five years or so, makes obsolete a system whereby pricing is locked in for 12 months, based on little or no transparency."
  • BHP Billiton has been pushing to abolish the current iron-ore pricing system. Brazil's Vale S.A., meanwhile, has lobbied to keep the current annual contracting system. Brazilian ore is more expensive than Australian ore, so is at a disadvantage in spot pricing. Rio Tinto, based in the U.K. and Australia, which sells about half of its iron ore on the spot market, hasn't taken a strong public stance.
  • The agreement could be in place as soon as year's end, according to miners and steelmakers involved in crafting the deal. To be sure, the pending changes are not a panacea. There likely will still be a fair amount of secretive dealing.
[May 17, 2008: WSJ - Fast Rising Steel Prices Set Projects Back]

Long BHP Billiton in fund; no personal position World Currencies in the Recession

This graphic from, aside from having some nice information in it, is simply beautiful eye candy. Many don't remember now but right around when the recession "officially" began (we did not admit to it until nearly a year later) in December 2007 the dollar was the scourge of the Earth. Reports of supermodel Gisele Bundchen (speaking of nice graphics) not accepting dollars (Nov 07) but only wanting to be paid in euros marked the near term bottom in the dollar.
  • Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar. Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means.
  • When Bundchen, 27, signed a contract in August to represent Pantene hair products for Cincinnati-based Procter & Gamble Co., she demanded payment in euros, according to Veja, Brazil's biggest weekly magazine. She'll also get euros for the deal she reached last October with Dolce & Gabbana SpA in Milan to promote the Italian designer's new fragrance, The One, Veja reported. Bundchen earned $33 million in the year through June, Forbes reported in July.
  • ``Contracts starting now are more attractive in euros because we don't know what will happen to the dollar,'' Patricia Bundchen, the model's twin sister and manager in Brazil, said in a telephone interview in September from Sao Paulo.
So the dollar (at the official recession bottom) was coming off extremely oversold levels... keep that in mind when you view the relative performance since.

The National Bureau of Economic Research declared the official start of the recession was in December of 2007, so we have compared exchange rates from June of 2007, just before the recession came into full effect, and June of 2009. All currencies are expressed as a percentage of change in relation to the US Dollar. Our latest map takes a look at how the world’s currencies are faring during this recession.

Click to enlarge (and yes I mean the graphic below, not the graphic above)

WSJ: As Boom Times Sour in Las Vegas, Upward Mobility Goes Bust

An excellent article in the Wall Street Journal on a topic we've been following since blog inception in 2007: Las Vegas. [Oct 3, 2007: A Top in Casino Names? Wynn and Las Vegas Sands] Long time readers know I targeted Las Vegas as one of the canaries in the coal mine - as really there is no better city to represent the excess of America. We had the crossroads of housing speculation with conspicuous consumption, all in 1 spot - I mean where better else to observe homo sapiens Americana. In [Apr 14, 2008: Things I've Been Negative on Since Fall 2007]

I cannot continue to stress enough how wrong analysts are on 2008 estimates and any company with focus on the US consumer is simply going to be blown apart in due time - if not this earnings season - then in the future. We are told daily how "cheap" these stocks are; this is based on the fictional body of work called "analysts 2008 estimates". Don't believe the hype. The subprime nation (us) is in trouble. Consumers make 70% of GDP. Its a consumption culture where the consumer is being drowned in negative wealth effect from housing, inflation from the Federal Reserve/global forces, and underemployment if not outright unemployment. [Apr 2: The Underemployment Rate is Rising] It is bad out there in the bottom 60% and it's creeping up to the formerly immune 20-40 percentile as well. It is the perfect storm and I will utter the most dangerous words a financial commentator can ever utter - it *IS* different this time.

People were asking me for individual names for shorts - I continue to
stress the same themes I've stated since last summer - anything consumer related or based on
American conspicuous consumption - it will all go. These stocks bounce every time the bulls pass their... well bull... that the consumer will be back any moment now and just "trust us" because in 6 months they'll be back in the malls spending like mad. Just. Plain. Wrong. These are going to be shorts for a long time. It won't be so easy as when I first called it out in early fall because we were still in the "no recession at all" camp, and the stocks had just began to weaken from much much higher levels.

Next to go on the food chain will be entertainment - think casinos - Wynn (WYNN), Las Vegas Sands (LVS), MGM (MGM) - it is all going to suffer [
Nov 1: A Top in Casino Names? Wynn and Las Vegas Sands] - that's an "extra" you don't "need".

If not for a furious series of credit amendments, 2 of our 3 largest public casino players would be in bankruptcy court by now, and home prices have given back a decade of gains. [Apr 29, 2009: Median Home Prices in Las Vegas Fall to Lowest Since 2000] Even Steve Wynn has lost some magic and has had to discount aggressively to fill his new high(er) end hotel. [Dec 23, 2008: Wynn Encore Casino Struggling to Fill Rooms During Launch] Thankfully however, in the stock market all you need to do nowadays is show that you can survive (not thrive, just survive) and your stock skyrockets on green shoots, so in the intermediate to long term the casinos are actually (after 2 years of pain) more likely buys than shorts. But we won't be seeing "the good ole days" for a long time.

With Las Vegas, you would be hard pressed to find a better municipal example of our transformation from a producing country to a consuming culture, and how the mirage of prosperity through multiple Fed induced bubbles created a false sense of "well being". This article, aside from touching on "how we got here" also speaks to those in the middle tranches of society who are increasingly running out of ways to make a living that has them increasing their living standard. It's not quite so easy in this new age "service economy"as it was 30+ years ago. "Trickle ON" economics is just not a great thing for most of the middle of the country, contrary to dogma. (problem to every solution? just cut taxes for the top 0.5% and increase spending i.e. kick the can)

More from the WSJ:
  • Drew Johnson and his wife, Tina had the life many Americans only dream of: A big house in a swanky suburb, a backyard hot tub, and a $100,000 deposit on a new condo with views of the Las Vegas Strip and 24-hour concierge service. They did it all on the salaries of a construction-equipment salesman and a cocktail waitress who brought in $1,000 a week in tips alone. But the recession has slashed their incomes by nearly half, and financing for the condo might not come through. "It's Vegas," says Mr. Johnson, who fears he could lose most of his deposit. "We gambled."
  • During the boom years, Las Vegas wasn't just a place where gamblers could hit the jackpot, but where hard-working hotel maids and cocktail waitresses could, too. The city offered something almost no other place in America did: upward mobility for the working class. Now, that is evaporating.
  • Much in the way jobs on Detroit's assembly lines allowed poor Southern blacks a route out of poverty two generations ago, Las Vegas provided a shot at the middle class for workers fleeing dying industrial centers, or for immigrants arriving from Latin America and Asia.
  • While average wages stagnated throughout much of the country over the past decade, pay in Nevada skyrocketed. Wages in the state grew at nearly double the national rate between 2000 and 2008, according to an analysis by the Economic Policy Institute, a Washington think tank.
  • Union workers -- who account for the bulk of employment along the Las Vegas Strip -- saw their pay grow by 12.6% between 2000 and 2008, while union workers nationwide saw an increase of 2.9%, according to the Economic Policy Institute. Nevada's non-union pay increased by 5.4% in the same period, while wages for all workers in the U.S. increased by 1.6%.
  • The union made upward mobility part of the Vegas allure. In Vegas, the union-negotiated salary for a hotel maid is still $14.25 an hour. In contrast, the median wage for the same worker in Orlando is $8.84 an hour; in Phoenix, it's $9.25, according to the Bureau of Labor Statistics
  • While the union sent casino workers' salaries and benefits up, tips were often what helped push ordinary workers into the world of posh condos and sports cars. Tips could triple the base pay of casino workers who dealt directly with guests.
  • Gamblers who hit it big on the tables; young visitors who spent thousands for bottle service at night clubs; and businessmen treating clients to lavish dinners, were all free and easy with gratuities, say current and former casino workers. Valet attendants could take home an average of $500 a week in tips, while room-service waiters at swankier properties could earn $600 a week in tips, often outstripping their weekly base salaries.

  • Such excess turned Las Vegas into one of America's biggest boomtowns. From 2000 through 2006, Clark County -- home to the Strip and three quarters of the state's population -- was the fastest-growing county in the U.S.
  • The recession has jolted Las Vegas in a fundamental way. Like other job-creating cities in the Sunbelt, Las Vegas saw its population, income levels and housing prices surge over the past decade. And like those cities -- including Phoenix, Orlando and San Diego -- it's been battered in the bust.
  • The number of people employed by the casinos crammed along the four-mile Strip shot to 109,000 in 2007 from 40,000 in 1985. Retirees, drawn by low taxes and affordable housing, poured into the area, too
  • Many of those who found steady work in casinos or on construction sites were able to harness another engine of prosperity: the area's bubbling housing market. Fashionable new suburbs sprang up. The flurry of new housing starts created even more jobs.
  • But by many measures, Las Vegas's rise and fall has been more dramatic than most.
  • Last year, Clark County's population declined for the first time in more than two decades. More than 10,000 people left Las Vegas between July 2007 and July 2008, according to Keith Schwer, director for the Center for Business and Economic Research at the University of Nevada Las Vegas.
  • The unemployment rate in the metropolitan area tripled from 4% in May 2007 to just over 12.3% in June 2009, higher than the national rate of 9.5%.
  • And after the median price of existing homes rose by 122% in sales between 2000 and 2006 -- more than double the national rise of 49% -- sale prices fell by 30% between last year and this year.
  • The big bet that fueled Las Vegas's growth for so long is the same one that's now going bad: tourism. Vegas expanded into the lucrative market for business meetings and conventions, building massive exhibition halls and new hotels and casinos. Construction jobs multiplied and the housing market bubbled over. Now that tourism and business travel have collapsed, Vegas has little else to cushion the blow.
  • Even some long-time Vegas stalwarts now believe the era of astounding growth is over. "I don't see any opportunities for any development in Las Vegas," said Las Vegas Sands chief executive Sheldon Adelson in an interview. (Mr. Adelson, in 1999 opened the Venetian, a Vegas-style replica of Venice complete with indoor canals)
  • All along the Las Vegas Strip, massive, half-finished edifices may never see a grand opening. Last month, the $3.5 billion Fontainebleau Las Vegas hotel and casino declared bankruptcy, and 3,500 construction workers lost their jobs. Other projects, such as the $5 billion Echelon resort, a hotel tower at Caesar's Palace and a luxury condo tower at the Palazzo, also halted construction.
  • "There won't be another [casino] property built in Las Vegas for a decade," says Jim Murren, chief executive of MGM Mirage, Nevada's largest employer. Mr. Murren's company plans to move forward with the opening of City Center, the $8.4 billion resort and residential project that the Johnsons bought into. When it's completed later this year, City Center is expected to employ 12,000 workers, a bright spot for Las Vegas employment.
  • But many casino operators are worried the nearly 5,000 new hotel rooms will flood the market with new supply while demand is down. That could further depress prices at a time when visitors are already spending less on food, gambling and spa services, say casino executives.
The rest of the story is still worth the read - a few examples of "middle class folk" who left other parts of the country to go to Vegas for the chance at the prosperity they see on TV. Unfortunately for many it was a mirage. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] (and let me emphasize some of the salaries and pay was completely out of whack for similar wages in other parts of the country for relatively low skill labor)

As for the future of "Vegas baby!"? It will still be there - but as we've argued on these virtual pages Americans will be forced to change - not because they want to, but because they have to. Despite the new bubbles our government is trying to percolate as we speak. Too many ravaged balance sheets in the prime earning groups of ages 35-55, too many baby boomers who have lost to the "smart guys in NYC" via multiple "prosperity" investment schemes in tech stocks or real estate in just 1 decade. It's a new normal (to borrow from El-Erian), that I'd argue the stock market (dominated by the "smart guys in NYC") does not realize is emerging on Main Streets in middle America. [Dec 15, 2008: The "Recovery"]
  • Harvey Perkins, a gambling consultant with Spectrum Gaming, believes the industry can no longer depend on regular Americans to behave like high rollers. "I think people have fundamentally changed in their spending patterns."
  • The casino business model, he says, will have to be "re-engineered." Vegas, Mr. Perkins and others believe, will have to return to the days of being a bargain destination. That's already starting to happen, with hotels throwing in coupons for spa services, and high-end restaurants offering cheaper options.
Until the next government induced bubble to hide the damage under the surface to this once prosperous economy, I encourage all these folks in the middle class to take up daytrading. Much of the nation's real prosperity in the past decade has been in the halls of our investment banks - granted you are not too big to fail, so if you make mistakes Uncle Sam won't come to your rescue but if you can't beat em, join em!

Bookkeeping: Selling Almost All Perfect World (PWRD)

This is about the 4th stock in a row we are selling with the identical chart... the only wish here, is we owned a lot more Chinese video game maker Perfect World (PWRD). We simply were not paying attention when it "filled that gap" 2 weeks ago. Once more, a parabolic setup which CAN continue higher - but I am selling all but 1 share to keep our holding position. We're exiting here in the $34.30s as the stock is up 20% in a week.

Again let me repeat, for pure momentum traders buying a stock making a new yearly high, as this is doing is a very common trading strategy. I'm doing the opposite of what a pure technical trader might be doing here as I'm taking a cautious tack.

Long Perfect World in fund; no personal position

Bookkeeping: Buying Some August 90 SPY Puts (SWGTL)

I am not breaking out my option purchases and sales because most have been very short term (intraday) on these "trend" days [Trend Days] but I did mention towards the end of June I was changing the way I hedge the portfolio in a subtle way.

As I wrote in one of our weekly summaries in late June:

I have a very high cash position and I've made one small adjustment on the short side ... since its impossible to tell the "theme of the week" (reflation? consumer? healthcare? banks?) I've bought some out of the money index puts as a hedge... about 2% of the portfolio ($20K). Right now they are S&P 850s... if we have any big bang effect between now and the 3rd week of July it will provide some oomph; otherwise they will expire worthless in 3 weeks.

That position worked out like a wonder as the S&P fell from 920 to 870 in 8 sessions.

In the past we used to, aside from using individual shorts, use some levered ETFs as our hedges - which I still plan to do, but I love the put buying as an insurance plan at times of euphoria. You only risk so much capital (in that case $20K or just under 2% of the portfolio at the time) and if it expires, so be it... you still have the long side of your portfolio and you take a limited loss. Unlike shorting in which your losses are unlimited (in theory). So it really has to be thought of as an insurance policy.

When it works like it did in that episode from late June to early July you have massive upside. At S&P 930 area where I slapped those puts on, no one thought S&P 850 was probable. Within a week, when we hit S&P 870, it was very probable and our puts exploded in value. Those puts contributed in a very sizeable way to our performance for the previous 4 weeks (I will have an update tonight by the way on performance) - although I didn't expect the market to just fall off a cliff immediately when I added them, that was just good fortune.

As we discussed last week, you can use these calls or puts intraday on the SPY (which is the S&P 500 ETF) in an aggressive fashion intraday to bet directionally - they are very liquid, with a tight spread (0.01 much of the time). Since we have so much cash, I've occasionally been throwing 5-10% of the portfolio in that direction when the opportunities arise on the "trend days" (i.e. "Intel day" last week). Since the duration of holding is so short, its too cumbersome to list out those trades, but since what I did today is more of a long term holding I'll list it out as an individual trade.

I've effectively repeated the strategy I did in late June here, with a slightly larger bucket... around 3% of the portfolio. The August puts are SPY 90 (SWGTL) which is roughly the equivalent of S&P 900. Today they are selling for roughly $1.10. I put them on this morning around S&P 947. If we fill that gap down at 906 in the next month, these puts should again, explode in value - especially if it happens in the next few weeks. If not, they expire worthless in a month. Of course you can sell part of all of it in between now and the 3rd week of August as well.

I'll consider this as part of my "short" allocation in the weekly summaries.

Long August 90 SPY Puts in fund and personal account

Bookkeeping: Selling Most of Gafisa (GFA)

Some of the moves the past 5-6 sessions have been breathtaking. Gafisa (GFA), our Brazilian homebuilder is one of them. One could place a stop loss below the days low, but I am going to take my money and run as I am seeing a lot of "hyperbolic" chart action as I scan for new longs to add to the portfolio. Gafisa is nowhere near any support line after this type of run, but it has broken to a new high for 2009 as it takes out that peak in early May... hence momentum traders might jump in as they love that sort of action.

We're going to sell almost the whole position here just under $21.30 as the stock has run 25% in a week. We'll look to add on a sizeable pullback since this is a volatile name.

Long Gafisa in fund; no personal position

Eaton Corp (ETN) - Another Example of Why Betting Ahead of Earnings is Dangerous

A quick glance at some of the names of interest this morning shows:
  1. Eaton (ETN) Revenue down 32%, beat EPS estimate
  2. Johnson Controls (JCI) Revenue down 29%, beat EPS estimate
  3. Halliburton (HAL) Revenue down 22%, beat EPS estimate
Main 3 names of interest this morning especially the former 2, to get a gauge for industrial markets. The market is happy again, over CIT and Goldman Sachs increasing its target on the S&P for year end by 15%. Remember, as everyone obsesses over Apple (AAPL) tomorrow as a
"tell" on the strength of the global economy, we'll see what is really is happening with the "making stuff" global economy in reports such as ETN, JCI, railroads, GE (which stunk Friday) and the like.

I want to highlight the Eaton (ETN) report as another example (which we provide countless) of why anyone making bets ahead of earnings is simply a pure speculator who has as much chance of winning or losing as the typical gambler in Las Vegas. Yes, they beat estimates this quarter but they completely obliterated their earnings guidance. Normally this would punish a stock. Instead, Eaton is up 11% as I type this. Why? I have no idea. Maybe shorts are being squeezed ....
  • Eaton Corp., which makes parts for airplanes, vehicles and electrical equipment, on Monday cut its full-year forecast for the third time on expectations of more global economic weakness.
  • Eaton said it now expects per-share net income of $1.65 and $1.85, down from a February projection of $3.60 to $4.20 per share. Before that, the company forecast 2009 income of $3.80 to $4.80 per share.
  • "As we survey our end markets, the year is shaping up to be considerably weaker than we had forecast in April," said CEO Alexander M. Cutler in a statement.
  • "We now anticipate our overall end markets will decline by between 21 and 22 percent versus our earlier forecast of a decline between 15 and 16 percent. We see our U.S. markets declining by 25 percent, while our non-U.S. markets are expected to decline by 19 percent," Cutler added.
  • The company also said its second-quarter profit tumbled 92 percent as plunging sales and a stronger dollar offset cost-cutting efforts, but results topped analyst estimates.
Now remember, back when these companies posted far too high estimates for the year we celebrated, clapped our hands and drove stocks up on "stabilization" and "durability of earnings power". In retrospect all it meant was companies were chewing green shoots in great numbers i.e. very wrong. Eaton has dropped full year estimates from $3.80 - $4.80 to $3.60 - $4.20 and now $1.65 - $1.85. But if you told me the stock would be surging off this sort of "good news", I'd be scratching my head. The only positive is Eaton slashed its earnings numbers much closer to where analysts where already sitting...

Now the good thing about slashing earnings (for the 3rd time this year) is.... wait for it.... they can "beat earnings estimates" in 90, and 180 days from now. And so the game continues.

No position

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 50

Year 2, Week 50 Major Position Changes

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

Cash: 70.2% (vs 74.1% last week)
24 long bias: 16.3% (vs 21.2% last week)
7 short bias: 13.4% (vs 4.7% last week)

31 positions (vs 33 last week)

Weekly thoughts
We like to talk about the changing nature of this market often, just from an anecdotal experience and what we see now versus 2-3 years ago, 5-6 years ago or 10+ years ago. One of the old adages that held true for all those periods but not anymore is "the market always falls faster than it rises". As this past week shows, in a computer driven environment where the hedge fund is the marginal buyer, up or down is no longer differentiated as before. The ups created by program trading seem to be as furious as the old downs caused by buyers strikes or panics. Effectively in 1 week, we eliminated all the downside of the previous 4. Anyone positioned short anticipating a breakdown below key support was treated to a rout. Thankfully, we were not such unlucky souls as we had been looking for a bounce (a day or two early in fact) and looking for a bounce with upside to S&P 910. That was almost reached by late Tuesday. The markets were up generally in the 7% range, vying with some of the early March rebounds off the lows ... and the NASDAQ (by a sliver) put in an 8th straight winning session.

I won't bother with the simple moving average chart this week because the index is clearly above all moving averages; the only intrigue lies in the exponential moving chart where we are just above resistance and broke above intraday both Thursday and Friday.

I will repeat the call for S&P 906ish to fill, and let's give it to the middle of next week for a 10 day window. I expect it will be some companies unexpeted bad earnings news that will create a gap down...

A very light week economically as the existing home sales are the only thing of interest to me. Folks, its June so expect "higher sales than May" (shocker) as June is one of the (if not the) busiest month of the year for home sales. As we've said repeatedly, watching the market rally on seasonal factors in housing such as "May is stronger than April", month after month is amazing. It also gives me caution for the fall because when the seasonal slowdown happens, will the "it's seasonal" apologists show up (the same ones who are nowhere in sight now)? or will we misread the data then as we are now. We need to be looking year over year - May 09 v 08, Aug 09 v 08, Feb 09 v 08... its a seasonal commodity. But for another month I expect it to be ignored and the "increase" we are sure to see will be treated with fireworks, unicorns, and butterflies.

Outside of that its going to be dominated with some Fed talk, some Obama speeches Wednesday on healthcare, and a flood of earnings reports. We already laid out the game plan, and it's been played out exactly as we characterized. Unlike the socialists overseas, the ability for American companies to shed workers like gnats is incredibly beneficial to stoking stock prices. Thankfully, the progress of CEOs to collect ever higher pay is not being retarded by Americans retaining jobs. I mean what sort of lousy economy would that be. ;) Anyhow, eventually someone will disappoint and as we move from multinational "we grow in China, but the US and Europe stinks" to more domestic facing companies in about 2 weeks, things might appear less rosy than they are now. Because the revenue shrinkage in those companies shall have no offset from Asian purchases.

The week end long / short allocations are a bit deceiving this week, as we made a 1 day stand on the short side Wednesday and were effectively stopped out of 80% of it within 1 session. I then threw on some shorts in the credit card companies in the closing moments Friday but in retrospect with earnings for each coming Thursday they will be peeled back off soon. Further, we took quite a bit of long exposure that had appreciated sharply in the past week, off the table to lock in gains. So we looked quite differently Wednesday morning than Friday afternoon.

Since everyone on the Street knows we'll all jump in like lemmings on a new high, we're all looking at each other and saying "you first". The very obvious head and shoulders formation would be broken then, and we can all laugh that we were about to fall off a cliff a week ago Friday or indeed Monday morning. Just our imagination. I am still looking for long exposure but am finding any resevoir of cheap companies with good charts quite low. After a good 5 weeks to get us back well ahead of the market for the year I don't see any need to press in any direction here since the potential for a headfake is strong. I also don't wish to build positions when some of these companies are set to report in the next 1-3 weeks, at which time I'd want to de-emphasize the position ahead of the typical knee jerk episode that follows every report nowadays.

So for the next short bit I am going to look to protect what we have and wait to see if a new leg up develops.

Sunday, July 19, 2009

Updated Position Sheet

Cash: 70.2% (v 74.1% last week)
Long: 16.3% (v 21.2%)
Short: 13.4% (v 4.7%)

This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

(click to enlarge)



Early Week Earnings Watch

2nd of the 3 big weeks for S&P 500 type companies arrives; last week was an unqualified success of setting expectations low, cutting expenses aggressively and beating very slow to adjust analysts expectations. Now with the bar raised higher as expectations ramped up, I expect the sledding to be a bit tougher.

Here are names of interest in the early part of the week; with names the market will be watching and some additional ones that I like to look at. Tuesday will be the more interesting day. I forgot about earnings knee jerk reaction time, when I shorted American Express (AXP) and Capital One (COF) late Friday; both report Thursday so despite extreme overvaluations and gaps in each chart I'll be heading to the sidelines before then on the 2 positions.


Market will focus on:

Halliburon (HAL) - oil services, not sure much can be read into here at this point in the economic cycle, but the market loves to follow HAL.

Texas Instruments (TXN) - the market will look for some sort of follow up to support the Intel (INTC) chip happiness parade. I would assume strength in China / Asia, combined with lots of cost cutting... the same playbook. How many times we can rally off the same "surprises" continue to bemuse me.

Some names I like to follow or will keep an eye out for ...

Eaton (ETN) - a good sized diversified "power management" manufacturer with hands in many industries.

Johnson Control (JCI) - see Eaton, but with more exposure to automotive


Market will focus on:

Apple (AAPL) - simple as that; we've picked some strange companies to use as proxies on the health of the American or global economy. We ignore CSX (CSX) and focus on Intel (INTC) We'll ignore any number of companies I'll list below and obsess about Apple. Granted it's a proxy on the US consumer but only a segment. Everyone on the Street knows the Apple game - lowball expectations massively, beat them soundly, then give a new round of guidance that is comical at best; which they'll beat. The only question is how much they will beat by and how much of that expectation is already in the stock price. But this will be Tuesday's obsession.

Caterpillar (CAT) - speaking of company's that are a much better proxy of the state of the world is Caterpillar. See everything I said above for Texas Instruments - the China stimulus assuredly helped CAT, and then the rest of the world (ex other parts of Asia and perhaps Brazil ... via China) cross your fingers.

Freeport McMoran Copper & Gold (FCX) - this stock has effectively replaced oil as the "go to" reflation trade. After a steep fall the 4 weeks previous, investors piled back in last week tacking on a nice 20%+. Again much like HAL I am not sure what exactly they can say that will either support or not support the "reflationistas" - its a commodity company. When copper is up, their CEO is a genius and vice versa.

Merck (MRK) - I don't bother with this type of company but with all the healthcare talk maybe it gets some headlines.

Starbucks (SBUX) - I suppose a proxy on the consumer still

Yahoo (YHOO) - so 1999, not 2009. Some happy happy joy joy talk about new CEO and her moves; sad to see such a powerhouse in the most exciting innovation in our lifetime on restructuring #8 already. How quickly the shelf life of companies erodes.

Some names I like to follow or will keep an eye out for ...

A group of companies in either commodities or "industry" - AK Steel (AKS), CNH Global (CNH) [half Caterpillar, half Deere], Nabor Industries (NBR) - largest land driller in the states, Peabody Energy (BTU) - big fish in coal

Economic tells (real or perceived) - Robert Half (RHI): temporary staffing, Seagate Technology (STX): hard drives, Sherwin Williams (SHW)

Commercial Real Estate - Boston Properties (BXP)

Former holdings - Illumina (ILMN), Blackrock (BLK), New Oriental Education (EDU), Regions Financial (RF)

Been watching as it has outperformed of late, never held - Indian pharma Dr. Reddy's Labs (RDY)

Weekend Reading

News we just did not have time to dissect during the week but still deserve notice

Bloomberg: Former Federal Reserve Governor Lawrence Meyer Sees No Return to "Full Employment" Until 2015. I find it remarkable how much more prescient some of these former government officials are once they leave public office and have to face the real world i.e. not spin everything with a happy face. It makes me wonder what Mr. Bernanke's real opinion is as he stares at the ceiling at night. It is nice to see some realists out there - unfortunately in the private sector. These views are consistent with my views of a jobless recovery ex-government transfers of money to create false prosperity and until which time the US government decides what the next bubble it is going to be behind to hide the horrific policy decisions the past few decades have wrought.

The U.S. won’t see a return to “full” employment for another six years, helping to hold down inflation, according to former Federal Reserve Governor Laurence Meyer. “I think there’s going to be a long legacy of the financial crisis and the deep recession,” Meyer said in an interview.

The economy is “a very, very long way off” from its potential growth rate, Meyer said. While the expansion will probably be “modestly above trend next year” and “significantly above trend in 2011,” that won’t help restore the nation to a “normal” job-market, he said. “Full” employment -- or a jobless rate around 5 percent -- won’t return until 2015, he said. “We’re staring in a hole; we’re going to start from a 10 percent unemployment rate,” Meyer said. “The unemployment rate is going to come down very slowly.”

CBSMarketwatch: Wynn Macau's Abnormal Lucky Streak Baffles Analyst. The unusual case of Wynn's bacarrat tables in Macau - this game is the lowest skill game with the highest reliance on pure chance; yet Wynn has been on a 9 quarter "winning streak" above trend.

Baccarat, a card game sometimes described as a simpler version of blackjack, is significant as it's the only game that's played in the special rooms that cater to high-roller VIPs and is the top earner in Macau casinos.

And when it comes to baccarat, the Wynn Macau casino's winning percentage, otherwise known as the "hold rate," has been abnormally high for nine straight quarters. Wynn's winning streak has puzzled both gambling experts and analysts who cover casino companies in the former Portuguese colony. They say a month or two of above-average hold isn't unusual. But what Credit Suisse labeled a "supernormal win percentage," and which has lasted for all but the first two quarters since Wynn opened its doors in 2006, just doesn't add up. "There is no scientific answer," said Gabriel Chan, Credit Suisse's casino analyst based in Hong Kong.

Dealbook at NYTimes: At Goldman, did Inflation Bring Deflation? Ah those sneaky number fudgers at Goldman. By making a small under the radar change to begin counting temporary workers and contractors (all 2000+ of them) Goldman can try to bring down the sure to be public uproar over bonuses PER employee. Because when you spread out a consistent numerator over a larger denominator, you can fool some of the folks, all of the time. Even if some 2000+ of those in the denominator have as much chance of receiving a bonus as I do. I mean really, Goldman... only in your world does "$700,000 in bonuses per employee" sound very much different than "$800,000 in bonuses per employee"

In a footnote to its financial results on Tuesday, Goldman said that for the first time it was including consultants and temporary staff in its overall employee figures. This had the result of increasing its official staffing levels by 2,000 jobs or so in both the first and second quarters. Earlier this year, for example, Goldman said it had 27,898 workers at the end of the first quarter, but now it says that number was 29,800.

... the statistical change also had the effect of reducing Goldman’s compensation per employee number. Coincidence? Or useful in a quarter when it knew it was going to get political heat for returning to big bonuses so soon after taking all that government aid to see it through last year?

WSJ: The Downturn Keeps Divorces on Ice. We've touched on this theme before [Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)] and while the rest of the country is not facing Michigan like conditions there is a plethora of of adult children moving in with parents (of course the parents usually are the ones with the house paid off, but no fun 3.2 SUVs in the driveway, or flat screen TVs or other fun toys); it appears divorce is being held off for a "not so" rainy day as well. This is why the "household" formation number - while growing from natural population trends, will be below trend for a few more years. Don't forget all the college kids who instead of getting their first real job and apartment will instead be living with the parents for quite a few more years.

Unwinding the ties of matrimony is rarely simple or inexpensive, but for many couples, the sour economy is complicating the process further. Divorce lawyers say many couples are delaying the decision to dissolve marriages and are staying in unpleasant situations for fear of being on their own at a time of economic uncertainty.

Others are being forced to live together after the divorce is final for financial convenience
. That can strain the emotions and result in awkward negotiations about subjects like dating.

"People are saying, 'I've put up with it for the last 10 years, I can put up with it for another year,'" says Gary Nickelson, president of the American Academy of Matrimonial Lawyers. In a poll of 1,600 of its members, the group says, respondents estimated that divorce cases in the six months through March were off 40% from normal levels.

USA Today: Consumers Turn to Rent to Own Stores in Rickety Environment. Can't actually own a flat screen TV? You still deserve one; rent it! At 10x the cost of actually owning it of course. I don't think I've ever dealt in this small sector on the blog, but I was looking at the 2 major players when we were thinking of what sectors would prosper as the US consumer was obliterated (we chose pawn shops unfortunately which have been hammered by their association with payday loans) The 2 major players are Rent-a-Center (RCII) and Aaron's (AAN) - key point in this story is the change in customer showing up...

The rent-to-own industry has a history few retailers would envy but recent sales most would covet. Aaron's, the second-largest retailer in the $6.3 billion industry, plans to open 200 stores in 2010 on the heels of an 18% increase in same-store sales last year. Aaron's recent growth is almost unheard of in this economy.

Rent-to-own stores lease electronics, appliances and other household items by the week or month. Payments can be applied toward a purchase. Critics say the industry has taken advantage of vulnerable customers for years by making rental payments so high that a product's ultimate purchase price is exorbitant.

While not growing at the rate Aaron's is, the largest rent-to-own chain, Rent-A-Center, is also thriving. Same-store sales were up 2.3% last year, thanks in part to a higher-income client base that's expanding in the recession. Both chains say it's not uncommon these days to have customers with household incomes topping $50,000, which used to be the highest incomes they served.

NYTimes: At Beazer Homes it Was See No Evil, Hear no Evil. Simply an amazing account of went on at Beazer Homes which somehow remains in business. The CEO claims he has no idea any of this was going on, which begs the question - what exactly is the CEO's role again? What a great world - you can claim credits (and bonuses) on good times, acting as a strong steward with the type of brain power the peasants can only dream about. And when things go bad, you can claim ignorance. In most jobs, ignorance would lead to dismissal... in the public CEO spot, apparently its a defense. As an infamous Detroit Lions coach once said "what does it take to get fired around here?" The board? Still there - with no changes. Business in CronyAmerica as usual folks. What is pathetic is the "slap on the wrist" fine - $15 million. Remind me of the billions of rip offs on Wall Street which Spitzer would go after and company ABC would settle for $12 million. Basically it says "continue do what you are doing and consider the fines, if you are caught, just as a tax on business as usual". As you know, regulation is evil and only slows down innovation in America.

For years, Beazer Homes USA was much more than a builder of houses. It was a veritable crime wave. The company defrauded buyers, particularly poor people being sold homes they could not afford. It defrauded the federal government by getting government-guaranteed mortgages for those buyers. It created subdivisions now dominated by dozens of foreclosed homes.

Beazer lied to shareholders about how much money it was making. First, it lied by claiming it was making less than it was. Then it lied by hiding losses when the housing bubble began to burst. To keep the lies going, the government says, the company prepared fraudulent documents to mislead its auditors.

Last week, Beazer settled the legal problems stemming from its crimes. It entered into a remarkably generous deferred prosecution agreement with the Justice Department, in which the company will pay $15 million, and perhaps more if it manages to earn profits enough and does not decide to file for bankruptcy.

The bucks have continued to flow to the top, but the company thinks the responsibility for the crimes lies elsewhere. Heads rolled among lower-level officials, but the chief executive and chief operating officer have kept their jobs.

The board — all of whose members were there when the crime wave was under way — has not changed at all. After the directors learned of the crimes, they did take some action. In 2008, a disastrous year for the company, the board gave the chief executive, Ian McCarthy, a bonus for his efforts in “communicating the importance of compliance by employees.”

If a boss can preserve his deniability about crimes committed by his company — perhaps by showing little curiosity about just how the profits are being earned when he is taking in millions from cashing in stock options — then he can escape being held accountable if the crimes are eventually uncovered.

USA Today: Tourists Pay Prices as States Jack up Taxes to Balance Budgets. Another topic we've both predicted and detailed for 2 years. Just know, it's becoming more expensive to travel with a lot of fees you don't think about.

Taxes on travel are soaring as states and cities target the wallets of tourists and business travelers for new revenue. Hotel taxes, car rental fees and other charges were jacked up in many states in an effort to balance budgets by last week, when the fiscal year started in 46 states.

Among places where taxes rose:

Hawaii. The hotel room tax increased from 7.25% to 8.25% on Wednesday and will rise to 9.25% in July 2010.
Nevada. The room tax will increase up to 3 percentage points, to a maximum of 12%. In Las Vegas, the hotel tax jumps from 9% to 12%. Reno's tax was already 12% and is not scheduled to change.
New Hampshire. The tax on rooms and restaurant meals rose from 8% to 9% and was extended to include recreational vehicles at campgrounds.
Massachusetts. Cities were given authority to raise the hotel tax from 4% to 6%, in addition to the state tax of 5.7%. Taxes on eating out will rise from 5% to 6.25% statewide, plus another 0.75% if cities choose.
New York City. The city, which raised its hotel tax March 1 to 14.25%, not counting other fees, will start charging more for Internet reservations.

AP: Lean Times at Pamplona for Running of the Bulls. Looks like Wall Street is not the only place bulls have had a difficult time the past few years. The world's tourists just don't have the bucks they used to and when they do (see previous story) it's getting expensive to move around.

Daredevils sprinting with one-ton fighting bulls swallow an exhilarating cocktail of adrenalin and fear. Now, a new brand of jitters has set in at one of the world's great fiestas as businesses ponder the partypooping impact of economic woe.

....... it is mainly merchants who are feeling the pinch of the world's economic downturn. Rates on hotel rooms are down because of slacker demand, big-spending American and other foreign visitors are harder to find, and bars that usually make a killing off hordes of thirsty patrons from around the globe expect to serve up less booze.

"We thought San Fermin would always fill up," said local entrepreneur Mikel Ollo. "We created a fictitious bubble, and that bubble has burst."

Playboy: Raging Bulls. Of course, I only read for the articles and I did it only as a service for readers - but this is just an amazing account of the travails of ex Wall Streeters as they adjust to the "real world"; many cannot. So they go to Argentina - to live a life of drugs, partying, and trying to find a new way to get rich. Remember, this world is getting flat and its "cost of living" arbitrage - your millions (much of which you spent of course) might not go far in NYC anymore but you are a kind in Buenos Aires. After I read this, I realized I simply have no idea of how life works for the 20, 30 year or alpha male crowd on "the Street".

Around October, when the economy went into free fall, a bunch of out-of-work finance guys in their 20s descended on Buenos Aires, where you can have the penthouse, the steak dinners and the bottle service at ridiculous nightclubs and still save money renting out your apartment in New York or London.

Lifestyle arbitrage, baby
! The word got out, and the party built on itself, making the fantasy it offered all the more intoxicating: Come spend a month—or four—in Buenos Aires, where you really are a master of the universe, where nights are sleepless and potential business deals are all scams and the clubs teem with unemployed expat bankers looking for their identities in piles of cocaine and the bloodshot eyes of hookers and thieves.

Jason got to the party four months early. That's not his real name. This is his story.

Friday, July 17, 2009

Vale (VALE) Denies Interest in Fertilizer Assets; Such as Mosaic (MOS)

Wow, a lot of people just got crushed in Mosaic (MOS) on this denial of interest from Vale (VALE). Between 3:30 and 3:33 PM the stock fell from $52 to $48s. Right ahead of option expiration no less.

RIO DE JANEIRO, July 17 (Reuters) - Brazilian miner Vale (VALE) said on Friday it is not seeking to buy fertilizer assets, following rumors it was planning a bid for Mosaic (MOS).

Again, if the SEC actually had any acumen one should ask, who would benefit from a massive splurge of Mosiac call buying on July 10th. Then planting a rumor about a buyout. And who sold a flurry of calls sometime in the last 24 hours. If the same someone who did the buying did the selling - put 2 and 2 together. If it was just random, then at least you looked.

But our SEC is toothless and really a hood ornament to try to persuade the small guy someone is looking out for them. They will never ask the questions - we've seen this sort of thing over and over and over for years. I lost 10% myself on the short in Mosaic (MOS) but at this point, that's just the chicanery tax as I like to call it. You pay it to be involved in the casino.

Well I know it was not Madoff at least. Wait, he doesn't have internet access in jail does he?

No positions

Bookkeeping: Rebuilding Shorts in American Express (AXP) and Capital One Financial (COF)

I've held tiny shorts (holding positions) on these 2 names for the past few months; I am going to now expand them after they exploded higher this week on: Goldman Sachs (SLASH) JPMorgan (SLASH) Intel (SLASH) Green Shoots (SLASH) Credit card deliquency data that was poor but some considered a 2nd derivative improvement.

These are not the chart types "stocks below resistance" that we normally target - just two overextended charts (which can of course continue to be even more overextended); both have gaps in the chart, Capital One (COF) a yawning one, and American Express (AXP) a small one.

Obviously today I've taken some profits on the long side, and we tried to short Wednesday but were stopped out of 5 of 6 positions so we're back with little short exposure. I want something, to be hedged. These are 2 staring me in the face.

Capital One will go at $26.40, looking to fill that gap below $23.50
American Express will go at $28.00, looking to fill that gap down around $24.75

Together I am putting 5% of the portfolio combined into this basket; if they rise up from here on their own (i.e. excluding one of these +3% type of Intel days) I am actually going to add to my position not stop out, hence I am starting smaller than usual. Coming into the day they were only a 0.4% type of exposure for us, so we'll have about 5.4%-5.5% short with these 2 by end of day.

That gap at S&P 906 will be filled :) I'll give it within 7 days from here. But I'm open to the possibility we can always go up first. The NASDAQ is working on its 8th straight up day, which is a very rare bird. Aside from Wells Fargo (WFC) we are done with the "big 4" financials and everyone knows the playbook by now. How many times we can keep going up and "be surprised" on the exact same news will be the test...

Short American Express, Capital One Financial in fund; no personal position

Jon Stewart: The Pyramid Economy, with Goldman Sachs (GS) as the Eye

Hat tip for these videos to Zerohedge, which unbelievably we were having on as a guest poster back in February to help drive some traffic his way ;) How quickly things change.

Being absorbed in the investing world, it is hard to tell what is seeping out into mainstream culture. From the looks of it, at least one of Jon Stewart's writers is keeping up with the goings on in the financial blogosphere. A short 3 minute video but it will provide some laughs, especially for those who follow the Goldman Sachs saga closely. As an aside if you missed this dismantling in March must see video here [Mar 13: Jon Stewart v Jim Cramer: The End]

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Pyramid Economy
Daily Show
Full Episodes
Political HumorJoke of the Day

On a totally different track - since we want to know what FOX viewers are learning, a more lengthy 10 minute expose by Glenn Beck :)

To conclude, I have no idea who Max Keiser is - but let it be known he is no friend of the Goldman Boys.

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