US News & World Report: The 10 Strangest Mutual Funds

With some 8000-ish mutual funds out there, I guess it takes some unique strategies to get noticed if you don't happen to exist in a major family like Vanguard, American Funds, or Fidelity.  US News & World Report had this interesting story on the 10 Strangest Mutual Funds.... do your own due diligence. ;)

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When mutual funds step off the beaten path, there's no telling what will happen. In the past, for example, oddball funds have fought the war on terror (the Ancora Homeland Security Fund), tried to prop up the sky (the Chicken Little Growth Fund), and fantasized about swinging a presidential election (the Blue Fund). And although those three particular funds—all of which have been liquidated—failed, others have stepped in to carry the torch and preserve a long and proud tradition of eccentric investing styles. Here are the 10 quirkiest funds we could find:

1. The Congressional Effect Fund (CEFFX). This fund exists to answer the question posed in enormous letters at the top of its website: "How much investment wealth does Congress destroy?" (hilarious actually) As the question suggests, the fund has a rather cynical view of the country's political leaders. In fact, its manager sees politicians' disruptive influences as so far-reaching that when Congress is in session, he pulls completely out of the stock market and moves the entire portfolio into treasuries, cash, and money market funds. "Over the very long haul, it's almost always bad for the market," manager Eric Singer says of congressional action. Unfortunately, those pesky politicians on Capitol Hill seem to think Congress needs to be in session every now and then, so the fund has largely missed out this year on the furious rally in stock prices and has landed in the bottom percentile year-to-date in Morningstar's moderate allocation category. Still, Singer says he has compelling research to back up his strategy. According to the fund's numbers for the period between Jan. 1, 1965, and Dec. 31, 2008, the S&P 500 registered a paltry 0.31 percent annualized gain when Congress was in session, compared with a 16.15 percent annualized increase when Congress was on vacation.  (damning evidence? one wonders how well the market would do if Congress was disbanded)
2. The StockCar Stocks Index Fund (SCARX). At first glance, this fund, which tracks an index of companies that support NASCAR's Sprint Cup Series, is a dream come true for racing fans. But a more careful look reveals a different story—most of its holdings are only tangentially related to NASCAR. Investors might be surprised to see that aside from car-related names, the fund's top holdings include Disney, Target, Coca-Cola, and Sony. "[You have] two or three legitimate NASCAR plays, and then you have to go into all sorts of whacky stuff like Target and Coca-Cola because they sponsor someone's car," says Russel Kinnel, Morningstar's director of mutual fund research. Over the years, the fund's performance has been a touch erratic, but its returns year-to-date are enough to land it in the top quartile of Morningstar's large value category.
3. The Blue Chip Winery Fund. Jokingly called the best "liquid" investments on the market, wine funds once enjoyed some popularity. But unlike a good glass of wine—or investment, for that matter—these funds have usually not gotten better with age, and most of the ones that were around several years ago have since crashed and burned. Nevertheless, this fund, which was launched in October and is based in the Bahamas, takes a bit of an untraditional approach to wine investing: Instead of buying actual bottles of wine, it will invest exclusively in real estate holdings like wineries and storage facilities. In particular, the fund's management is looking to take advantage of the cheap property prices created by the recession. "Given the current economic environment, there are a lot of [opportunities]," says comanager Bruce Ramsey. Aside from the chance for capital appreciation, investors can look forward to the perks that this quirky fund offers, including discounts on food, hotel rooms, and spa treatments at select wineries. According to the fund's website, shareholders also get first dibs on the wine produced at these properties and the chance to "help pick grapes, prune vines, and taste-test the wines as they progress from juice to bottled wine."
4. The Herzfeld Caribbean Basin Fund (CUBA). While most managers talk about investing with long time horizons, few are willing to stake large chunks of their fortunes on an event that may never happen in the lifetime of their funds. But for the past 15 years, fund manager Thomas Herzfeld has been doing just that as he patiently waits for the Cuba embargo to come crashing down. Along the way, Herzfeld has chosen stocks for this closed-end fund based largely on companies' prospects for success should the embargo be lifted. While he also holds significant positions in Mexico, Herzfeld is particularly keen on investing in U.S. companies that could explode in value if the United States and Cuba begin trading. Gimmicks aside, the fund looks for companies that can also hold their weight in the current political environment. Its top holding, for example, is Freeport-McMoRan Copper & Gold, the share price of which has more than tripled year-to-date.
5. The Marketocracy Masters 100 Fund (MOFQX).  (Marketocracy is actually where I had my track record in 2007/2008 until switching to something that allowed both long and short, and option positions) If you're a mutual fund investor, chances are there has been a time when you've loudly ranted about how you can do a better job than your fund manager. (hand raised)  With this fund, you get the opportunity to be your own manager—at least kind of, and only if you beat out thousands of other investors. On Marketocracy.com, investors create hypothetical online portfolios; currently, there are roughly 30,000 active users. Of the portfolios they produce, Marketocracy takes its favorites—up to 100 at a time—and uses them to select the Masters 100's actual holdings. If your model is used, you get a small piece of the action. Manager Ken Kam says the fund's team vets the model portfolios thoroughly to weed out investors who are successful only by way of a fluke. "There's a lot of checking to make sure that it's not the result of one or two great stock picks over the last five years. We like to see good stock selection and good trading ability," he says. Overall, this quirky approach, which looks to achieve unparalleled diversity by blending many styles, has paid off at times, but its annualized returns over the past five years put it in the bottom quartile of Morningstar's mid-cap blend category.  (sounds like a good concept anyhow - too many cooks in the kitchen?)
6. The Vice Fund (VICEX). As its name suggests, this fund invests in "sin stocks," and its list of top holdings is littered with companies that conscientious investors love to hate: Philip Morris, Lorillard, British American Tobacco, and Altria. Mixed in with these big names in tobacco are defense and weapons giants like Lockheed Martin and Raytheon, beer companies such as Carlsberg A/S and Molson Coors, and some gambling picks. While sin stocks are often thought of as recessionproof, the fund has struggled quite a bit recently; year-to-date, it's in the bottom 3 percent of Morningstar's large blend category. Still, there have been some bright spots since the fund launched in 2002. Its annualized returns over the last five years rank it in the top third of its category. "I think this has been a pretty good decade for sin stocks," says Kinnel. Even so, he remains skeptical about the fund's narrow focus, pointing out that its bread-and-butter picks could easily fall out of favor over the next few years.
7. The Monetta Young Investor Fund (MYIFX). Ever wonder what would happen if you put your third-grade child in charge of a mutual fund? Chances are it would include plenty of Disney and McDonald's shares. It's no coincidence that those companies are among this fund's top holdings. And while Monetta doesn't literally have an army of elementary school students serving as its stock pickers, one of its stated purposes is to act as if it did. That's because the fund, which invests half of its portfolio in exchange-traded funds and other index funds and the other half in companies that are familiar to young children and teenagers, looks to help parents get their kids interested in investing. Apart from picking stocks that kids readily recognize, the fund offers to mail shareholders finance-related games and activities for children and lets families accumulate rewards points that can help pay for college tuition. (neat idea)  If its recent performance holds up, Monetta Young Investor's returns can also go a long way toward anchoring college savings: So far this year, the fund is up 48 percent.
8. The Timothy Plan Aggressive Growth Fund (TAAGX). Have you ever wanted a complimentary moral audit? On this fund's website, that's only one of several services offered to potential clients who are interested in investing in accordance with Christian values. There's also a "Hall of Shame," which lists companies the fund avoids, and a section to help parents identify potentially offensive video games. Like the other Timothy Plan funds, the Aggressive Growth Fund stays away from companies that are connected to alcohol, tobacco, gambling, abortions, pornography, or same-sex marriage. While the Timothy Plan funds have plenty of company in the religious and moral investing space, their offerings stand out for their rigorous screens and strong wording: The company explicitly evokes the "culture war" that its funds are fighting. (Bill O'Reilly Fund?) While these commitments offer a reasonable outlet for shareholders who prefer to invest in accordance with their religious beliefs, the strategy has not been particularly profitable for the Aggressive Growth Fund. Its annualized returns over the last one, three, and five years all place it in the bottom quartile of Morningstar's mid-cap growth category.
9. The Adaptive Allocation Fund (AAXCX). With its website, which is www.unusualfund.com, this fund seems to be begging for inclusion in this list. Since the fund's adviser is a company called Critical Math, it unsurprisingly takes a rather formulaic approach to investing. In fact, the fund, which launched in 2006, uses upwards of 80 "fundamental" models—in addition to a number of "technical" models—to decide where to invest.  With these models, the fund's managers take the jack-of-all-trades approach to a new level, giving themselves the ability to invest any portion of the portfolio in essentially any type of security for as long of a time period as they see fit. (sounds like my style, but I only have my head rather than 80 models cross referenced with a number of technical models - computers over man!) In its brochure, Critical Math proudly declares, "Because we are so flexible, and our investments can be invested in almost any combination of assets, the funds we advise could, at any point in time, be classified as money market funds, or government securities funds, or large cap growth funds, or large cap value funds, or mid cap growth or value funds, or small cap growth or value funds, or balanced funds, or growth and income funds, or, even rarely, long-short funds!" (might have to steal that for my prospectus - I was going to go with the more simple 1 word: "Anywhere") Whew! Despite the fund's attempts to avoid characterization, Morningstar lumps it in with mid-cap blend funds. In 2008, the fund's returns ranked it in that category's top percentile.
10. The Women's Leadership Fund. Swiss company Naissance Capital will launch this fund next year with the goal of promoting gender-conscious investing. When the fund opens its doors, it will focus on companies that have significant female representation in their leadership teams. And while the fund is largely idealistic in nature—20 percent of the fees it collects will be set aside for promoting opportunities for financially disadvantaged women—it also points to research claiming that companies that embrace gender diversity in their boardrooms tend to perform better. (estrogen > testosterone?) Still, like all socially screened funds, this one will come with some risks. "Any time you buy a fund that has investment restrictions on it—whether they be social or religious or industry-related—you have to be willing to accept lower returns in exchange for things that are important to you," says Adam Bold, founder of the Mutual Fund Store, an investment management firm with more than 65 U.S. locations. "That doesn't mean that you'll get lower returns, but going into it . . . you have to be willing to accept them."

Interesting Longer Term Bets Developing in Currency, Stock Markets

A couple of very interestng stories on Bloomberg today, regarding some long term directional bets by what I assume to be big players.  Effectively it's the same "dollar inverse" trade but in reverse ...keep in mind dollar down = stock market up is not the traditional relationship, it's just something that has taken a life of its own as Ben Bernanke has provided an unlimited fire hose of US dollars to make us all feel better via inflated asset values.  There are some fascinating tidbits in these stories.

First, 'Options Signal Stock Peril as Analysts See Profits' - this is an interesting one, as by the time analysts form consensus about something, it's generally time to do the opposite.  The same analysts hiding in bunkers this spring now are giddily raising estimates across the board in out years.  Their incorrect assessments of how valuable chopping so many Americans from the payrolls would be to corporate bottom lines, led to masses of "better than expected" beats during earnings season, but like any good momentum stock - eventually the analysts race to "catch up" and place a target far too high.  That's when you get disappointment - we should be setting up for such a scenario by Q2 or Q3 2010.

• Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s. S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show.
• The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.
• The last time the average gap between one-year insurance and 30-day contracts was higher was five months before the S&P 500 began a 49 percent plunge in March 2000 during the collapse of the Internet bubble. (now that is a fascinating item of information)

Not that history is identical but 5 months prior to March 2000 was the giddy November 1999 when I remember the market being so easy, that even a "throw a dart at any technology stock" doofus such as myself was minting money with his eyes closed.  And it got even easier in the next few months as the NASDAQ went parabolic.  I was a genius... we all were.  Shooting fish in barrels.   So 5 months from now would be roughly April 2010, just about the time the Fed might consider changing one little word in their statement about "free money forever" which might be the cause for a stampede in the other direction ... we'll see.

• One-year implied volatility, which measures the price of options, on the S&P 500 has jumped to 24.16, or 4.42 points higher than the level for one-month contracts, Barclays data using 10-day moving averages show.
• Option prices are rising on speculation the Federal Reserve will lift interest rates in 2010 or risk stoking inflation.
• “The market is enjoying what some are calling ‘the calm before the storm,’” said Justin Golden, a strategist at New York-based Macro Risk Advisors LLC, which advises institutions on derivatives trades. “Future expectations of volatility far outweigh the present. This spread paints a picture of the extreme uncertainty premium that exists in future equity prices.”
• “Mutual funds, hedge funds, pensions and endowments were scared stiff, but now they’ve regained their appetite for risk,” said Jean-Marie Eveillard, senior adviser to the $8.6 billion First Eagle Global Fund in New York and a finalist for Chicago-based Morningstar Inc.’s fund manager of the decade award for non-U.S. stocks. “It’s a warning sign because everyone who wants to be invested already is.”  (bingo - we are now reaching the stage of complacency where even those bearish have thrown in the towel and are "going in" because "the market just won't go down" - might last 2 weeks more, 2 months, 6 months... you never know when it ends but usually quite spectacularly)

Second, 'Dollar Fear Trumps Greed in Guarding Against Rebound'

• Traders in the $3.2-trillion-a-day foreign-exchange market are paying the highest prices in more than a year to protect against a sudden rebound in the dollar after its worst annual performance since 2003.  Dubai’s effort to delay debt repayments reminded traders how the U.S. Dollar Index surged 16 percent in the two months after the September 2008 collapse of Lehman Brothers Holdings Inc. when investors sought a haven from the turmoil and poured money into U.S. assets.
• “American investors have a lot of exposure now to foreign markets,” said Mansoor Mohi-uddin, the chief currency strategist at Zurich-based UBS AG  “If investors become risk-averse again, which happened last year due to Lehman’s bankruptcy and could happen now for a whole host of reasons, they are likely to go into less risky assets like U.S. Treasuries, which would help the dollar.”

Now it might seem ironic that the US, which was the cause of all the global issues we've seen the past 5 years, would still be seen as the safe haven but old habits take a long time to kill.  With the most liquid bond market, it makes sense that this is where investors fled to, but as we stated in 2008, in no time in history did the country that caused the issues see a flight of capital INTO their country.  But that is the benefit of the reserve currency and many decades as top dog.  This was a trade I (and most others) completely missed predicting, the "go long US dollars and Treasuries" that was a boon in 2nd half 2008.  We saw a 1 day blip 2 Friday's ago with a minor issue like Dubai... what happens if its Greece next time?  [Nov 27, 2009: UK Telegraph - Greece Tests the Limits of Sovereign Debt as it Grinds Toward Slump]  Do we just assume Germany errr the European Union bails them out like Super Ben does for everything stateside?  Or (can't imagine it) the UK?  [Dec 1, 2009: Morgan Stanley Lists UK Sovereign Debt / Currency as Potential "Fat Tail" Risks for 2010]  Who bails them out if and when?  As every trader on Earth is in the same "short dollar" trade, the explosion higher in the dollar would cause some epic dislocations - again... and we are right back to the "fun" of 2nd half 2008 and early 2009. 

In the greed that has now already (how short our memories) overtaken the market, (some) people are once again not allocating for these outlier events.  The moments which over the course of 20-30-40 years can destroy your portfolio.  Hence it seems worthwhile to have some portfolio insurance in "long dollar" instruments (which we do have) - or anything else that that bets against the 'consensus' - even if that insurance is never needed.  Because as we saw with Dubai Friday (a relative blip) waking up to a -500 Dow futures market in some larger event in the future won't allow you to position yourself for the "out of the blue" moment.  Will it be tomorrow? in 3 months? 3 years? or 13 years?  Who knows.  But it sounds like some "big money" is protecting against "sooner rather than later".

So it gets technical here but just follow through to the conclusions below:

• While Intercontinental Exchange Inc.’s Dollar Index fell to a 16-month low last month, implied volatility on three-month call options granting the right to buy the greenback versus the euro exceeded that for options to sell it by 1.61 percentage points.
• The so-called 25-delta risk-reversal rate, which was flat as recently as October, hasn’t shown such high relative demand for dollar calls since hitting a record 2.595 percentage points in November 2008.
• When the implied volatility of dollar calls exceeds puts, like now, the gap is expressed as a negative number, which would be minus 2.595 percentage points. The rate touched minus 1.67 percent today.
• Investors are waiting for “the BOB event, a bolt out of the blue,” said John Alkire, the chief investment officer at Morgan Stanley Asset & Investment Trust Management in Tokyo. “The world had a mini-BOB,” when financial markets tumbled after Dubai announced plans to restructure some of its $59 billion in debt.
• The Dollar Index had its biggest two-day gain in a month on Nov. 26-27, rising 1 percent, as Dubai’s proposal to delay debt payments shook investor confidence by risking the biggest sovereign default since Argentina’s in 2001.
• Investors are also wary of the global economy falling back into recession with U.S. unemployment above 10 percent for the first time since 1983, non-performing U.S. commercial mortgage loans as measured by Moody’s Investors Service rising to 8.3 percent and the potential for stocks to fall after the steepest rally in the Standard & Poor’s 500 Index since the 1930s.
• Record-low interest rates in the U.S. have encouraged investors to borrow in U.S. dollars and reinvest the proceeds in countries with higher ones, such as Australia and New Zealand.
• “People saved money in the past by not insuring themselves, which proved to not be a great trade,” said Nick Parsons, head of markets strategy in London at NabCapital, a unit of National Australia Bank Ltd., the country’s largest bank by assets. “There is plenty of incentive and opportunity to hedge now. People are much more willing to buy insurance.”

Bookkeeping: Slowing Rebuilding Gold (GLD) & Silver (SLV) Stakes

Now that some air has been taken out of gold and silver, I'm SLOWLY (key word) rebuilding these positions.  With some purchases late Friday and this morning I am back from a 0.2% allocation (combined) to something around 1.4%.  (recall we essentially sold all our holding except for a holding stake a week ago, Wednesday right ahead of Dubai)  I would love to see a 4-8 week correction in precious metals, at which point I'd build a quite material position but you never know in advance if we are headed for such an event, or a 2 day blip.

My main worry is this trade is so crowded with hedge funds, that if it truly reverses it will have nothing to do with fundamentals and everything to do with lemmings jumping off a cliff.  Hence dip buying of this type is fraught with risk, but there is nothing in US economic policy that argues against weak dollar/strong precious metals in the long run.   I am not owning these items as an inflation hedge, but protection from Ben Bernanke's war on fiat money.   Frankly even when the US goes back to "normal" times I don't see a country able to live without cheap money since we're all addicted to it, so we could be talking half a decade before interest rates go back to anything near "normal" unless the bond market exacts its own will on Ben.  And if it does, we're really in trouble.

So while the lemmings will jump off the cliff as they anticipate some rate hikes from 0-0.25% to ? 1%? 1.5%? it will be humorous in many ways.  1% used to be considered extraordinary low rates, and we're going to panic because Ben raises rates to levels that Alan caused massive bubbles with?  So as we look out multiple years, expect dollar 'strength' as we return to (again it's laughable) "high rates" of 1-2%.  And then if the US economy is so structurally impaired as I believe, we're going to be stuck at some low level of rates for a very long time, with constant stimuli / state bailouts / cash for (insert whatever you wish) programs et al - all of which are killing the dollar (living standard of Americans).  But there might be 6 month periods in between these long term trends where the dollar has counter trend rallies and lemmings jump off cliffs.  When these occur will be anyone's guess and being flexible is the key.

I've added to Ultra Silver (ACQ) and Powershares DB Gold Double Long (DGP) - slowly - with all the caveats listed above.  Every 4-6% down, I'll probably add another medium sized batch.

I'm hedged with the long dollar option play...

Long all instruments mentioned in fund; no personal position

Top Holding AsiaInfo Holdings (ASIA) up 25% on Purchase of Competitor Linkage Technologies (BOSS)

Wow.

Our top long position AsiaInfo Holdings (ASIA) is currently up 25% on a purchase / merger with competitor Linkage Technologies (BOSS).  Linkage was set to go IPO this week - we spoke of both companies just last week. [Dec 1, 2009: IBD AsiaInfo Holdings China's 3G Conversion Boom Boosts Telecom Software Firm's Holdings; Competitor Linkage Technologies to IPO Next Week]

Can I get a Boo Yah?

• AsiaInfo Holdings, Inc. (ASIA) and Linkage Technologies International Holdings Limited ("Linkage"), leading providers of software solutions and IT services for the telecommunications industry in China, today jointly announced that they have signed a definitive agreement to merge, forming AsiaInfo-Linkage, Inc. ("AsiaInfo-Linkage").
• The transaction will leverage both AsiaInfo's and Linkage's leading market positions and complementary customer bases to provide a robust, full-service offering to telecom operators.
• Under the terms of the agreement, Linkage shareholders will receive US$60 million in cash and approximately 26.8 million AsiaInfo shares upon closing of the transaction. Based on the closing price of AsiaInfo's stock on December 4, 2009, the combined company would have a market value of over US$1.8 billion.
• Post-transaction, Linkage's legacy shareholders will own approximately 35.8% of AsiaInfo-Linkage with AsiaInfo's legacy shareholders owning approximately 64.2%. The transaction is expected to be accretive to non-GAAP earnings per share in 2010.

More details to come; just had to pick myself up off the floor after falling out of chair when I saw the stock up 25%.  I am going to sell HALF the position here around $31, while I process the information and do some reading on this transaction.

This is a good move in terms of consolidating the space; as the piece last week explained both these names are #1 thru #5 in multiple sub niches - together I assume they will be #1 or #2 in all of them.  Talk about drama, ASIA swoops in days ahead of the IPO. 

• Upon completion of the transaction, AsiaInfo-Linkage will have over 8,000 employees, of which approximately 7,000 are engineers  dedicated to project delivery and research and development. The combined company will also have 34 patents and an additional 27 patents pending approval in China and the United States.
  

[Aug 11, 2009: Bookkeeping - Beginning Placeholder Stake in AsiaInfo Holdings]
[Aug 7, 2009: Niche Play on China Telecom - AsiaInfo Holdings]

Long AsiaInfo Holdings in fund; no personal position

Potash (POT) Upgraded by Goldman Sachs (GS)

About 2 weeks ago we noted Potash (POT) looked poised to breakout [Nov 17, 2009: Potash Could be on Verge of Breakout] over a "double top" of $106, which it began doing within hours (we started the position once that happened).  So far it has been a pretty good run here, although speculators have run into the Chinese agriculture stocks (SEED, FEED, CGA, YONG, et al) as they always do whenever fertilizer gets hot.  Many of these type of stocks will run 50% and lose it all once the tide turns so as long as you find a chair before the music stops they are fun for speculative reasons.

However, Potash and Mosaic (MOS) [and to lesser degree Agrium (AGU) or Intrepid Potash (IPI)] are the key ways to play my favorite subsector (outside of land itself) in agriculture - which is potash.  We have, literally, a hundred posts on the subject of why potash (the nutrient) has a huge moat around it [Nov 16, 2007: Potash Expands Mine for $2 Billion] and is one of the most compelling investment ideas for a 5, 10+ year time frame so you can click on the label for this entry or search archives by topic if newer to the blog (much of this was discussed in latter 2007 or first half 2008).  Mosaic and Potash were 2 of our big winners from summer 2007 through summer 2008, and just about the time they hit the mainstream press was "the top" [Apr 30, 2008: Finally (A Year Late) Fertilizer Hits the Front Page of the NYTimes] [Apr 23, 2008: Potash Hits $1000 on Spot Market].  That was about the time I became very worried about the sector as very crowded which I detailed in the April 23rd piece.  In retrospect, that was a correct assessment.

Also keep in mind Potash is the 3rd largest position for investing legend George Soros.

Goldman Sachs (GS) has upgraded Potash (POT) this morning and Notable Calls blog has some of the details:

• Goldman Sachs is upgrading Potash (NYSE:POT) to Buy from Neutral with a $140 price target.  According to the firm the upgrade is based on an improved demand outlook for potash in 2010 both in the US and globally.
• Over the past few weeks, datapoints have confirmed returning demand and they believe POT offers the most attractive way to play a potash recovery. Goldman believes US farmers will significantly increase applications vs. significantly weak 2009 rates, and worldwide demand should pick up following the long-awaited China contract settlement.
• Finally, investor sentiment on fertilizers has improved meaningfully, yet they believe we are still in the early phase of this upcycle. Firm sees 20% potential upside to their $140 price target.
  

Goldman notes they want to own POT shares today for two primary reasons:

• (1) The impending China contract settlement should serve as a major catalyst for the global potash markets and fertilizer stocks. This could come as soon as this month, but we more conservatively expect a settlement by mid-February. Settlement of the China contract will give retailers and dealers’ confidence in restocking inventories throughout the supply chain.
• Given recent improved demand trends, including higher prices in the Chinese domestic markets, they believe the risk of a damaging contract settlement is diminishing. When the contract settlement finally occurs, they expect it to set off a global demand spurt as buyers will come out of the woodwork to secure potash for 2010. Buyer confidence is key to the market right now, and until the China contract settles, uncertainty remains. That said, similar to the US, Goldman believes farmers across the globe are likely to return to the market and buy potash for 2010 application.
• Recent anecdotes from their China analyst suggest that the domestic potash market in China has thawed in recent weeks and demand is pulling inventory through the supply chain. Producer inventories have fallen meaningfully, according to Goldman China analyst, and are now about 3 million mt vs. the prior estimate of an excess of 4 million mt due to inventory draw downs during the recent weeks. Accordingly, prices have recently strengthened within China—from $350/mt up to $425/mt (at the retail level) depending on quality (with Canadian potash receiving a premium).
• (2) Investors are likely underestimating the 2010 US demand recovery that could see staggering yoy percent increases in volume given the depth of the 2009 reduction and the atypically weak fall consumption levels.
• Over the past 4-5 weeks, they have spoken to many industry contacts—from farmers to producers—and sensed a critically important sentiment change within the fertilizer industry that potash demand is returning, and that fears of another decline in application rates are overblown. After spending time in the field over the last few weeks and discussions with various industry contacts, the firm ise now highly confident that farmers do not doubt the need to replenish their soil, and will do so at rational prices.

POT is the best way to gain from the 2010 potash rebound

Goldman views Potash Corp. as the best way to play a rebound in the global potash markets given its high earnings leverage to potash prices and volumes as well as being the natural large market cap choice for investors looking to gain exposure given its size and trading characteristics. Compared to Mosaic, POT has higher potash exposure; compared to Intrepid Potash, POT has a significant market cap advantage ($37bn vs. $2.5bn) as well as much lower unit production costs. They believe that POT is portfolio managers’ ideal choice for potash exposure.


Valuation, reflecting abrupt sentiment changes, can be volatile

After the recent run, which was NOT accompanied by a rise in estimates, fertilizer stocks look significantly more expensive than just a couple of months ago. Of course, the same can be said across the market if looking back to the March 2009 lows. Goldman notes they are conscious, however, of the role sentiment plays in these names, which can lead to seemingly stretched valuations relative to historical standards based on investor expectations for upward earnings revisions. In POT, for example, downward earnings revisions over the past three months have come hand-in-hand with higher multiples and significant stock appreciation as investors willingly look past any near-term earnings weakness and toward the rebound potential for 2010 and beyond.

Goldman's $140 target is the new Street high target for POT.


[Jan 27, 2008: Potash King Shows No Mercy]
[Oct 23, 2007: Analysts Still Doubting the Fertilizer Stocks]

Long Potash in fund; no personal position

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 18

Year 3, Week 18 Major Position Changes

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

Cash: 74.9% (v 82.9% last week)
24 long bias: 20.6% (v 12.5% last week) 
4 short bias: 4.5% (v 4.6% last week) [includes 1 option position]

28 positions (vs 27 last week)

Weekly thoughts
An action pack week that started with Dubai (who?) and ended with a monthly labor report gives away to what appears to be a much quieter affair.  The economic calender is very light, we are a month away from next earnings season, and holidays soon approach.   Other than a Ben Beranke speech Monday, there is a complete economic news void, aside from discussions of how much money will be spent creating jobs by government - until Friday.  Retail sales, and consumer sentiment will drive trading Friday but until then we most likely will be beholden to technical trading in this computer operated market.


Looking at our key charts, we remain in "the box"... now approaching a month worth of trading sessions.  This box has been roughly S&P 1085 to 1112, although top side levels were broken through late last week on an intraday basis (but NOT a closing basis)

S&P 1120 is a 50% retracement of the entire move down from October 2007 to March 2009 so it has predictably been the next headwind.   I will repeat what I've been saying the past 5-7 days... the longer the base the bigger the eventual move.  A month long base is creating conditions for a doozy of a move; now we must see what direction said move will be.  Bulls hold the cards until proven otherwise, as we are consolidating over all major moving averages.


The Russell 2000 (reflecting smaller cap stocks) has been the laggard and remains range bound as well, although at the top of its recent range.  Bulls would like to see this rally to broaden to capture these names as well.

The only chart that matters, finally showed some life Friday.... but a move over $76 that holds would be a necessary component for any counter trend rally.  

And the most crowded trade on Earth took a hit Friday as hedge funds all scrambled out the door at the same time.  Having sold almost all holdings of gold and silver about a week and a half ago, we'd like to begin layering back in on weakness.  Any move below the 50 day moving average (near $1100) for gold would however.... be interesting. 

Let us note - 2 of our leadership stocks, Apple (AAPL) and Goldman Sachs (GS) have struggled a bit of late.....

... but perhaps the baton has been passed onto Amazon.com (AMZN) - although even that bullet proof issue was hurt Friday.

Frankly I am bit confused the indexes hold up when you have lost much of the small cap universe, plus 2 of your leadership stocks... 


Other than that more of the same... Tim Geithner pledges he wants a strong dollar while he and Ben Bernanke do everything in their power to crush it.  Congress, after wasting untold US treasure on stimulus #1 through 78, now is coming to the realization elections are next year and the minor issue of jobs requires stimulus #79.  Plus the next round of state and city bailouts i.e. public workers -  is key. (votes!)  Every computer on Earth is set to trade at 4/1000ths of a second versus the US dollar chart, and fundamentals essentially mean nothing.  This will continue until it stops... 

Updated Position Sheet

Cash: 74.9% (v 82.9% last week)
Long: 20.6% (v 12.5%)
Short: 4.5% (v 4.6%) [includes a long dollar option and volatility position]

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.

*** Please note, I've added an options category for things I am holding longer than intraday.
*** Currently we own both a dollar, and volatility position - while neither "long" nor "short" they have been classified as short due to market behavior

(click to enlarge)

LONG (2 photo files)

SHORT

OPTIONS

David Malpass: Near Zero Rates are Hurting the Economy

Following up some excellent commentary he has been doing as a guest on CNBC (see video here) [Oct 16, 2009: The Inverse Correlation Between Stocks and the US Dollar in 1 Chart] David Malpass makes an eloquent argument on how near zero interest rates are hurting the US economy in a Wall Street Journal opinion piece.  Once more, isn't the "emergency" over?  (green shoots everywhere) If so, why are rates at almost nothing?  Even Bubble Greenspan only took rates down to 1% during our last crisis.  Malpass explains why, aside from Wall Street speculators, multinational exporters, and those Americans who live on easy money (unfortunately, far too many) [Jun 3, 2009: A Country that Cannot Function Without Easy Money] - the policy is hurtful.

David Malpass is president of Encima Global, an economic research and consulting firm serving institutional investors and corporate clients. His work provides insight and analysis on global economic and political trends, with investment research spanning equities, fixed income, commodities, and currencies. Formerly Bear Stearns’ chief economist, Malpass’s team ranked second in the Institutional Investor ranking of Wall Street economists in 2005, 2006, and 2007.

Between 1984 and 1993, Malpass held several posts in the U.S. government, including six years with Secretary James Baker at the Treasury and State Departments; his work encompassed international finance and economic issues as well as work on the U.S. budget and on economic and trade legislation.


*****************************
 
The Federal Reserve implemented an emergency monetary policy after the 2008 Lehman bankruptcy to salvage the world financial system. In his testimony yesterday before the Senate Banking Committee, Fed Chairman Ben Bernanke said, "We must be prepared to withdraw the extraordinary policy support in a smooth and timely way as markets and the economy recover."


This leaves all-out emergency monetary stimulus in place, but with a different, much weaker justification. With the system stabilized, the Fed hopes that artificially low interest rates and its purchases of mortgage-backed securities will spur growth. Instead they are pushing dollars abroad and wasting precious growth capital in asset and commodity bubbles.


Since the show of global cooperation at the Nov. 6 G-20 meeting, the rest of the world has challenged the Fed's emergency policy. Asia warned President Barack Obama on his recent trip that the zero-percent fed-funds rate was flooding Asia with excess dollars, causing asset bubbles there and undercutting global growth.


Europe quickly joined Asia's criticism. On Nov. 20, German Finance Minister Wolfgang Schäuble said that the U.S. policy threatened "enormous turbulence." European Central Bank President Jean-Claude Trichet has repeatedly tried to bolster the U.S. commitment to a strong dollar, most recently with yesterday's comment that "I trust the sincerity of the U.S. authorities."


Nevertheless, more than a year after the heart of the panic, the Fed is still promising near-zero interest rates for an extended period and buying over $3 billion per day of expensive mortgage securities as part of a $1.25 trillion purchase plan. Capital is being rationed not on price but on availability and connections. The government gets the most, foreigners second, Wall Street and big companies third, with not much left over.


The irony of the zero-rate policy, coupled with Washington's preference for a weak dollar, is a glut of American capital in Asia (as corporations and investors shun the weakening U.S. currency) and a shortage at home. For gold and oil, the low-rate policy works, weakening the dollar so commodity prices go up and providing traders with ample funds to buy into the expanding bubble. Those markets are almost daring the Fed to try to break out of its zero-rate box.


But for small businesses and new workers, capital rationing is devastating, spelling business failures and painful layoffs. Thousands of start-ups won't launch due to credit shortages, in part because the government and corporations took more credit than they needed (because it was so cheap).


Already countries with higher interest rates, Australia for one, are viewed as less risky because they have room to cut rates if there's another emergency. This wins them capital and jobs that might otherwise be ours.

According to International Monetary Fund data, U.S. GDP has fallen to 24% of world GDP from 32% in 2001. And as U.S. capital escapes the weak dollar and high tax rates, the U.S. share of world equity market capitalization has fallen to 30% from 45%. This leaves the U.S. alone with Japan at the bottom of the monetary heap, with rate expectations so low they repel investment.



Yet the Fed's not nearly as trapped as it seems. Much of its current stimulus is being diverted to commodities and foreign economies—hence Asia's complaint about bubbles. Under emergency stimulus, corporations are borrowing dollars hand-over-fist, pleasing Wall Street while using the proceeds to expand their foreign businesses. If that stimulus could be retained here, the Fed could stand down gradually from the emergency yet still assure appropriate policy accommodation.


The simple goal is to convince the capital now funding gold mines and foreign asset bubbles to instead fund small businesses and the guaranteed mortgages the Fed's been buying. This means stopping the dollar's collapse, since it is fueling the outflow.


Since U.S. inflation is relatively low, even a Fed nod toward normalcy on monetary policy (not evident in Mr. Bernanke's testimony yesterday) should cause a dramatic improvement in the dollar and the magnitude of capital flows.


The fed-funds rate can stay near zero for a while longer, but the Fed can't keep promising "exceptionally low rates for an extended period," as it did last month. The sooner the Fed moves off its policy extreme, the sooner markets can resume their job of allocating capital and assessing relative value. In a more market-oriented allocation of global capital, the U.S. will be a big winner, especially for jobs and small businesses.


If the Fed wants to speed the capital reflow, it could mention the importance of the dollar in its Dec. 16 committee statement on interest-rate policy and inflation risks. In his Nov. 16 address to the Economic Club of New York, Mr. Bernanke said policies should "help ensure that the dollar is strong and a source of global financial stability." Putting that in the Fed's policy statement—with none of the normal winks to those who favor devaluation—would cause capital to flood back into the U.S., loosening small-business credit and adding jobs even when the Fed eventually contemplates rate hikes.


If the Fed announces that an end is in sight to its all-out emergency policies, two other benefits may accrue. China should be more willing to allow yuan appreciation if it thinks there's a net under the dollar. With no net, China fears that yuan appreciation would accelerate dollar flight, driving commodities even higher. And the Fed should be able to maintain its independence, which is at risk from congressional audits as long as the deeply unsettling emergency policies persist.



Wall Street will threaten a tantrum if the Fed even thinks about damping the air-raid sirens. The Street utterly loves the Fed's largess, earning massive profits from trading unstable currencies, the carry trade (borrow short-term dollars near zero, buy longer-term assets abroad), and the high-margin process of transferring America's capital abroad.

 The hitch is that there isn't much trickle-down to normal jobs and small businesses from the sophisticated, zero-rate arbitrage that is propelling asset prices ever higher. It would be better to stand down from emergency stimulus and instead help markets direct the capital that is now going into bubbles into the economy and jobs.

NYT: Why Many of the New Home Loan Modifications Fail

It is so dispiriting to see so much wasted money to support the Ponzi economy and all its subsets such as housing.  Rather than allowing the market to clear, albeit painfully but in much more quick fashion, we are borrowing & printing countless dollars and putting the obligations on future generations.  We already saw earlier versions of mortgage modifications failed at a rate in excess of 50% [Dec 8, 2008: More than Half of Homeowners with Modified Loans are Back in Trouble]  yet as all people know, when you see a policy that has failed the best way to solve it is to.... do it again.

If you are unfamiliar with what is currently happening, along with countless other programs [Mar 5, 2009: WSJ - Mortgage Bailout to Aid 1 in 9 Homeowners]  the government is pressuring (and incentivizing) the banks to do mortgage modifications - effectively paying them off to get these loans changed.  So people who were once in teaser loans with nothing down and 0% or 1% interest rates, before they ballooned - now get to enjoy super low rates again... 2%ish if they "qualify".  While people who played by the rules get no such benefit. 

• To get the payment down to the 31 percent figure, the bank first cuts the interest rate, to as low as 2 percent, while leaving the other terms of the mortgage unchanged. For the vast majority of mortgages being modified, that is enough. If not, the term of the mortgage is stretched out to as long as 40 years.
• Finally, if that is not enough, part of the principal can be deferred. That deferred amount is still owed, but no interest accrues and the lump sum is due at the end of the 40 years, or when the house is sold. (as if any sucker will be sitting there in 40 years to make those payments)

The banks are doing 3 month trials (edit: I just found out the trial program has recently been extended from 3 months to 5 months.... more kick the can policy), at which point I suppose the next step is decided (continue or abate the process).  I admit I am not following it closely anymore as I've thrown my hands in the air long ago.  But this story in the New York Times hits you in the gut... so much of our money handed to people who took out poor loans in the first place, and so many of them are not even bothering to make one payment POST modification.  This is why all the economic data, housing data, any data is so impossible to analyze anymore.  So much meddling, so much stimuli, so much morphine in the system to keep together the house of cards.  If you dare look under the headline figures to see how "green shoots" are being created, you cringe in revulsion.  So many of these loans were so awful [March 19, 2008: Alt A Mortgages Beginning to Break Down] [Aug 13, 2008: Option ARMs- Who Thought Up these Time Bombs?] .... and extended to the people who never had a chance as home "owners" in the first place - we have simply thrown billions of good money after bad to pretend we have prosperity again.  Remember, many of these vintage 2004-2007 mortgages were "no doc" in the first place; so do you really think there will be any viable documentation when you try to give these people free money?

But there is no stopping us... we shall continue the same policies.... bigger in each iteration.

• Why are so few temporary mortgage modifications turning permanent?  One reason may be the same one that a lot of bad loans were made in the first place. Borrowers can declare their income, and the banks are willing to grant temporary modifications based on those figures, without any evidence to confirm them. (the fact we are modifying mortgages - even on a temporary basis - WITHOUT income verification is just plain sad... kick the can Uncle Sam)
• But to make a modification permanent, the banks have to see proof of income, (what an outrageous request) and the borrower has to make three monthly payments of the new lower amount.(wow, 2 egregious requests placed on the borrower... showing proof of income and make 3 payments at the new lowered mortgage amount) 

Sounds pretty simple huh?  I wonder how this story ends.... nevermind, I already know.

• In most cases, those requirements are not being met
• The banks, and the government, are soon going to have to decide what to do about borrowers who are making the modified payments but have not provided the documents after repeated efforts to obtain them. Should the banks just take the money and let the preliminary modification turn permanent? Or should they foreclose?  (you have to be kidding me...there is a question here?)
• 
  Those decisions will affect just how fair the program is seen to be. If the banks allow those who do not submit documents to get by without doing so, it will appear unfair to those who told the truth about their income, and paid more than they might otherwise have been required to pay. If they do not, the wave of foreclosures could devastate more neighborhoods.  (I think it is pretty clear based on precedent set the past 18 months, where the decision will fall - let the mirage continue)
  

Now even more wonderful is thus far the government has refused to release data (I know CNBC reported Diana Olick has been trying for months) on how the modifications are doing.  I wonder why? (that was a rhetorical)  However, some of the individual banks have begun releasing the data and thus far, it's ugly.  Keep in mind after this banking disaster of the past few years, we've now concentrated much of the mortgage market into the hands of 3 of our oligarchs - Bank of America (BAC) [now owning the largest morgage originator Countrywide], Walls Fargo (WFC) [now owning what was once the 6th largest bank Wachovia] and JP Morgan Chase (JPM) [now owning the largest savings & loan - Washington Mutual].  Here is what Chase is reporting. .

• Chase disclosed in November that nearly a quarter of trial modifications had failed because the borrower did not make even a single payment, and that nearly half had failed to make all three payments required before the modification could become permanent.

So let's stop right there.  1 in 4 of your modifications did not make 1 single payment at the lower mortgage amount.  The program should be stopped right there based on that "success" rate - it's a complete sham.  But to take it further, half failed to make all 3 payments necesasry to turn from trial to permanent.  HALF!  Yet the banks are once again (pun intended) laughing to the bank because the US taxpayer is paying them to do the trial modifications.  Who cares if they succeed?  We are once again doing payouts based on transactions rather than potential success which was the nexus of the entire disaster we just went through in the housing market.  As with almost all things in financial oligarch - heads they win, tails they win.   And in this case the US taxpayer loses - again. 

• Of those who had made all three payments, only about a quarter had submitted all the required documents.

This is the hilarious part...

• In Washington, there are suspicions that banks simply are not trying, that they do not really want to make modifications. There is talk of shaming them into action. Tempers may run hot when bankers meet with Treasury officials on Monday and then testify before a Congressional committee on Tuesday.

Because if we shame the banks into doing more modifications then of course home owners being modified will begin paying.  By the way, after what has happened the past few years, aren't we clear the banks have no shame? 

Effectively all we are trying to do is stop foreclosures, improve economic data, and sing Kumbaya - by using taxpayer money to throw as many people, as soon as possible into loan modifications - if they can pay or not... if they provide full documents or not.  Ponzi style.

[Nov 25, 2009: America's Stealth Stimulus Plan - Allowing its Homeowners to be Deadbeats]
[Nov 19, 2009: More Homes in the US in Delinquency or Foreclosure, than for Sale]
[Apr 15, 2009: Treasury Saving $10 Billion for Big Banks to Modify Loans]

TrimTabs Continues to Dispute US Government Payroll Data; Employment Agency Stocks Take Off Anyhow (MWW) (RHI) (MAN)

As we mentioned in a blog entry Thursday, there has been a great discrepency between initial monthly payroll data provided by the US government's Bureau of Labor Statistics and TrimTabs.  Either months later or after annual revisions, the BLS data falls much closer in line with the estimates provided by TrimTabs.  As we celebrate the November "great" jobs report, TrimTabs is scoffing and saying the BLS is off by a quarter million Americans.  (oops)  So about a year from now this "great" jobs report should be revised back down to reality but not before we can talk green shoots for a few months more.   I've copied the chart we posted Thursday below, but with the November data inside (h/t BusinessInsider)

If you were not reading about 60 days ago, keep in mind the last annual revision to data by the government (mostly due to the use of the pathetic birth / death model of small business creation / contraction) had overstated job creation by roughly 850,000.  In other words, due to poor economic modeling the government had overstated job creation by an average of 70,000 a month.  I'd assume we will see the same thing in 2010 when they do this year's revision.  Let us repeat that *eventually* the government seems to get it right, with the understanding that "eventually" can be 1-2 years down the road.  But the stock market, with the attention span of a 3 year old toddler, changes value in the hundreds of billions - if not trillions - based on the original data set.  Which is almost always wrong... often by a magnitude of 30, 40, 50%.  But this is Caesars New York City... a virtual reality.....as we love to say, the market is not about reality, but our perception of reality.

To that point, employment agency stocks shot out of a cannon Friday. (full list at TickerSpy)

What is even more interesting for the more recent data, is the BLS *did* revise recent data (Sep/Oct 2009), but instead of down, revised it up!  Sept 09 from -263K to -139K and Oct 09 from -190K to -111K. 

Is there directional improvemnet?  Yes - there has to be.  There are only so many jobs to be lost with 1/3rd of our job base now government or psuedo government.  If you throw enough trillions (that you don't have) you can "solve" anything.  The "stimulus" plan of spring 2009 was essentially a handout to states which kept job losses at the state/city level supressed far below what they would have been without a federal government bailout.  And in the next stimulus "jobs creation" plan to be announced in the coming month or two will be another round of state/city bailouts which will shield more jobs from budget realities.   So with hundreds of billions going to protect that segment of society, you can only face reality in the private sector - and the blood letting there has been historic.  Last point, we soon will add 1M+ workers in (wait for it....) government to do the 2010 census, so that will make data in the coming 6 months look far better than it would in a non census year.  I only tell you that so you can ignore it, because the stock market will :)

Here is what Charles Biderman of TrimTabs had to say:

• TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 255,000 jobs in November. This past month’s results were an improvement of only 10.2% from the 284,000 jobs lost in October.
• Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost an astonishingly better than expected 11,000 jobs in November. In addition, the BLS revised their September and October results down a whopping 203,000 jobs, resulting in a 45% improvement over their preliminary results.
• Something is not right in Kansas! Either the BLS results are wrong, our results are in error, or the truth lies somewhere in the middle.
• We believe the BLS is grossly underestimating current job losses due to their flawed survey methodology. Those flaws include rigid seasonal adjustments, a mysterious birth/death adjustment, and the fact that only 40% to 60% of the BLS survey is complete by the time of the first release and subject to revision.
• Seasonal adjustments are particularly problematic around the holiday season due to the large number of temporary holiday-related jobs added to payrolls in October and November which then disappear in January.
• In November, the BLS revised their September and October job losses down a surprising 44.5%, or 203,000 jobs. In the twelve months ending in October, the BLS revised their job loss estimates up or down by a staggering 679,000 jobs, or 13.0%. Until this past month, these revisions brought the BLS’ revised estimates to within a couple percent of TrimTabs’ original estimates.

Some other points of discrepency:

• Automatic Data Processing reported on Wednesday that 169,000 jobs were lost in November.  (Mark's note: keep in mind, ADP data which is released 48 hours before the BLS data has often been inaccurate as well) 
• The Institute of Supply Management (ISM) Non-Manufacturing Survey reported that the majority of companies surveyed were still shedding employees. (Mark's note: this was the ISM Services data we noted earlier in the week, showing contraction - this is the majority of our economy at >80%)
• The ISM Manufacturing Survey reported weaker employment conditions in November.
• Weekly unemployment claims were 457,000 in the week ended November 27, 2009. While last week’s results were below the important psychological level 500,000, the weekly claims are still uncomfortably high and point to a contracting labor market. (Mark's note: as we pointed out in the same Thursday story, many people are simply being reshuffled into the emergency extension programs, to the tube of 265,000 just last week alone)
• The Monster Employment Index declined in November.

Bookkeeping: Restarting TriQuint Semiconductor (TQNT)

Earlier this week we mentioned the RF Semiconductor Stocks were starting to wake up [Dec 2, 2009: RF Semi Stocks Back in Institutional Favor]  It looks like we've completely missed the RF Micro Devices (RFMD) train so we'll attempt to catch the last train out of the station here in TriQuint Semiconductor (TQNT). 

We owned all 3 players in summer, but exited them in late October when all the charts broke down.  After a month in purgatory, first Skyworks Solutions (SWKS) and now their 2 peers have come back to life. TriQuint has a huge gap to work through (recall a very unfavorable reaction to earnings which I thought was a massive over reaction) , [Oct 21, 2009: TriQuint Semiconductor Destroyed in After Hours Trading] of which its at the very bottom - traditionally this is a very tough place to make progress on a chart so we'll see how it goes.  I don't have a stop loss here because these stocks can be +/- 10% in a session... we'll play it by ear eye; below $5.75 would cause concern.  The stock potentially formed a 'double bottom' with lows in early November / late November.

I've re-started a 1.8% allocation in the $6.30s.  Last time around we sold most of our stake for nice profits under $8.40 with the last batch sold for break even (post earnings blowup), around the same place we bought today. As 2009 is almost over it is time to begin looking at 2010 estimates, of which TQNT is estimated in a range of 43 to 55 cents, with median 50 cents.  If they can do that, the stock should be closer to $10 than $5 in a year.... I'd be content with $8s if it can get there in the next quarter or two.

Long TriQuint Semiconductor in fund; no personal position

Bookkeeping: Selling Half of Wyndham Worldwide (WYN)

Wyndham Worldwide (WYN) has treated us exceptionally well this year, and unlike other stocks we've traded around a core position, only to see the stock race off without us ... this has been an excellent core holdings AND trading stock.  It moves up, respects moving averages, pulls back every few weeks to allow us to jump back in with a trading stake... and keeps chugging along at a respectable pace.  We've made a lot of money on WYN this year, despite being an unheralded name.  If only they could all be so well behaved.

I am very torn here, the stock is up almost 6% as I type for reasons I cannot find.  I can only assume something along the lines of "less unemployment = more hotel stays".  I still find the stock cheap, and I said that $6-7 ago as well.  I'm especially torn because technically this is a stock screaming "buy" (not sell) - we have a classic breakout (on increased volume no less), but I want to lock in our gains here and see if we can pull off yet another "trade around a core position" maneuver in the weeks to come. Hence, we are selling half our stake around $20.40 and will place a limit buy order around $19.  No one ever went broke taking profits. 

Rinse. Wash. Repeat.

Long Wyndham Worldwide in fund; no personal position

Dollar (UUP) Rises Most Since June, Gold (GLD) Falls Most in a Year, Traders Move Up Date for First Fed Hikes

This trio of Bloomberg headlines is exactly why I've been cautious about jumping in the crowded trade. (in fact we actually dumped most gold/silver & went long the dollar as an insurance policy last week in case the crowded trade finally burns down). Anyone who lived through 2007 and 2008 knows what happens when crowded trades reverse... not to mention those of us around in March 2000.  Those who continue to play the crowded trade have been big winners, and it's the right thing to do as long as you can jump off the bubble before the hedge funds all try to exit the narrow door at exactly the same time.  That said, trends can play out MUCH longer than anticipated and one day does not change the story.  Everything that is reversing today could do a 180 degree turn next week... this market has no memory from day to day.  And all it will take is the next economic report to be underwhelming and we're back to all the same old trades...

The irony is that the driver of these reverals -  the jobs report - is not that good once you look under the headline.  I am very curious what the Trimtabs data we cited yesterday will show for November, and how much of a discrepency between the 2 reports there is.  But we won't harp on that... reality is not what matters in the stock market; perception of reality is all that matters.  Very few people look at details in a stock market where stocks surge or crumble 15%, 10 seconds after an earnings report headline is released.... and hundreds of billions of market cap are added / dropped in indexes seconds after an economic headline is reported.  Who has time to actually look under the hood for details anymore? HAL9000 doesn't! 

Let's look at the 3 headlines one after the other, but I am still sticking to my "no Fed fund rate increase in all of 2010" even as traders are betting it will happen much sooner.  I think the market underestimates Ben not wanting to repeat (what is his belief) the mistake that governments and central bankers in the past took the pedal off the metal too soon during previous credit crisis situations.  But the headlines display what we've been saying for months... it's an IQ 20 market and everything revolves around the simplistic inverse dollar trade.  Any thinking over and above that IQ level is punished.

1) Traders Increase Wagers on Fed Increase after Payroll Report

• Traders increased wagers that the Federal Reserve will begin lifting its target rate for overnight loans next year after the U.S. government reported a smaller- than-estimated decrease in jobs last month.  
• Federal-funds futures contracts on the Chicago Board of Trade show a 18 percent probability that the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by March, up from 13.1 percent odds yesterday.
• For a similar increase at the June meeting of the Federal Open Market Committee, the probability rose to 52.9 percent from 43 percent yesterday.

2) Dollar Rises Most Since June as US Payrolls Spur Fed Bets

• The dollar rose the most since June against the currencies of major U.S. trading partners as the payrolls report encouraged traders to boost bets on Federal Reserve rate increases.  The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, increased 1.2 percent to 75.559 at 12:25 p.m. in New York, the most based on closing prices since June 5, when the government reported fewer job cuts than forecast.
• “What the job numbers do is firm up expectations that the Fed interest-rate hike is coming,” said Camilla Sutton, a strategist in Toronto at Bank of Nova Scotia, the nation’s third-largest lender. “That should be a strong-dollar story.”
• The last time the Dollar Index rose after a payrolls report exceeded expectations was on Aug. 7, when it climbed 1.2 percent. Employers eliminated 247,000 jobs in July, compared with the median forecast of 325,000.   (and what happened to the dollar after that? which is exactly why one day does not make a trade)

3) Gold Falls Most in a Year as Dollar Rallys Prompts Investor Sales

• Gold fell for the first time this week, heading for the biggest drop in a year, as a rising dollar spurred some investors to sell bullion on the heels of a rally to a record. 
• Gold futures fell as much as 4.9% from a record of $1,227.50 an ounce, set yesterday in New York.  (this is about where gold fell to a week ago on the Dubai news, before staging a nearly $100 rally Mon-Thursday!  Talk about a round trip... another reason I sold my gold last week... far too volatile for me as momentum traders now dominate this commodity)
• “So many people have piled into gold, so this pop in the dollar is freaking people out,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “The dollar is rocking and gold is getting its teeth kicked in.”  (see lemmings run... see lemmings jump)
• “Gold is going to fall under its own weight,” said Tom Hartmann, an analyst with AltaVista Worldwide Trading Inc. in Mission Viejo, California. “There aren’t a lot of people out there who have been short on gold.”

Based on what central bankers have done and will continue to do - long gold, short dollar is the correct trade in my mind for the next many years.  Once the US economy rebounds into a more stable level, the structural issues will separate from the cyclical issues (which are currently mixed together) - and we'll be right back at square one.  And flooding the world with easy money is the only policy solution we know in this country.  But that doesn't mean gold goes straight up forever.

To reiterate... as we mentioned this morning, the initial rally was a knee jerk reaction but what would be interesting would be the action post knee jerk, once it dawned onto speculators that their free pool of money from the Federal Reserve might actually end at some point.  Thus far, they don't like it.  Which I think why Wall Street will prefer weaker days ahead for Main Street.  Perverse... but reality.