Monday, August 9, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 1

Year 4, Week 1 Major Position Changes

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

Cash: 62.5% (v 79.6% last week)
24 long bias: 32.4% (v 17.8% last week)
3 short bias: 5.1% (v 2.6% last week)

27 positions (vs 17 last week)

Weekly thoughts
A week heavy on economic reports was met with a shrug by bulls at any weaker data points, as they are secure in their knowledge that bad news = more easy money headed their way.   As bad news has been ignored the past few weeks, I wondered out loud if we were back to the 2009 psychology where good news = good news, and bad news = good news (because it means more cheap money handed to speculators under the guise "it will help the economy).  I wanted to see the market reaction to a bad data point.. while the ISM data this past week were not great, they were not terrible.  The job figures Friday were a good test case, especially with the revision down of the June job losses by an additional 100K.  The knee jerk reaction was down, so I thought perhaps my thesis was incorrect, but by mid afternoon lo and behold the "we'll be saved by Ben!" crowd was back at it again.  Not that anyone is asking the vital question of how desperate things are that the entire U.S. economy is now dependent on either fiscal (government) steroids or monetary (Fed) steroids - or preferably both, I suppose.  We are supposed to be quarters into a rip roaring recovery borne of green shoots; instead we are now asking for the same handouts we (as speculators) were begging for when supposedly the economy was much weaker.   It is what it is, and as money managers you have to react to the situation but when you take a few steps back it truly is a pathetic situation.  Wall Street speculators are like the baby birds in the nest with their beaks outstretched waiting for mother Ben to regurgitate fiat money down their throats so they will stop their whining.  Otherwise, massive temper tantrums.

And really that is the main risk of the week - the market seems to think policy will change on their whim.  They want quantitative easing round 2, so Ben must make it happen.  I don't think this will happen yet... certainly not the full blown iteration, until after the election and the 'coast is clear'.  At best this at this week's meeting we're looking at QE2-"lite" which would be a pledge not to lower the size of the balance sheet; which means as mortgage securities mature and fall off the balance sheet, new ones (or Treasuries) themselves of equal amount will be bought.  This should account to $200B a year.  If that enough to placate the whiners in our immediate gratification society?  We'll know at 2:16 PM Tuesday.

As for the rest of the market, same old same old.  Companies strong in international markets - especially emerging - are booming.  Companies reliant on the U.S. consumer - even with 7M not bothering to make housing payments and thus free to spend like the "good ole days" - are mostly not faring as well.

Bigger picture, the market is sitting at key resistance and levels that everyone knows and is waiting on.  Loosely speaking after jumping over S&P 1100 the market has been able to hold it and we can use that level and 1115ish as support levels.  The 1115 was broken Friday intraday on bad news, until people came to their senses and realized bad news = free money handed out.  The very obvious top side targets are 1128 (where the S&P 500 stalled out multiple times) and 1131 which is the mid June 2010 high.  Technically, buyers await above 1131.  So either a breakout awaits or we are in a topping process here.

Copper and China both held up last week so these remain bullish signals.  Seeing copper jump over $3.40 would be a nice sign for bulls that there is more upside ahead.

China broke over its 50 day moving average and now has been basing the past 2 weeks, digesting the big move off early July lows.  If it breaks back below the 50 day, it will be something to take note of; if not it should attempt a run to the 200 day moving average, which would again signal more near term upside in 'risk assets'.

The bond market completely disagrees with equity markets - and usually the bond market is proven correct.  This was last seen in 2007 when the 2 diverged sharply, and equity investors kept drinking Kool Aid en masse, taking U.S. markets to all time highs through October 2007... completely missing the wall that was ahead of it that the bond market was screaming about ("the market is a discounting mechanism" - yeh right).  So either the bond market is screaming once more (and being ignored again) or this is what happens to yields in a deflationary environment.  Whatever the case - this sort of action is traditionally very scary....


On the economic front, I am not sure much matters here in the good news = good news, and bad news = free money scenario.  The most watched reports came last week and they were brushed off, until a month from now we'll have less important data mostly centering around housing which we know is in the dumps.  So it's all about Ben Bernanke I guess.

Tuesday - Productivity & Costs; we've seen record productivity as Americans are squeezed - the highest it goes, the less need to hire new bodies.  FOMC Announcement - unlike much of the past year, it will begin to matter again because the market now has heightened demands for their own personal bailout/handout plan.
Wednesday - International Trade
Friday - CPI, Retail Sales, Consumer Sentiment.  Consumer Sentiment has been at BELOW recessionary levels and yet we celebrate any tick up and boo any tick down.  This thing needs to move some 20-30 points to matter, yet we are reacting to 1-2 point moves; it's silly.  Retail sales from government is another silly data point that we all act like lemmings to - we just heard from the retailers last week... why oh why do we care what the government has to say about retail sales, when we just heard from the horse's mouth?


For the portfolio, I've been following the theme that as long as no one is asking "WHY" it is necessary for the Fed to even propose more rounds of easy money, we can rally on the thought process.  While people should be scared we have become so dependent on the central bank pumping constant doses of drugs in our systems, instead - as good junkies - we welcome the "hit" and ask for more.  So until the joy of the drug delivery stops, and the market sits above key technical levels, a long bias is most likely appropriate.  The joy for shorts has only come in very small bursts of time - as anyone could see Friday.  Bigger picture it is a perverse reasoning we are using to buy... the worse the domestic economy gets, the better for risk assets as more assistance of all forms will be thrown into the market.  As always, it will end badly but timing is everything.

On the long side:

  • Monday, as we had a return to a hallmark of the 2009-early 2010 rally (the Monday morning melt up), I started a basket of commodities.  Since I did not know which "one" to get into I simply put 0.5% into Potash (POT), Freeport McMoran (FCX), Walter Energy (WLT), and Cleveland Cliffs (CLF) to create a 2% position.  In my mind this is "one position". 
  • I cut (PCLN) exposure by about 2/3rds ahead of earnings... in this case this removed the chance to partake in large gains with a much larger position as the stock skyrocketed post earnings.  By Friday, with the stock up some 35% from my entry point not too long ago, I sold almost all remaining shares.  This does *not* mean the stock cannot keep running, I am simply managing from a portfolio perspective.  
  • I added 1.8% exposure to Monsanto (MON) as the stock seemed ready to make a new move up, after consolidating for a few weeks. 
  • Tuesday, I cut back 2/3rds of Polypore International (PPO) ahead of earnings.  Like Priceline, but to a lesser degree the stock shot up post earnings.  Just as I did with Priceline, I sold almost all shares Friday.
  • Wednesday, I added back to positions in Acme Packet (APKT) and VMWare (VMW); the former had regained some key technical levels after a negative earnings reaction (to a good report) while the latter was simply churning along, making new high after new high.
  • I restarted a position in (AMZN) after covering the short in the same name Tuesday evening.
  • Thursday, I closed out a Direxion Bullish Small Cap 3x (TNA) position ahead of the Friday labor data, and took a 2% loss. 
  • Friday, I restarted positions in Netflix (NFLX) and Powershares DB Double Gold (DGP) as both recaptured key moving averages. 
  • I sold the majority of BorgWarner (BWA) simply to lock in profits of an overbought chart. 
  • Late Friday I went long Direxion Bullish Large Cap 3x (BGU) anticipating a "Monday morning mark up" and a run to S&P 1128 ahead of the Fed meeting where I'd be happy to sell. 

On the short side:

  • Late Tuesday my limit price for the short for (AMZN) hit and I exited with a modest lost of about 3%. 
  • After the market reacted mildly to the labor data Friday, I put on a short via TNA with the prediction that post Fed meeting this week the market would come down to fill a gap at S&P 1106.44.  Within an hour this *almost* came true as the S&P 500 skimmed across 1107, as a selloff out of the blue happened.  I did not cover there because I wanted to see 1106.5 hit, so instead covered later in the day when the market began picking up some steam.  Still had some gains but not as nice as the ones a few hours earlier. 
  • To replace my index short (my only short exposure at the time) I started looking for some weaker individual charts.... I chose a basket of 3 to begin with: Whirlpool (WHR), Global Payments (GPN), Gentiva Health Services (GTIV).

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