To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.
Cash: 60.9% (v 69.0% last week)
22 long bias: 38.3% (v 27.6% last week)
3 short bias: 0.7% (v 3.4% last week)
25 positions (vs 22 last week)
"The only thing we have to fear, is missing out on free money created by Federal Reserve backstop." Another remarkable week in a streak of remarkable weeks since the national accounting board changed the rules on how banks have to value their assets (under political pressure), QE1 was launched, and Obama told us (within days of the market bottom in March 2009) that buying stocks would be a good idea. The structure and nature of the market has evolved to a computerized ETF driven melodrama over the past 4-5 years, but aside from a few months late spring through late summer 2010 (between QE1 and the restart of Fed purchases to rollover MBS runoff), the market has acted quite abnormal or at best, atypical. Within that window I remember saying to myself for the first time since mid 2007 "wow this feels normal"... but alas it was but a short respite.
Now the grand game of central banker risk taking chicken is back upon us, with higher stakes on each iteration. Savers are being denigrated, and those seeking to preserve their wealth (not to mention grow it) are being herded like cattle into riskier assets with the 'secret handshake' that Bernanke will underwrite all risk. The infamous Greenspan put is now the Bernanke put cubed. Much as the implicit put behind Fannie and Freddie had to be exercised and hence turned from implicit to explicit in 2008, the market's implicit Greenspan wealth creating put, has now become explicit with a remarkable admission by the Fed in the past few weeks (the apex being an opinion piece by Bernanke himself) that the Fed's mandate now includes manipulating asset prices - upward of course. This was of course this writer's viewpoint many moons ago, when the Fed was instead offering
As to our backstopped stock market, the VIX imploded last week as risk is now off the table. Despite discounting QE2 and "positive election results" for some 2 months, the market still bought the news. Each day of the week the market was up, even Thursday as poor weekly jobless claims had no effect under the rush of ever more liquidity. Indeed, news has not mattered for months as everything is about POMO / QE2. The pattern in the S&P 500 has become quite 'easy' as the PhD algo programs are led premarket after premarket err..day, through multiple resistance levels. Just last week the market closed a point over the 200 week simple moving average one day... to be followed by a point over yearly highs the next day. As if someone had an agenda and knew all the key technical indicators necessary to create constant technically oriented buying by computers gone wild. Thankfully we have a free and open market, so no need to have a discussion from a grassy knoll.
The S&:P 500 is now bought at every dip to the 13 day moving average. It can be sold roughly 2.5% above which is near where we were Friday.... only to be bought again on the next dip to the 13 day. It is a 'risk less' trade since the market "can't" have a meaningfully selloff anymore (per countless CNBC guests the past few weeks). Because after QE2, we prepare for QE3 next July. Falling to the 20 day moving average? Don't talk like that. What is striking (and similar to action throughout 2009) is how the market sliced through multiple key resistance areas as if they are not there. Atypical... at least within the context of pre 2009. So the great game of chicken... or musical chairs is reborn. The Fed is the Pied Piper and the flute is blowing, and a nation of speculators follows in it's path, happy to drink Kool Aid - every day is Christmas under a Ben Bernanke regime.
Just don't ask how the market priced in a 'currency that cannot be printed' is doing.
The NASDAQ has suffered essentially one >1% loss in close to 50 days now... risk is just a 4 letter word. While seemingly overbought... that appears just a state of mind nowadays.
Emerging markets and commodities are the obvious targets for the newest Federal Reserve backed bubbles as capital can move across borders instantly once the primary dealers have their goodies.
All is well ... errr...as long as your savings are not priced in U.S. dollars. (granted for many Americans the question is "savings? what savings?")
The dollar broke below low $76s which shook me out of a long position Thursday, but recovered Friday on the "good" employment data. With Europe slowing down economically the past 2 months (completely ignored under the reign of liquidity) and now facing a rising currency, there is a potential risk... err nevermind... we don't use that word anymore.
Oil stands at the precipice of breaking to new yearly highs as Americans are rewarded with gas prices back over $3 in a booming economy....
and the precious metals - especially that of a silver kind - have gone parabolic.
Commodities of all types (not named nat gas) we actually need to eat, clothe, and energize ourselves have also gone parabolic but that's ok - the Fed sees no evil, and hears no evil as long as you are in the lower or middle class. The key is catering to the upper end, and hence we will offset the
Normally this is where I list a calender of economic events, but it's become moot. No one cares about data - it's become ignored the past 2+ months. Same for earnings reports - the market only had 1 day of selling off the entire earnings season and even that was one whole day of duration. So no need to list it at this point since data is just an academic exercise. QE2 + POMO is all that matters.
In Europe, Irish spreads are blowing out but does it matter? Everything is backstopped ... the IMF stands ready to do a rescue. And the ECB will buy the Irish bonds. Did I mention QE2?
In short, moral hazard is at a 52 week high.
POMO schedule for the week is November 8th, and then the next round will be announced November 10th. I have yet to go see if the QE2 schedule is up but assume that will also be released on the 10th... but bottom line $75B a month of QE2 and $20-$30B of POMO, until the Dow is 36,000 or above it appears. In this backwards environment, front running the Fed is more important than economic data or earnings data; it's the new paradigm. In case you were wondering, I wrote last week we are approaching a level where the Fed will be running out of debt to buy since it is crowding out the private market. There was a self imposed limit of a 35% maximum of owning any duration bond, but the Fed has had to relax that as well since it now has made the stakes so big .... it's all surreal, in an Argentina sense.
What a week. Every news event was bought. Apparently nothing was priced in the market after all. ISM data? buy the news. QE2 announcement? buy the news. Elections? buy the news. Bad weekly claims? buy the news. "Positive" monthly employment data? buy the news. The S&P 500 gained every day of the week as dart throwing becomes an art form circa 1999. Both the 200 day simple weekly moving average and yearly highs were taken out in back to back days, by about 1 S&P point at each level. The "invisible hand" of the market is quite precise. So it's a pick your pleasure market - are you going to get rich in risk free manner by buying stocks A, B, and C ... or with stocks X, Y, and Z?
For the fund I basically gave up the ghost after the 200 week simple was broken as that is a massively important level. While I recognize gaps on indexes normally fill within 2-3 months, and we are past the 2 month level, I speak from a point of a normal functioning market. This one is abnormal. My one major hedge - the US dollar - was taken out by the whoosh down Thursday. The fund had a split decision on 2 short positions, with a small net benefit... but of course all the real gains were on the long side as I've regained 'genius' status that I last held in 1999. Every stock on the long side of the portfolio is up, many in egregious fashion... and that does not include the "F5 Networks" and "Pricelines" and "Netflixes" and "Las Vegas Sands" I've since purged from the portfolio. (which can also only go up) As for specifics... well a bunch of stocks rampaged up - their names are meaningless ... because almost all stocks now go up. I took some profits, but expanded the long exposure by about 10% by adding new names or additional exposure elsewhere. Until the market can break the 13 day moving average or (dare I say it) the 20 day moving average, it's a non shortable market other than for daytraders. Indeed aside from those moving averages we now have the 200 week simple moving average as another support.
On the long side:
- Monday, I restarted a substantial (>4%) position in Apple (AAPL) near support at $300 figuring there is no way the greater market goes up without this stock. It bounced nicely the rest of the week, to test all time highs.
- Tuesday, I sold half of Polypore International (PPO) ahead of earnings to lock in about a 35-40% gain. The stock was trashed on an "in line" earnings report, causing technical damage, so I sold the rest Thursday for a gain somewhere in the 20-25% level.
- Atheros Communications (ATHR) stalled at the 200 day simple moving average, so I cut half the stake with the intention of buying back *if* it broke over that level. That indeed happened on Thursday morning melt up, so I bought back the half.
- Sold half of Spreadtrum Communications (SPRD) as the stock was up 10% on the session.
- Sold 25% of Riverbed Technology (RVBD) just to not be egregious as the stock was up 32% from entry.
- Thursday morning Bernanke forced my hand as the indexes surged over the 200 week moving average. I closed out Las Vegas Sands (LVS) as I could not stomach a new purchase anytime soon as the stock was incredibly extended. I added to existing purchases in HDFC Bank (HDB), Acme Packet, and Atheros (see above). New positions were created in Blackstone Group (BX), TRW Automotive (TRW), DSW (DSW), and Cummins (CMI).
- Thursday, Home Inns & Hotel Management (HMIN) was closed as it was acting poorly in a big up day; I retained a 3% gain in the 2/3rds of the original position... the stock went on to implode later in the day, down nearly double digits..
- Late Thursday, took some light profits in Silver Wheaton (SLW), Ford (F), and Magna International (MGA) ahead of earnings.
- Friday, I sold another third of Magna International (MGA) on the earnings spike.
On the short side:
- Tuesday, I shorted Equinix (EQIX) (2.8% exposure) and Lender Procession Services (LPS) (2.1% exposure) - simply to create an appearance I am being 'sophisticated'. I placed odds at 90% I would lose money in both trades, since the market can only go up. Well, the market only did go up - so I lost my 2% in LPS in under 24 hours as I was stopped out, but made 2.5% in EQIX which I closed out Friday. A small net positive, but mostly a moral victory to see that money can still be made on the short side, but its akin to a root canal.
- Powershares Bullish US Dollar (UUP) was closed as a hedge due to a break to new (recent lows) Thursday.