Tuesday, September 21, 2010

If You Don't Know George Costanza you don't Know Diddly

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Days like today represent why Wall Street is NOT Main Street.  The Fed essentially downgraded its outlook for the economy to come more into line what certain sources (hand raised) have been preaching.  Bill Gross on CNBC (information is power) essentially said the Fed will lower growth forecast from 3% to 2% (a little birdie told him...let us skip for now the fact our crony system allows legally for men like PIMCO to know what the fed will do before the peon class).  And despite the "end of the recession" (1.25 yrs ago) the fed requires exceptionally low rates for an extended period of time.

All pretty bad for Main Street.

But put on your George Costanza hat because a change in language towards more steps to pump the world with US dollars was thrown in.  Which is all Wall Street wants because it can goose assets of every stripe and color.

Even Mr. Gross admitted as such when he said how powerful QE1 was in stoking the stock market.  He literally laid out the start date and end date of QE1 and tied the stock mkt performance to it.  Then said once it ended the market...left to its own devices...fell 15%.  These are identical comments as  laid out on these virtual pages.

So we have a quandry....those who bet against or underestimated QE1 were shocked by its effectiveness not in helping the economy but creating ponzi level prices in assets.  And soon we go again on this trip so being accurate on economic forecast will once again mean diddly.  It is not your daddy's market anymore...now it is all about the Fed attempting to create a 3rd bubble in a decade since bubble creation is the only solution it knows..

Marketwatch: Dow Theory Buy Signal Triggers*

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For those old school market folks, it appears a Dow Theory buy signal triggered yesterday*.  So for those keeping track, in the span of 4 weeks we're going from the Hindenberg Omen to a Dow Theory buy signal.  Bipolar you say?

*depending on your interpretation

(please note this story was written as of yesterday afternoon so be aware of that context)

Via Marketwatch:

  • Not to be left out of today’s burst of optimism on Wall Street, the venerable Dow Theory is close to issuing a buy signal.  That’s because, assuming the stock market holds onto its mid-day gains, both the Dow Jones Industrial Average and the S&P 500 index ill close above their rally highs set on Aug. 9.
  • If they do, that will constitute a buy signal according to TheDowTheory.com, edited by Jack Schannep. The crucial levels to watch, on his interpretation, are 10,698.75 for the Industrials and 1,127.59 for the S&P 500.
  • Traditionalists might wonder what the S&P 500 has to do with the Dow Theory, since it traditionally has been based on the action of the two major Dow averages: The Industrials and the Dow Jones Transportation Average. But, according to Schannep’s re-interpretation of the Dow Theory, a Dow Theory buy signal can be triggered whenever two of these three indexes surpass previous significant rally highs.
  • Richard Russell, editor of Dow Theory Letters, adheres to a more strict interpretation of the Dow Theory, and is therefore not quite ready to say that even a short-term buy signal has been generated. That’s because the Dow Transports as of mid-day trading in New York remain about 1% below their early August high (which came in at 4,516.35).

I would assume most Wall Street types still will adhere to the Richard Russell interpretation of Dow Theory ...

Monday, September 20, 2010

Analysts Starting to Get Silly - Somewhere Henry Blodget is Smiling

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The analysts are starting to get into a panic themselves... now you see multiple upgrades of stocks that are up 20, 30, 40% in just a few weeks.  I am reminded of Henry Blodget in a previous life.  Netflix (NFLX) has had its 2nd upgrade in as many days - where were these guys 40% ago?  This guy is upgrading the price even as he brings down the EPS... that is true 1999 behavior.

  • Jefferies analyst Youssef Squali this morning repeated his Buy rating on Netflix (NFLX), while boosting his target on the stock to $175, from $128. Nonetheless, he trimmed his 2011 EPS forecast to $3.80, from $4.65, although he remains above the Street consensus at $3.73. The lower estimate reflects higher content costs, and higher postage fees, as well as lower DVD usage and slightly lower ARPU and subscriber growth.  Nonetheless, he likes the stock now more than ever.
Hmmm... new price target $175, divided by lower EPS (forward!) of $3.80.... mmmm... yeh.  Translation: I am no longer able to justify my price target on any rationale valuation basis... hence let me talk about eyeballs.  Wait, that was 1999... well I don't really have a great reason, therefore I am going to bring out my 5 year discounted cash flow basis because clearly I can game 2014 with my crystal ball!

  • Squali says that his new price target reflects his five-year discounted cash flow model.
Give me some words, instead of numbers:
  • “We continue to find NFLX attractive as we believe that the company is best positioned to benefit from the industry’s transition to streaming from DVD usage,” he writes. “A growing digital content library and attractive pricing are likely to keep subscriber growth robust for several more years, in our view.”
And any of that reasoning above is new versus 5 weeks ago or $40 lower?

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Priceline.com (PCLN) with no additional news in the past month now gets an upgrade in the $330s... whereas it sat in the $280s post earnings spike 3-4 weeks ago.  Where was the upgrade then?  Now, after a $50 point run it's time to herd people in?  Sure why not...

  • Priceline (PCLN) shares are getting a lift this morning from Citigroup analyst Mark Mahaney, who repeated his Buy rating on the stock, while lifting his price target to $425, from $325.  “Despite a 53% year-to-date price surge, we continue to view PCLN as one of the most attractive large cap Internet stocks and the best play off the secular growth in online travel,” he writes in a research note.

So I assume you raised EPS targets since you just tacked on $100 smackers on the price target? 
  • The Citi analyst maintains his EPS estimates of $12.06 for this year, $14.92 for 2011 and $17.14 for 2012.

Err... no worries.  May the Shatner be with you.

Long Priceline.com, Netflix in fund; no personal position

Bears Put on Endangered Species List; S&P up 9.6% in 3 Weeks - NASDAQ up 9 Straight Sessions

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The bulls are in a mad orgy of buying at this point.  It appears to be the exact opposite of a selling panic right now - a buying panic.  I hesitate to see we have not seen action like this in a long time because frankly there were a few runs like this in 2009 which also left the mouth gaping.  While the NASDAQ rally of 1999 was epic, it was rarely if ever straight up like this - the upswings were very sharp but every 6-7 days you'd get smashed to pieces with a -1.5% down day (and those specific momo stocks would drop 5-8% instantly).  That kept you honest.  But that was the era of human beings with emotions.  This is just emotionless drones buying and overbought means nothing to them I guess.

On the plus side, the higher we go the better the profit is going to be for anyone who can catch the timing of the gap fills down to S&P 1110 and especially 1090.  But impossible to make any serious bets against the market until there is at least a day of making a lower intraday close than the previous day.

Also with the same stocks leading the charge almost every day, my normal caution around earnings season is going to turn into full blown red alerts.  Many of these stocks have completely detached from any semblance of support so one misplaced comma in their earnings reports is going to cause some implosions.

But for now, last bear out, turn off the light. If you can reach the switch considering you are on your back and on a stretcher.


(Video Soon) Obama Speaks at CNBC Townhall

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Agree with his policy decisions or not I will have to say Prez Obama is impressive from an intellect standpoint and ability to have some cogent analysis on economic issues; something that seemed sorely lacking by the previous guy.  I only caught the last 25 minutes but this was more like candidate Obama rather than the guy who has been hanging around with Larry Summers too much the past 18 months.

While not in agreement with some of the views the ability to articulate without regurgitated talking points (or teleprompter) is nice to see,

I will post the full video if CNBC has it on the site later in the day but it can be caught tonight at 8 pm.  I would suggest Obama do a similar discussion to the American people on broadcast televison channels in primetime ala Ross Perot...the last (only?) person who actually explained in depth (with those infamous pie charts) the fiscal situation of the country and how we cannot have both ever lower taxes and ever higher spending.

Disclosure: Writer believes our 2 party system is a complete sham

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Update: CNBC split the Obama 1 hour video until countless short videos unfortunately - too many to copy over.

Here are a few

1) Failing the Middle Class





2) Will Geithner & Summers Remain?





3) Deficit Spending Part I (Rick Santelli pop up)





4) Deficit Spending Part II





5) Is Wall Street Obama's Pinata?




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WSJ: As Productivity Slows, Will Serious Private Job Creation Finally Begin?

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Aside from the massive global structural changes occurring in the economy, a large jump in productivity in American business has been one of the limiting factors to an atypical bounce in private sector hiring.  Unlike the government sector, which apparently can be run at a loss indefinitely, the private sector actually needs to be run for profit.  With the reduction in labor costs by moving work overseas, combined with technological advances - we've seen 'jobless' recoveries of increasing intensity over the past 2 decades.  This time around there is also a major imbalance on the demand side as the 'pent up' consumer of the previous 3 decades, has become the 'spent out' consumer who no longer has the house ATM working in her favor.

But at some point you can only squeeze so much blood out of stone - even with a desperate workforce willing to do anything to not join the ranks of unemployed.  Over the last few quarters we have seen the huge surge in productivity of 2009 and early 2010 decelerate sharply and indeed reverse... now the question can be raised, will private companies finally be forced to hire?

Via WSJ

  • Companies are having a harder time boosting productivity. For now, that is probably a good thing. Productivity, as measured by output per hour, grew at a breakneck pace last year as businesses sought to get as much work out of as few people as possible. This year that growth slowed, and then screeched into reverse. That's a sign that many companies are reaching the limit of how much they can get their workers to do. In other words, they might actually have to start hiring more.
  • Lackluster productivity growth usually isn't something to crow about. Without coming up with ways for workers to produce more and better goods and services, the economy can over time grow no faster than the labor force grows, leaving wages stagnant. But with the unemployment rate (so high), getting more people back to work would do far more for the economy now than improving the productivity of the current work force.
  • It's normal for productivity to surge in the early part of an economic rebound, as business returns quicker than companies add workers, and for those productivity gains to then recede as hiring catches up. But the recent swing has been unusually extreme
  • Last year, productivity grew at an average annual rate of 6.2%, the fastest pace since the 1960s. In the first quarter it slowed and then in the second it actually contracted, falling 1.8%. Such large declines are uncommon, especially in the early stages of an economic recovery.

  •  The latest drop in productivity was something of a fluke, said Barclays Capital economist Dean Maki, coming about because companies upped hiring and workers' hours even as the economy slowed. But he calculated that even if the economy grew as quickly as it had in the first quarter, "we still would have seen a slowdown in productivity in the second quarter."  In the third quarter, the economy appears to be growing at about the same rate as companies are increasing workers' hours. That's a recipe for little, if any, productivity growth.
  • Companies across the economy have been reluctant to invest in new equipment in recent years, and last year didn't even spend enough to replace what was wearing out, economists estimated. Even with a rebound in capital spending this year, companies still haven't brought the capital stock—the inflation-adjusted value of all business equipment and software in place in the U.S.—back to where it was two years ago.
  • The result: Companies have far less leeway to increase production without adding workers now than they did following the 2001 recession. That suggests that the current economic recovery, which most economists believe began in the middle of last year, won't be nearly as jobless as the post-2001 experience was.

We'll check back in 12 months to see how that theory plays out.   Without government spending and Asian exports it just appears the organic domestic demand side of the equation simply does not require a boom in hiring even if productivity stalls.  

Bookkeeping: Selling Half of F5 Networks (FFIV)

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Warning: Broken record ahead.

ABC Stock F5 Networks (FFIV) is overbought.  I am selling half.   I most assuredly will regret it in 3 days when it is more overbought.



Long F5 Networks in fund; no personal position


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Rovi (ROVI) Partners with Apple (AAPL)

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Sometimes you are hot, sometime you are neutral, and sometimes much of what you just turns cold.  Last Friday, Rovi (ROVI) broke support intraday and looked in trouble.  I've been selling off many of our other positions the past week and a half as they have been running non stop but this was a name that had not had that big run, so it had been still a large position.  Then Friday, due to the chart  I cut the position down by 55% to reduce risk.  It rallied later in the day but only right back to the support/resistance level.  This morning the company announced a golden goose in the current market - a partnership with Apple (AAPL) which sent the stock into the stratosphere.



 It has since given back much of that gain in the ensuing hour but it still smarts...  you can't do much about these out of the blue announcements either bearish or bullish, but sometimes the market just has your number.

  • Rovi (ROVI) shares are trading sharply higher this morning after the companydisclosed in an SEC filing that it has signed “a multi-year agreement” to license intellectual property to Apple (AAPL). Terms of license “are confidential,” Rovi said.
  • Known as Macrovision Solutions until last year, Rovi provides software for discovery and management of entertainment content, as well as copy-protection technology for media companies.

Frankly this announcement does not say much but in 1999 all you had to do was announce your company was starting a website and the stock would surge 14% immediately, while now you need to announce your company is (a) part of the cloud or (b) partnering with Apple - and you get the same surge.

Long Rovi in fund; no personal position

S&P 500 Clears Multi Month Resistance on.... Poor Housing Sentiment?

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Showing how often we misframe market moves in terms of news, the S&P 500 seems to surge shortly after the 10 AM release of homebuilder sentiment.   Often we ascribe the moves in markets to XYZ news but when you look back at most days it is more accurate to frame the news based on how the market acted that day.  To that end:

  • Homebuilders confidence in the housing market stayed this month at the lowest level in 18 months, and more worry that the traffic of potential buyers is falling.  The National Association of Home Builders says its monthly index of builders' sentiment in September was unchanged at 13. The index has now been at the lowest level since March 2009 for two straight months.  Readings below 50 indicate negative sentiment about the market.

And the market surges...



The reality is whatever caused the push through 1132ish set off the very predictable short covering and algorithmic long buying (as well as some humans).  This move has almost seemed set in stone as of last week when the market would simply not sell off; now we have the more interesting leg of the story.  Now that something EVERYONE was waiting for has happened are we going to go against the grain and just continue up?  How far does it go before we get our first real selloff in 4 weeks?  And what will the trigger be?  Or will September be the first month (ever?) where there is only one down day (in excess of the -0.1% type of cheapie down day)

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Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 7

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Year 4, Week 7 Major Position Changes

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

Cash: 73.8% (v 66.7% last week)
21 long bias: 17.1% (v 19.4% last week)
5 short bias: 9.1% (v 13.9% last week)  [Note: Long bond and volatility positions considered 'short']

26 positions (vs 30 last week)

Weekly thought
Monday morning is here, and so is our now traditional gap up in the futures market.  No one could have predicted this... except for everyone.  What is amazing about this trend is when everyone knows something is going to happen in the market, it usually stops working.  But this trend has worked for a year and a half, almost without relent.

As written last week, the bears were running out of time as Monday morning gap up was on the horizon.  This gap up would take the S&P 500 either to or above the key S&P 1131 level.  That actually happened briefly Friday, until poor consumer confidence numbers came out and the rest of the day was spent in a state of numb as the market did nothing the entire day.  Except for strong trend days, we have a very similar pattern - all the action in premarket/first hour - the churning by HAL9000 and his merry band of computers for 5 hours, and then a flurry of activity in the final 30 minutes.  I could be speaking of May 2009, September 2009, January 2010, April 2010 or now.   Same comments for the "V shaped" low volume rallies that has everyone who learned technical analysis scratching their heads at the new paradigm market.  We are firmly encased in another one - the question now is will we break out of this multi month range on the fragile volume.  And what happens once/if 1131 is cleared?  We have to look to May 2010 highs to see upside targets - the first appears to be S&P 1150, and then second roughly 1175.   To the downside, S&P 1116 (the 200 day simple moving average) and then gaps at 1110 and 1090.



Knowing these downside gaps generally fill within 2-3 months makes it difficult to jump in... especially after a 'vertical' move which has demonstrated only 1 material down day the entire month of September.

If this is the top end of the range, than we'd expect Treasuries to be set to rally again... but if the market is about to escape the gravity of this range, we might see 10 years headed back to 3%+.



Those are the only 2 charts one needs to know anymore as every ETF is correlated almost perfectly to what the above 2 do - I'll throw China up here as a leading indicator that took a turn for the worse late last week - Shanghai 2700 is like S&P 1131.



Other than that, we saw some signs of frenzy last week - a chinese real estate firm IPO'd Friday and was up some 60-70% ... even though E-J House (EJ) is sitting here in the U.S., almost ignored.  We've seen days oil AND airlines are up together.  And the leadership stocks - namely anything six degrees of cloud - are acting like bubble stocks of the late 90s.  Just having a CEO on TV saying they are open to any possibilities (read: buyout) now sends stocks up 12% - see Netsuite (N).  Does that mean we have to fall soon?  Not necessarily - it just means people are throwing caution to the wind and risk appetites have done a 180 from just 3 weeks ago.

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On the economic front, we continue in the "all news is good news" mantra and until that changes it is hard to stand in front of the freight train.  The market has benefited from very light economic news flow the past two weeks, and whatever economic news there has been has been shrugged off.  Irish credit default swaps blew out to their highest levels of the entire crisis last week, with a denial of IMF bailout and still no one cares.  The belief appears go forward there is no country that cannot be bailed out so who cares I suppose.  One of my favorite sayings... it won't matter, until it matters.

This week we have some housing data - everyone knows it will be poor.  So I guess the bulls can brush off any bad news as it is 'expected', whereas any good news is a reason to run up the market because its a 'surprise'.  Other than that, Fed announcement Tuesday - I'd expect zero changes as any QE won't be coming until after election.

Monday: NAHB Housing Index (10 AM) - a minor report

Tuesday: Housing starts (premarket), and FOMC announcement (2:15 PM) - I am not sure we will act like lemmings to this FOMC meeting data since the expectation is for no change.  Interestingly, the last two selloffs came as the S&P 500 was at 1129, and 1131 - and the FOMC announcement marked the peak.

Thursday: Weekly claims (premarket), Existing Home Sales (10 AM), Leading Indicators (10 AM).  It will be interesting to see if weekly claims can finally drop once more below 450,000.  Existing home sales is the important housing figure of the week as it represents the majority (90%) of home sales... only question is "does it matter" since everyone expects poor numbers.

Friday: Durable Goods (premarket), New Home Sales (10 AM) - while the market reacts to new home sales just as much as existing home sales, they don't mean much other than to home builders.  Durable goods is volatile month to month but closely watched.

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Portfolio

I am bit confused by the market's inability to pull back even 1-2%.  Many of the stocks we own have had huge runs, and I took very serious profits cutting them back to an extreme level.  The other stocks left over are doing very little as it appears so much of the buying is in the same names over and over, week after week.  The portfolio did take a hit last week in Power-One (PWER) which was hit by a competitor's margin warning.  I've tried a few shorts here or there as a hedge but despite buying laggards, this rally has gone on so long even these names are catching some mild bids.  I am going to under perform on any big move up but it certainly would be atypical to see a continued rally of more than a few % from here, after such a huge run - with zero consolidation along the way.  All eyes are on behavior of S&P 1131... the playbook is to buy the breakout, but everyone in the world knows that playbook.  Is it going to be that easy?

In terms of portfolio, it was a very busy week but a lot of transactions that got us nowhere.  It is very difficult for me to purchase the stocks that everyone continues to chase, because it is simply not my style to be a momo (momentum) chaser.  When something is up 25-35%+ straight, it starts to become a game of musical chairs and these folks are just hoping the music does not stop.

On the long side:

  • Monday, as Indian markets continued their recent surge, almost all remaining shares in Indian bank HDFC (HDB) were sold as the stock hit 30x forward PE. 
  • The last of 3 tranches of Amazon.com (AMZN) was sold as the stock hit extreme overbought levels.  Only a 0.1% exposure was kept.
  • A good sized amount of Spreadtrum Communications (SPRD) was sold, even though the position had just been upped the previous Friday.  With the stock up 10% in 1 session it was too good to pass by and more importantly I had placed a limit sell order at the 10% gain, which immediately hit.
  • Tuesday, a 1% exposure was added back to Cleveland Cliffs (CLF) as the stock pulled back to its 20 day moving average.
  • A modest 1.4% position in Thoratec (THOR) was restarted as the stock broke above multiple resistance levels.
  • Tuesday afternoon it appeared the market was finally going to break out so I bought some SPY 113 October calls... but with no follow through these were immediately sold.
  • A quarter of Gafisa (GFA) was sold as it was up 7% from entry.
  • Thursday, Power-One (PWER) broke support and seemed intent on staying there, so with a 17-18% loss the position was closed
  • Friday, Rovi (ROVI) was reduced by 55% as it broke support intraday. 


On the short side:

  • Monday, the stop loss in Monsanto (MON) was triggered at about 4% loss. 
  • I had started a of Texas Instruments (TXN) the previous week, and one half was covered for a quick profit.  I reshorted that half position Monday.  After entering a stop loss, I realize I had a 'fat finger' and placed a limit cover instead so I lost the position.  Tuesday morning it was reshorted.  Mid day Thursday this position was covered for 'flat' - good timing as the company announced a stock buyback in after hours. 
  • Another batch of iShares Barclays 20+ Year Treasury Bond (TLT) was bought as the ETF came back down to the 50 day moving average.  I treat this as a 'short' even though it's not technically ... but it has moved inversely to the market for much of the past few years. 
  • Caterpillar (CAT) was at the top end of its range, so if the market could selloff it seemed ripe to book some profits on the short side - I shorted it Tuesday but had covered for a 1% loss Friday.
  • Wednesday I added some iPath S&P 500 VIX (VXX) exposure as well as minor index short shorts (BGU/TNA) as the market kept teasing the top end of the range. 
  • A short on Intuitive Surgical (ISRG) was covered for a 4% loss as many of the laggards in this rally finally showed some life. 

Sunday, September 19, 2010

Updated Position Sheet

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Cash: 73.8% (v 66.7% last week) 
Long:
17.1% (v 19.4%) 
Short:
9.1% (v 13.9%) 


This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on thewebsite. 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]


LONG (1 photo file)



SHORT



OPTIONS


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WSJ - Permanent Portfolio (PRPFX) How a Forgotten Fund got Hot in a Hurry

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I've been following the 'permanent portfolio' theory on and off with one eye for a few years, and it's actually been quite an interesting performer. Especially the past few years with the 2nd massive bear market in a decade in equities, combined with a multi decade bull in bonds (only accelerating of late), and the decade long surge in gold.  It is championed by Harry Browne - a quick overview.
  • The general idea of this approach is that there are four basic classes of investments investors should primarily concern themselves with: stocks, Treasury bonds, cash (Treasury bills), and precious metals. He did some analysis of past trends in those markets and discovered that a portfolio consisting of equal parts of each of those four types of investments was not terribly volatile and had a relatively consistent rate of return
  • Of course, such a portfolio would never do as well as one that was over-weighted toward whatever investment was going to go up in the next time period, but unfortunately that information is not available when you need to know it. This approach, on the other hand, does not require precognition, but just some simple mechanical adjustments whenever one of the portfolio segments gets out of balance with the others.
  • The basic idea is that each of those investments does well under certain economic circumstances: stocks during "prosperity", Treasury bonds during "depression", Treasury bills during "tight money", and precious metals during "inflation". So whatever economic circumstances occur, your portfolio should not be too seriously affected, because whatever investments are depressed by the current circumstances, some of the other ones would counteract that.

There is a mutual fund that follows this style called (shockingly) Permanent Portfolio (PRPFX) and it's turned into the latest hot money fund, with assets now surging close to $8B!  The performance considering the lost decade in stocks has been stellar...  [Feb 5, 2009: Mutual Funds Have Tough Decadebut obviously if we looked at it a decade ago when any mutual fund not chock full of tech stocks was considered a loser, it would have looked like a serious laggard!

Annualized returns:

3 years: 7.8%
5 years: 9.3%
10 years: 10.5%

[fund website]

The Wall Street journal has a story on this tortoise that beat the hares. A quite amazing story - in August of this year the fund received more inflows than it did in its first 25 years combined!
  • Imagine going from investing zero to superhero overnight.  That is roughly what has happened to Michael Cuggino, manager of Permanent Portfolio. After struggling to stay above $50 million in assets for most of its life, the fund shot past $1 billion in 2007, more than doubled to $3.4 billion in 2008 and swelled to $5 billion last year. So far in 2010, $1.9 billion of new money has come piling in.
  •  In August, according to Morningstar, investors added $327 million to the fund—as much in a single month as Permanent Portfolio had managed to accumulate in the entire first 25 years of its existence. Suddenly, the fund's assets surpass $7.6 billion.
  • Why? Two words: strong results. In 2008, when the Standard & Poor's 500-stock index lost 37%, Permanent Portfolio lost just 8.4%. In 2009, it lagged behind the stock market but still gained 19.1%; so far this year, the fund is up 6%, versus 2.3% for the S&P 500.
  • The fund has walloped the stock market by an average of nine percentage points annually over the past five years and 11.2 points annually over the past decade. And it keeps less than a third of its assets in stocks. 
  • Launched in 1982 and based in San Francisco, this eccentric, no-load fund grew out of the ideas of Harry Browne, the author, investment adviser and Libertarian candidate for president. Mr. Browne, who died in 2006, advocated keeping one-quarter of your portfolio in each of four assets: stocks, bonds, gold and cash.  Once a year, if any of the assets fell below 15% or rose above 35%, you would buy or sell as needed to rebalance back to 25%. Otherwise, you would do nothing.  Mr. Browne called this the "permanent portfolio": a basket of assets you could hold undisturbed for a lifetime. He believed it was "bulletproof" and "fail-safe," protected against drastic loss no matter what the future held.
  • The Permanent Portfolio fund is not quite as simple as Mr. Browne's four-square approach. Instead, it seeks to keep 20% in gold, 5% in silver, 10% in Swiss francs and bonds, 15% in real-estate and natural-resource stocks, 15% in growth stocks and 35% in cash and U.S. bonds.
  • Gold and long-term bonds have been the stars of the last decade, driving the Permanent Portfolio's outperformance over stocks, notes Mr. Bernstein. "For the past few years, it's been a nonstop beer-and-pizza party," he says. "But there will come a time when it's just going to be years at Weight Watchers for those assets, and I doubt most investors will have the discipline to stick with this strategy." 
  • Ironically, as Mr. Bernstein points out, Mr. Browne came up with the idea as a way to diversify into stocks and bonds after gold and other "hard assets" became overvalued in the late 1970s. Now, many investors appear to be stampeding into the Permanent Portfolio fund to get out of stocks and into gold and other hot assets.
  • Although it is designed for capital protection, many of its new buyers seem to be seeking capital appreciation—chasing this fund the same way they chased Internet funds in 1999 and 2000.  They could leave just as quickly. As its former auditor, Mr. Cuggino has been involved with Permanent Portfolio since 1985, so he remembers well what such lean years are like. "What we do was very much out of favor for a very long time," he says dryly.

One thing that never changes over time... human nature.

NYPost: Are Poll Workers Being Used to Inflate Jobs Total?

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Thanks to a reader for highlighting this story in the NY Post, as written by John Crudele.  Crudele is a gentleman who does not live within the matrix, hence he seems to get some interesting tidbits from his readership.  This spring he had a few stories on the games the Census department was playing to goose the job figures by hiring, then firing, then rehiring workers. (May 25, 2010 article)
  • The worker, Naomi Cohn, told The Post that she was hired and fired a number of times by Census. Each time she was hired back, it seems, Census was able to report the creation of a new job to the Labor Department.  Labor doesn't check the Census hiring figure or whether the jobs are actually new or recycled. It considers a new job to have been created if someone is hired to work at least one hour a month. So, if a worker is terminated after only one hour and another is hired in her place, then a second new job can apparently be reported to Labor. 
  • Here's a note from a Census worker -- this one from Manhattan:  "John: I am on my fourth rehire with the 2010 Census. 
    "I have been hired, trained for a week, given a few hours of work, then laid off. So my unemployed self now counts for four new jobs.

But that's old 'news' ...

Now there seems to have been an interesting development in the classification of (very) temporary poll workers.  If these are going to be counted by the Labor department as "hires" for monthly fiction reporting purposes, it is going to be quite obvious.  New York for example has 30-36,000 polling workers.  Let's estimate NY as a bigger than average state, and say the national average is 10,000 to make it easy.  That is 500,000 new "jobs" created nationwide, and most would filter into the next 2 employment reports so a "bonus" of say 200-300K jobs in each month.  Considering how wimpy private payroll creation has been, this would stick out like a sore thumb as we'd see a surge in government hirign... so let's keep an eye out on this just in case we have a gap up of 8% in a few weeks on "huge job creation out of the blue".   Another strange random fact is in October the employment data is not reported the first Friday of the month as it is every month... but the second.  Hmmm..

Via NY Post:
  • Workers at polling places for today's primary and November's general election are being required to file tax withholding forms for the first time ever in a move that could be aimed at inflating the nation's employment numbers.   Is this really a little Election Eve trick? Here's what I learned, you decide.

    The New York City Board of Elections, which uses 30,000 to 36,000 temporary workers for both the primary and general election, said it is being ordered by the Internal Revenue Service to make "employees" out of the very temporary workers who tend the polling sites. 


    But an IRS spokesperson couldn't find such an order.
    "The Internal Revenue Service has determined that all poll workers are considered employees of the Board of Elections for tax purposes," said a Board memo dated Aug. 2 and signed by Rosanna Kostamoulas Rahmouni, coordinator of Election Day Operations.

    Although the note was dated Aug. 2 it apparently wasn't delivered to poll workers until very late in August. Workers get paid only $100 for training and $200 each day for working the primary and general election. So it's unlikely that the main purpose of this order is to collect the measly amount of taxes that would be owed -- mostly by the low-income retirees who man the polling centers -- on such a small amount of wages.


    But if the election boards in all 50 states suddenly report an influx of additional government workers, the effect on the monthly employment numbers could be very, very significant. 

    As you know, the monthly employment report -- in which the number of jobs created or lost by the US economy is revealed -- is closely watched by the public and the financial community. And it's often cited publicly by President Obama


    The next employment report before the election will come on Oct. 8.

    Because this report is more complex than others it is being released on the second Friday of October, not the first Friday. (Mark's note: why is it "more complex"?) And because of this it will be one week closer to the election.


    There won't be another employment report until days after the Nov. 2 election.  
    So any temporary poll workers included in the October count wouldn't be removed until voters have already decided on who will represent them.

    I couldn't find figures on how many poll workers there are throughout the country.  

    But if New York alone hires 30,000 to 36,000 workers, the nationwide figures could easily rival the contribution that Census 2010 had on employment figures in earlier months this year.

    "I have been a poll worker (for) many years," wrote one of my readers, who alerted me to this situation, "and after all these years, on Aug. 31, we received a letter in the mail from the Board of Elections stating the IRS has determined that if we work the polls we are now considered employees of the BofE."  So is this all a coincidence or something more?





Friday, September 17, 2010

Bookkeeping: Stopped out of Caterpillar (CAT) Short

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While the market has done nothing today Caterpillar opened down and has spent the rest of the session rallying.  I put a very tight stop loss of only roughly $1 on the name to avoid any damage so I have now been stopped out for a just greater than 1% loss on the short position.

As I imagined by the time the mkt reverses down the computers will have snatched away all my stop losses allowing little participation in the downside.

I will shop the losers list this weekend to see which looks interesting to put on as a replacement after the "surprise" rally Monday morning.

No position

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Bookkeeping: Cutting Back Rovi (ROVI) by 55%

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Rovi (ROVI) is starting to develop some troubling technical action so as a precautionary action I am going to cut back the position by 55% and wait to see if it can recover some support levels it has broken intraday.  If it cannot get back over quickly (i.e early next week) it is a candidate to be booted.  By cutting back here my exposure to further losses will be limited in case it continues this recent trend down and/or (excuse the blasphemy) the overall stock market has a down day.



If you are wondering what happened in the market, consumer confidence (Univ of Michigan survey - hence 110% accurate) came in at 66, a 12 month low.   This tells the tale of 2 America's - but the stock market America is the one focused on the multinational masters of the universe with ever more powerful lobbying force and ever shrinking U.S. workforce.  At least in the S&P 500 type of companies.  I keep repeating it until blue in the face - see Fedex yesterday... doubling of profits, and another 1700 soon to be former middle class stepping on college grads with BAs for that job at Burger King.  But whatever the case, this consumer confidence will be forgotten by Monday morning so please buy stocks with both hands because as long as China is buying copper, all is well in the world.  (err, Shanghai just broke down below the 50 day moving average the past 2 days)



Editor's note: Mark tends to get very snarky when the market goes in the same direction for 821, 217 out of 821,219 days.

Long Rovi in fund; no personal position


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S&P 1131 Here we Are

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Finally the market has reached 1131, a level that has increasingly seemed like a forgone conclusion by computerized algorithm as all news...bad, neutral, or good has been bought hand over fist.  As each day passes the streak of only 1 material down day for the entire month mocks the cautious.  (Who you lookin' at Willis?)

Now we wait to see what happens.  If this move had happened Monday or Tuesday it would be  no brainer to fade the move as the rally without relent going though 5 month long resistance would be an invite to bet against.  However we have now had 3 days of resting action and every bear on earth cowers before Monday morning.  Hence when/if we break over 1131 bulls seem to be unstoppable until the betting parlor opens up for next weeks Fed meeting and the lemming reaction we surely will encounter as the speculators pray to the good ship QE2.  Not that we need QE because the economy is fine mind you.


p.s. no worries if key resistance cannot be broken today...thats why we have premarket Monday.

p.s.s.  Has anyone seen a Hindenberg Omen around here? I swear it was under one of these couch covers.

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[Video] Gold Investing Starting to Hit Mainstream Media

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Nothing signifies mainstream media as much as your good old nightly national newscast.   This is just the first warning shot... generally this builds in waves.  In time your barber will tell you how gold is a 'can't miss', and then that lady at the nail salon.  Then the taxi driver will offer such advice.... unsolicited.  Eventually you will know the end is near when Uncle John - he who offered flipping homes as the 'can't miss' of 06, and JDS Uniphase (JDSU) as 'the stock I'll retire on' in 99 - offers up gold as the investment of the century.  We're not there yet... but start taking note of your surroundings. 

(this from someone who thinks gold as a safe haven from central bankers globally who are treating fiat currencies as the new generation's toilet paper)



"Running Out of Losers" Screen

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Generally I like to pick stocks to shorts that are exhibiting very poor relative strength, i.e. below key moving averages - especially the 50/200 day.  Aside from improving your odds of continued weakness, if the stock moves against you there is a clearly defined level to stop out from (when the stock clears resistance).  An alternative that also provides opportunities to short is to find stocks that are very extended to the upside, and nowhere near any support level, but that tends to be more dangerous because those situations can (a) extend for much longer than anticipated and (b) be populated by "I am shorting on valuation" crowds, who get constantly squeezed out.  Stop out levels are more arbitrary.

Turning to stocks who have not participated much in this now familiar "V shape on little volume" bounce, the pickings are getting slim.  Criteria used via Finviz.com
  • Market cap > $300M
  • Price > $10
  • Average volume > 200K
  • Below 20, 50, and 200 day moving averages
(ETFs included)

Example chart:



I've split the list into 2 groups to make it easier to read - above $1B market cap and below.  If after this strong of a bounce you find yourself in ownership of this sort of a company, one must ask why said firm is exhibiting such weakness.

Above $1B - 70 Names


Ticker Company  Market Cap
LFC China Life Insurance Co. Ltd.       112,456
V Visa, Inc.        57,445
BA Boeing Co.        45,789
DB Deutsche Bank AG        38,137
LMT Lockheed Martin Corporation        24,835
VIP Vimpel-Communications        18,821
ATVI Activision Blizzard, Inc.        13,162
FE FirstEnergy Corp.        11,047
SWN Southwestern Energy Co.        11,044
WMB Williams Companies, Inc.        10,781
WY Weyerhaeuser Co.          8,551
LH Laboratory Corp. of America Holdings          7,661
UPL Ultra Petroleum Corp.          5,989
TZA Direxion Daily Small Cap Bear 3X Shares          5,618
CREE Cree Inc.          5,593
WHR Whirlpool Corp.          5,516
SLM SLM Corporation          5,451
QEP QEP Resources, Inc.          5,202
VRSK Verisk Analytics, Inc.          4,983
VMC Vulcan Materials Company          4,767
AVGO Avago Technologies Limited          4,608
IGT International Game Technology          4,501
IRM Iron Mountain Inc.          4,081
HRB H&R Block, Inc.          4,001
PWR Quanta Services, Inc.          3,736
EFX Equifax Inc.          3,708
SDS ProShares UltraShort S&P500          3,278
OC Owens Corning          3,208
NAV Navistar International Corp.          3,052
NSM National Semiconductor Corporation          2,963
COG Cabot Oil & Gas Corporation          2,897
XCO EXCO Resources Inc.          2,858
BWC The Babcock & Wilcox Company          2,557
DLM Del Monte Foods Co.          2,468
SNDA Shanda Interactive Entertainment Ltd.          2,422
FNFG First Niagara Financial Group Inc.          2,381
SM SM Energy Company          2,312
JOE The St. Joe Company          2,285
LII Lennox International, Inc.          2,277
BOH Bank of Hawaii Corporation          2,204
ATLS Atlas Energy, Inc.          2,151
TCB TCF Financial Corporation          2,099
VLY Valley National Bancorp          2,093
KWK Quicksilver Resources Inc.          2,087
FMER FirstMerit Corporation          1,898
TPX Tempur Pedic International Inc.          1,876
USO United States Oil          1,850
CFFN Capitol Federal Financial          1,849
DF Dean Foods Co.          1,837
RGC Regal Entertainment Group          1,811
ATHR Atheros Communications Inc.          1,788
CSL Carlisle Companies Inc.          1,773
WSO Watsco Inc.          1,689
OMI Owens & Minor Inc.          1,682
CHSI Catalyst Health Solutions, Inc.          1,679
SLAB Silicon Laboratories, Inc.          1,611
INT World Fuel Services Corp.          1,494
MIR Mirant Corporation          1,466
AMMD American Medical Systems Holdings          1,447
IBKC IberiaBank Corp.          1,327
NAT Nordic American Tanker Shipping Ltd.          1,260
PWRD Perfect World Co., Ltd.          1,251
ASIA AsiaInfo-Linkage,Inc.          1,181
KCG Knight Capital Group Inc.          1,175
PAG Penske Automotive Group, Inc.          1,119
SKX Skechers USA Inc.          1,104
MDAS MedAssets, Inc.          1,070
CISG Cninsure Inc.          1,037
WWE World Wrestling Entertainment Inc.          1,013
GBCI Glacier Bancorp Inc.          1,005




Below $1B - 44 Names


Ticker Company  Market Cap
EXP Eagle Materials Inc.             998
PCX Patriot Coal Corporation             988
ETJ Eaton Vance Risk-Managed Divers             985
SAFM Sanderson Farms, Inc.             983
SFY Swift Energy Co.             972
PNM PNM Resources, Inc.             966
CRK Comstock Resources Inc.             958
FUL HB Fuller Co.             947
POOL Pool Corp             937
SGMS Scientific Games Corporation             926
EZPW EZCORP Inc.             917
SYNA Synaptics Inc.             913
CLNE Clean Energy Fuels Corp.             875
LEAP Leap Wireless International Inc.             856
FMBI First Midwest Bancorp Inc.             826
RLD RealD Inc.             819
PVTB Privatebancorp Inc.             809
QID ProShares UltraShort QQQ             781
CMO Capstead Mortgage Corp.             779
ARTC ArthroCare Corporation             692
HIBB Hibbett Sports, Inc.             663
PACW PacWest Bancorp             661
FEIC FEI Co.             660
BECN Beacon Roofing Supply Inc.             645
MPWR Monolithic Power Systems Inc.             618
AEIS Advanced Energy Industries, Inc.             613
REN Resolute Energy Corporation             566
GNK Genco Shipping & Trading Ltd.             560
DGIT DG FastChannel, Inc.             528
UEPS Net 1 Ueps Technologies Inc.             514
AMAG AMAG Pharmaceuticals, Inc.             488
NTRI NutriSystem Inc.             480
BWS Brown Shoe Co. Inc.             478
GDP Goodrich Petroleum Corp.             473
EPIQ EPIQ Systems, Inc.             468
AVAV AeroVironment, Inc.             468
CAAS China Automotive Systems Inc.             409
MED Medifast Inc.             407
ABG Asbury Automotive Group, Inc.             406
RINO RINO International Corporation             404
CBEY Cbeyond, Inc.             365
MAKO MAKO Surgical Corp.             353
QDEL Quidel Corp.             328
ORN Orion Marine Group, Inc             313


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