Bookkeeping: Weekly Changes to Fund Positions Week 50
Week 50 Major Position Changes
Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.
Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.
To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.
Cash: 1.1% (vs 0.0% last week)
56 long bias: 89.7% (vs 89.2% last week)
9 short bias: 9.2% (vs 10.8% last week)
65 positions (vs 67 last week)
Additions: Goodrich Petroleum (GDP), Kinross Gold (KGC)
Removals: Core Laboratories (CLB), Homex Development (HXM), ICICI Bank (IBN), HDFC Bank (HDB)
Top 10 positions = 34.1% of fund (vs 34.6% last week)
47 of the 65 positions are at least 1% of the fund's overall holdings (72%)
Major changes and weekly thoughts
A very busy week in the markets, and the first move up after 6 weeks down. It was a bit of a frustrating week for us because while "timing the market" overall is a fool's game overall, it has been a necessity the past year as huge convulsions either upward or downward have been the order of practice, and our stocks do not trade in a vacuum. The reason I say it was frustrating is because last week in our summary we wrote
At 89% long exposure this is the farthest we've been "unhedged" since week 24, which was mid to late January. Since then, the only similar positioning was week 33, at 84% long, which was mid to late March.
So positioned perfectly in terms of "aggression" but still had our hide nailed to the wall, as even being 89% long we lost 2% for the week as our stocks were not the flavor of the week. Somehow we lost money being nearly 90% long and our #1 position being subject to a takeover - that requires a certain level of skill. (ahem) And this, my friends, is the reason stock markets are an ever challenging puzzle. It is amusing to see the same people who a week ago would not touch stocks calling for the upteempth bottom and how bullish they are after this reversal. Human psychology is half the battle (or more) in the near term.
Our "global growth" stocks were trashed this week, as commodities are viewed as a monolith. By that I mean corn = oil = iron ore = nickel = natural gas = potash = insert anything and it's all the same to hedge funds. Aside from this being ridiculous, one could actually make a case some commodities should BENEFIT from others weakness. For example, a large input into nitrogen fertilizer is natural gas. So as natural gas prices fall - why would nitrogen fertilizer stocks falter? No good reason - but that is like talking to the mob. Logic has no place when billions upon billions are fleeing into financials, retailers and homebuilders. (or at least short covering) Myself, I don't have an idea where oil is going but again, the same folks touting it as the ultimate place to be, now are cowering and calling for $70. And they call John Kerry a flip flopper. Not 3 weeks ago I wrote 'Can a Top in Oil be Far Away?'
Shall I say the near term top is in for oil when OPEC calls for $150-$170 crude? I'm already on record saying food will replace energy as the inflation of choice in second half.... let's see if I can extend this winning streak - we'll revisit on Labor Day.
The irony is I have purposely been avoiding oil exposure (ex Petrobras (PBR)) because I felt it was parabolic and needed a strong pullback, but here we are getting punished because again nitrogen fertilizer = crude oil. :) The one area we are susceptible is natural gas since people do tend to trade these two together but the traditional ratio of natural gas to crude is 7:1, meaning crude $130 = natural gas $18. Natural gas is in the mid $10.00s. But these markets trade on technical patterns so with some break down in their charts, the speculators, err the natural laws of supply & demand might cause more weakness in the near term. But again oil at $80, $100, $120, or $140 should not effect demand for oil rigs or other services, but since this is all "one big trade" - those stocks also took punishment this week.
As for the market as a whole, I still remain quite antsy and in fact with a 10%ish hedged position (+2% for gold) feel underweight my "insurance". I was hoping some of my top holdings would pop when the market bounced, and I could layer out of some exposure and rotate it into more short exposure but something about the best laid plans... Earnings should continue to dominate and the market reaction to Bank of America (BAC) Monday, and Wachovia (WB) and the death spiral that is Washington Mutual (WM) on Tuesday will be telling. The latter is the largest Savings & Loan in America and frankly appears headed for IndyMac status. If "bad news" is ignored and or this fantasy of "the results are horrid but we expected putrid" pushes the stocks up, then we can become more constructive near term. But in no way shape or form am I buying a coast is clear signal in this sector and am hoping to see Ultrashort Financial (SKF) - which we began rebuilding slowly on Friday - fall to the $110s so I can reload. (cannot believe this thing hit $200+) On the flip side, we'll see how long this commodity rotation lasts - in the past corrections this year, it's been a 6 to 15 day phenomena (each iteration lasting a shorter amount of time) so by the end of this coming week, if this rotation does continue into the early cycle stocks I'll be more aggressive in building the short ETFs betting against them. Doing it now risks getting your head chopped off as shorts who pressed their bets found out this week. Also keep in mind our government is now creating a halo effect (for this week at least) banning naked short selling on 19 financial securities. I could write 20 entries on that topic, but I'll spare you.
We had a VERY busy week in transactions as we took advantage of this reversal to cut back positions that actually were up this week (after being beaten into the ground for much of the past month), and rotated the exact opposite direction to the market - buying the leaders of the past few months as they were pummeled.
The larger weekly changes (chronologically) to the fund below:
- Monday, nothing material outside of some changes in Ultrashort allocation as all the King's Horses and all the King's Men pulled an all nighter Sunday to save Humpty (again) - it's now happening every 3 months.
- Tuesday, we closed our long held position oil service stock Core Laboratories (CLB) to raise cash to apply to other bargains being created in the market. This worked out obviously in retrospect as the oil/nat gas complex was creamed later in the week, but it was just fortunate timing for us.
- I meantioned Tuesday we were finally getting fear, and that I was looking for some combination of (a) S&P 500 falling to 1170 (b) Google filling its gap down to $460 and/or (c) the Haynesville 4 natural gas plays to finally fall apart. Well it almost all happened but later in the week - S&P ended up at psychological level 1200 instead of 2005 lows of 1170, Google broke down post earnings Friday and fell to $470s, and the Haynesville 4 were torched later in the week.
- Warburg Pincus took a 5% stake in WuXi PharmaTech (WX) and since this is one of my few healthcare names I added some exposure through the week in small increments. On a side note, Intuitive Surgical (ISRG) of course took off this week after we let go of it last week - healthcare after all. Earnings are Tuesday, and I said I'd buy it back on a re-emergence over its resistance levels which it achieved Friday. So we'll re-assess after earnings - it could pop or not post earnings, not worth the risk for me.
- Mosaic (MOS) sold off a major nitrogen plant which I view as a positive long term - I added a small layer of this name during the week as it weakened, along with Cleveland Cliffs (CLF) in the $106s, and A-Power Generation Systems (APWR)
- Lo and behold the next morning we received word of our #1 position being bought out for a nice premium by another of our positions - great news! Err, not so much. Now it's just a big mess. I did add some Cleveland Cliffs (CLF) early in the morning in the $98s and then later in the day Alpha Natural Resources (ANR) which after popping to near $120 - fell down to $103. That didn't seem sensible - something must of been amiss. If only I knew.
- To raise funds for the Cleveland Cliffs purchase I had to close out a minor position in Homex Development (HXM). Which of course popped Thursday/Friday - it would not of affected us much dollar wise - but it still was bemusing to watch every transaction blow up in our face. Are we having fun yet?
- To raise funds for the Alpha Natural Resources purchase, we had to reduce some exposure in LDK Solar (LDK) as it hit technical resistance. Not that solars respect technical conditions most of the time - a very "sentiment" driven group.
- Our Haynesville 4 finally started breaking down Wednesday so we chose one - Goodrich Petroleum (GDP) - and began a starter position around the 20 day moving average, hoping to eventually layer in at the 50 day moving average which was nearly 15% lower. Little did we know we'd have a chance the next day.
- Wednesday, we continued to add some natural gas exposure as we had held off during this entire correction - this was the literal last group to sell off - so we added to Encore Acquisition (EAC) and EOG Resources (EOG). Now if natural gas does indeed weaken further there could be further weakness in these names but compared to where these names have traded over the past 4-6 weeks we are getting some solid prices. Compared to where they traded 6 months ago, still very elevated prices.
- Thursday after a 2 day spike in finacials, homebuilders we begun layering out of DR Horton (DHI), Lennar (LEN), and Ultra Financial (UYG) - frankly among the few winners we had this week. If/when they continue their oversold bounce we'll continue to layer out of exposure.
- After losing a third of its value in 60 days we decided it was time to begin rebuilding Vale (RIO) - the Brazilian mining giant. Still a relatively minor stake at 1.2% of portfolio.
- I cut (to raise cash) a lot of the remaining Blackrock (BLK) after a stellar earnings and even more importantly the news that Merrill Lynch (MER) won't be selling its stake at this time. I still have some doubt that they won't be forced to sell some of their position to stay afloat as we get into 2009. Let's see how it works out.
- We added to two of our service names (the last 2 we own actually) in the oil patch that we had cut back on earlier rallies, Atwood Oceanics (ATW) and National Oilwell Varco (NOV). Again it makes little sense for these to sell off when there is a literal shortage of deeper sea oil rigs as these guys print money at oil $80, 100, $120, or $140.
- Mechel (MTL) reported another great earnings early this week, and on Friday as the stock continued to weaken to $40, I said I'd like to pick some more up near $38 or it's 200 day moving average. The stock fell there later in the day and we added some. Unfortunately there is now news that the Russian government is not happy that Mechel management is so smart as to position themself as a global powerhouse, and it's time to reward some of their not so smart peers by limiting profit potential at MTL. This could be a game changer or a lot of fluff - I don't know. If Mechel does break down below its 200 day moving average I just have to cut back the stake until more clarity is offered even if its a terrible price. It is hard to sell a stock at forward PE of 8-9 growing at 60% on the bottom line but if the chart corrodes, I won't be the only one. Even IF all these government changes happen you probably still would have a company growing at 25-35%, and the P/E would still be ridiculous.
- I closed our mini basket of 2 Indian banks simply because I have some worries out the Indian story - on a 5 year time horizon I believe this is a terrible price to sell, but on a 3-6 month time scale I don't know. Since I don't know, and I have more conviction elsewhere I sold.
- I took some profits out of technology as the "technology is safe" thesis blew up in the hedge funds face - as both Mercadolibre (MELI) and Ciena (CIEN) bounced into resistance off very oversold conditions we took some off. I am *hoping* they have another bounce in them so I can layer out at higher prices but somehow feel doubtful.
- Since the mood of the market changes by the day/hour/minute I am not sure what exactly will be loved next week and what will be hated - so to have some hedging but without having an idea of what to hedge - we added back an old position to the portfolio Kinross Gold (KGC).
