Bookkeeping: Weekly Changes to Fund Positions Week 45

Submitted By Trader Mark
Week 45 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: 15.6% (vs 31.3% last week)
51 long bias: 58.3% (vs 59.4% last week)
9 short bias: 26.1% (vs 12.2% last week)

60 positions (vs 60 last week)
Additions: American Superconductor (AMSC)
Removals: New Oriental Education (EDU)

Top 10 positions = 30.9% of fund (vs 31.4% last week)
38 of the 60 positions are at least 1% of the fund's overall holdings (63%)

Major changes and weekly thoughts
We've just exited a week which was a lot more positive on the averages than in individual names. An interesting week lies ahead - 3 of the remaining 4 independent investment banks report this week which will affect confidence in the sector but we certainly could see "it's not as bad as we thought" type of action in this group which has been beaten hard the past few weeks. The indexes rebounded on a support level that I plainly cannot see (S&P 1340) but since many other market commentators used that level, these sort of technical levels become self reinforcing - i.e. if everyone believes S&P 1340 is a support area, traders will buy as we bounce off it. This seemed to happen, but now resistance lies ahead just 10 points from here at S&P 1370. Last, we have another inflation data point - this one which seems to be somewhat reflecting the stresses in the system - the Producer Price Index on Tuesday. The higher this number goes, the more costs producers are taking on - which they must either eat (lower profits) or pass onto already stressed consumers (not good for an economy 70% based on consumer spending).



The more I think about the implications of what is happening in many parts of the globe, the more I am worried about the intermediate term outlook. That said the market is not the economy and anything can happen day to day, and week to week. So we'll take the market as it is; I do find incredulous some of the data coming out from government and how it completely is in contrast to data that comes from companies (I always listen to companies). Retail sales stink ("better than expected" only means we expected very terrible things and we only got bad things), but if you look year over year outside of Walmart (WMT), Costco (COST), Big Lots (BIG) and that cohort you see serious weakness. A week later the government comes out with a report contradicting that and the markets rejoice. Aside from the obvious price rises in food and energy, we hear about the Kimberly Clarks and Procter & Gambles raising prices significantly on "must haves" - yet when you get data from the government it insists that is not happening and women's shoes and iPod prices are falling so inflation is almost nil. And the markets rejoice. Import prices including oil are increasing nearly 20% year over year, and 7%ish even excluding oil and yet we go with the 2.4% inflation rate provided to us by our friendly neighbors in D.C. Etc. Our Federal Reserve head insists the economy will rebound in the 2nd half, and inflation will go away like magic ... even though inflation going away is due to a weakening economy. So which is it? Strong economy in 2nd half or weak economy that drives down inflation? It doesn't matter - whatever is uttered the holy gospel according to Ben is worshiped and the markets rejoice. Note - this is the same person who told us in spring 2007 the fallout from housing would be contained. So now we're supposed to believe the forecasting skills? And away we go....

The reality is inflation is raging in many key overseas markets, and "real returns" are negative. Real returns are what you earn in reality - not on paper; i.e. if inflation is 8% and you earn 6% on your CD - well you just lost 2% in "real returns" even if you're told you earned 6%. If inflation is higher than interest payments you are losing money. That is happening everywhere - including the U.S. We are making a few % of interest while inflation is 8 to14% errr 4.2% err 3% err 2.4%. So as people see their buying power deflate they inherently act in a cogent manner - spending the money instead of saving because whats the point in saving an asset that is degrading by the minute? Inflation is a tax on all things - for producers and consumers. Either producers have to eat it (and suffer lower margins = lower profits) or they will try to pass it along the consumer (weakening his spending ability). Neither is good. On the other hand, another reason to rally is the "strong dollar". The strong dollar mavericks should be careful what they wish for - the weak dollar is the one thing holding the economy up (the export business). What happens if the dollar does indeed rally 10%? 15%? Suddenly all those currency gains on the books for every US multinationals begin to erode and "earnings beats" turn into "earnings misses".

The weather in the Midwest is making an already problematic supply/demand equation turn even more dire. Agflation is going to kick into another gear later this year. I have kidded that you will need a mortgage payment to pay for that BBQ on Labor Day. But these floods are creating a more systematic issue - corn is in everything in the U.S. supply chain; not just the food supply - we've built a daisy chain of commerce around corn to help support the industry over the past few decades. Now that input cost is going to be off the charts. This will hit us in the 2nd half of the year and into 2009. By "hit us" I mean for normal Americans doing normal shopping. It won't hit any government report. :)

The regional banks continue to look poor - it appears now that the game plan by the Federal Reserve (just one man's view) is to prove they are "tough" they are going to allow some of the smaller regional banks to go out of business... while providing a backstop to the names we all know and "love"... especially the big money center banks. So as the American consumer weakens and all sorts of loans begin to default, along with the commercial loan business - I expect the regionals to take the brunt as the Federal Reserve appears to have set their mind to bail out the bigger banks but to offset moral hazard it appears they are going to sacrifice some of the smaller. Just my theory.

So the economic backdrop is not rosy, I have not even touched on housing which continues in a freefall in many areas and the foreclosure rate which people expected to begin to fall by now - only continues to spike. I think we have a whole slew more of these to come... for the fund we remain in a cautious mode, but respect the fact if the animal spirits say up, we'll go up. Whistling past the graveyard is common place. We'll continue to monitor our playbook and see if the rotational correction continues as in the past (first goes the junk, then the non consumer related/non commodities, and last commodities) If so, retail/banks/homebuilders would rally in short order (next 1-2 weeks), and commodities would be set to fall. This is not pre-ordained, but simply the past pattern - and again this would require the market to continue to falter. For all we know the market puts on a 10-15% rally in the next few weeks. But my short exposure is placed to play this "playbook", with overweights in the spots that have held up the best. Sort of counterintuitive so we'll see how it plays out. I've been picking up some long exposure in many stocks that have fallen in this undertow of correction hidden by the indexes - buying product that has been down 15-20-25% the past few weeks, and selling off some of the winners and commodity exposure to keep at about a 60% long exposure. With the market rallying hard into the week end, I re-upped some short exposure late in the day Friday so we sit at a high level there. We'll re-assess if the market breaks above 1375-1380 or so since that would be a sign of short term strength.

Below are the fund changes this week - the specific rationale for each of these major moves is explained in the weekly posts which can be accessed in the left margin of the blog under archives.

Some of the larger changes (chronologically) to the fund below:
  1. Monday I mentioned Apple (AAPL) as a buy the rumor, sell the fact (iPhone 3G) type of story, which played out quite perfectly... I had culled my position severely and we began to pick up some shares later in the week for a 7-8% type of discount. I still would not be surprised to see more weakness in this name. I'd like to pick up some at a lower price point.
  2. Trina Solar (TSL) - where do I even start... a fantastic operational result (exceeding my aggressive targets) was ruined by a management decision to deliver a currency change surprise. Without rehashing the past, the stock began selling off immediately this week and I took the position down from 10% to 6% as the stock began breaking support levels in the $44s. I cut a bit more as it broke $42 (200 day moving average) and then a bit more on the rebound Friday to $39. It traded as low as $36 this week (from low $50s late last week). At this price valuations are a complete joke so for the patient investor accumulating shares here would be prudent - we have one problem however. Just as they posted a $4M currency loss last quarter, they are poised to report another $3M one this quarter. This will suppress the ability to provide a material upside surprise in my book and thats what solar investors want - they could care less about a 12-15 forward PE ratio on 100% growth, as shown the stock's death spiral. So we could be talking a few more months of basing, moving with the group as a whole (solar tends to trade in a pack) but lagging its peers (again) for months on end. So for now we've cut it back and we'll probably expand solar exposure into other names looked more favorably by the market, until Trina is ready to not pull any surprises and let its operations shine through in the back half of 2008 (which won't be reported until December 2008 and April 2009) It is still the cheapest stock in the sector by a country mile, but now appears to have both a management discount and equity dilution discount built in (the co is hinting it will do an offering to raise money for 2009) So it's a conundrum stock - so cheap you don't want to sell, but with some near term roadblocks that could limit upside potential v peers.
  3. I started to rebuild a position in Latin America e-commerce name Mercadolibre (MELI) in $40/$41 range as well as upper $30s. This is a highly volatile name that can rise/fall 20% in a week - just have to understand that when walking into this type of position.
  4. I began rebuilding dry bulk shipper DryShips (DRYS) Tuesday near $85 noting (ironically) that this name could be at $65 in a heartbeat. Well it almost got there by Thursday trading in the low $70s where I added a bit more. It didn't quite get to my target price so I did not fully load what I wanted. Will a world slowdown (if it happens) hurt shipping rates? Most likely. Will fertilizer, coal, iron ore suddenly not be needed - no. But its a perception game on Wall Street and if perception is there is a slowdown than the stocks will react as such in the near term. This hits the dry bulk sector from time to time.
  5. I bought back a stake in Ctrip.com (CTRP) which I had sold just 2 weeks earlier, 15% higher. This was enough of a discount to get me started back in a more meaningful way in this name.
  6. Intrepid Potash (IPI) reached my mental price target of $60 somewhere in "the 2nd half" within a few weeks of buying the name; Agrium (AGU) provided this week's incentive for the group which I was very bullish on last week as a breakout candidate group. So I cut this position back severely and offset that with buys in Mosaic (MOS) and Potash (POT) to try to keep sector exposure relatively constant. While my playbook says these groups could be hit next in a more serious downturn, we don't know if a serious downturn will happen so hence the move. Note I am hedged further in this group with Ultrashort Basic Materials (SMN) - so far a big loser for the fund but frankly its an insurance policy which I wrote when I first bought, that if it loses money than it means our long commodity stakes should be doing well.
  7. After a long period of drifting down, we noted on Wednesday that Powershares DB Agriculture Fund (DBA) rocketed as crop prices begin to strike upward (ex corn which has been in pure rally mode for months). I missed the move because it was so sudden but I did purchase on pullbacks later in the week. I expect similar action for iPath DJ Livestock ETN (COW) later in the year - a long base building and then a sudden movement upward... we just don't know when.
  8. Thursday, Cummins Engine (CMI) rallied 14% on news of a competitor exiting one of their markets - I took the opportunity to reduce the stake from 1.6% of fund to 0.6% of fund - I further cut this position Friday to just a holding position on a follow up 6% rally in the name.
  9. I started a new position in controversial hope stock American Semiconductor (AMSC) after a pullback from a large run inspired by a large order out of China. Some people have doubts if this order could be true, but some of the biggest funds at Fidelity also own this name so if this is a total fraud, we'll go down with the Fidelity funds. I would like to see lower prices to add more.
  10. After being hammered post earnings (despite stellar results) on "guidance stunk", Perfect World (PWRD) upped guidance which seemed to soothe the marketplace. The stock rocketed so we took the chance to cut the name in 2 episodes, in the mid $24s and mid $25s. This is actually a very easy chart read - we've now cut this stake sharply as it hits resistance. If it breaks above resistance, we'll pay up a bit to get back our position and away we go. Or, if the stock pulls back to the lower $20s we will also rebuy our stake.
  11. We ended the week closing a long held position in New Oriental Education (EDU) - we have some near term risks (over next 60-120 days) and since investors nowadays consider that to be "the long run", I'd rather not open up to risk of lemmings jumping off a bridge together is there is any sort of earnings guidance that is softer than expected. Because, unfortunately, they'd take us with them.
The above do not include the majority of my trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.

Did you like this article?
 
»

Free Course

Ask An Expert