Year 3, Week 10 Major Position Changes

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

Cash: 72.4% (v 73.8% last week)

26 long bias: 22.2% (v 21.1% last week) [includes 1 call option position]

5 short bias: 5.4% (v 5.1% last week)

31 positions (vs 29 last week)

Weekly thoughts

The US market completely offset the previous 2 weeks of weakness, rallying 4.5% in both the S&P 500 and NASDAQ. This continues a pattern we've seen for months where very short term mild corrections are not reversed by a gradually rising market, but instead a stampede of frantic buying.

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This time was no different; a 4.5% weekly gain annualizes to 234% return. In what is now a tired refrain, as the dollar goes - so the opposite goes for almost every other market on Earth. Aside from a small bit of support Friday when our Federal Reserve leader assured us that one day rates will have to go up again, the dollar stunk up the joint this week.

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... and really that's the only chart you need nowadays in this low volume, computer dominant environment where algorithms play the dollar inverse trade to the tune of millions of trades an hour. It's become moot to speak about individual stocks at this point; almost each day the market puts in a good performance, 90%+ of our stocks are rallying. Any stock will do, just follow the dollar and do the opposite.

The strategy is very simple go forward - we've been able to make a lot of money in the past half year by a simple buy the double top breakout strategy. That is, as the market breaches a previous intermediate high, pile into the market as countless Wall Street computers all buy at once ... and ride the wave. It's so obvious, so predictable... but unlike past eras where the obvious and predictable would not work; it now seems to always succeed. Almost to the point of boredom. The current level is S&P 1080 - once the market lifts above that level look for a volume surge and off to the races we go.

For the portfolio we locked in some profits this week on individual issues, but replaced the long exposure with some index related instruments (levered ETFs & SPY calls). While the market seems short term overbought to some degree - there appears to be no fear, and buying dips is now the only trade there is. Again, I keep saying it - if you were in markets previous to 2008 you know that obvious things have a very bad habit of imploding and trapping those who are complacent and playing a trend that is obvious to a 1st grader. But that instead has been rewarded in this new era.

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We now move into the heart of earnings season - the first two weeks are extremely heavy with multinationals corporations; the type of which are supported by US government, have the dollar weakness at their back (allowing them to derive extra revenue by virtue of our form of money degrading), and can move costs (read: employees) anywhere in the world. I expect a lot of barn buster results - what matters is if people are willing to pay any price for these results, which appears now to be yes.

I look at our Indian bank, HDFC (HDB) for example - which also reports this week... I have been mostly out of the stock for many weeks. Why? I still am clouded by thinking that prices should bear some relation to an earnings string. I see the company is set to earn about $4.00 in the year ending March 2010. It is trading near $120 which puts a 30 FORWARD (not trailing) estimate on ... a bank. No price is too dear to buy, and HDB actually has some growth to it; I see companies in shrinking mode getting 50-70-90x estimates just because they made .14 instead of the analysts estimates .11. That just means analysts have no clue how beneficial firing people at a hectic pace is; not that the company is growing at a rate deserving a 1999 like multiple. But with free money being thrown out by central banks in all directions - we have to apparently close our eyes to valuation - much like we had to do in 1999. That did not end well, and neither will this. But between now and the not ending well part, there was a lot of money to be made enjoying a bubble - just don't believe in it.

So with an eye on earnings, I am just prospecting which day we are going to gap up 1.5% premarket on surprisingly good earnings. Tuesday? Wednesday? Thursday? The possibilities are endless (editor's note - actually the probabilities are limited to 5). Monday is very quiet, with nothing other than a company such as Fastenal (FAST) reporting. Tuesday, near monopoly CSX (CSX) reports after the bell - with Cash for Clunkers [remember we live in a subsidized economy where we steal from the future so our corporations can profit today, and we can pretend we have prosperity] should boost the railroad; further this is one of the industries with pricing power as CSX has been able to raise rates even in the face of the worst recession in half a century. Should surprise and make the market happy with talk of recovery even as railroad volume is relatively weak. We can also be surprised by Intel's (INTC) beat - another near monopoly, who will benefit from the weak dollar, and Asian demand - all it's missing is Cash for Computers. People will be very excited and the Fast Money boys on CNBC will be hyperventilating about the results; futures should surge. Then the real fun begin as....

[cue the trumpets!]

[get on your knees, peasantry! bow in the appropriate direction - our lords soon honor us with their presence]

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Our financial oligarchs arrive!

The Franchise (Jamie Dimon) will bless us Wednesday (JPM) [Jul 21: NYT - In Washinton, JPMorgan's Dimon Increasing Sway] - remember with our banks we are creating an atmosphere where all of the citizenry must be sacrificed so the banks can out earn their losses on the balance sheet. [Apr 20, 2009: BB&T - A Better Gauge on How Banks Will Outearn their Losses]

So as we've laid out, the yield curve is so in banks' favor most of your nephews and nieces, at least those who have begun to crawl, will be able to run these banks at a profit. And as long as you ignore all the current loans on the balance sheet (and their burgeoning losses) we're all winners here. As the data below shows, it's just going to be a matter of out earning the losses - having the Fed and Treasury create incredibly favorable conditions for banks with hopes that gains from such a low borrowing cost, along with the refinance boom create earnings to fill the gaping holes by a deteriorating consumer.

In summary format - borrow for near nothing from Fed, lend for much higher than near nothing to consumer. Excite consumer into spending again with Fed induced low rates to try to recreate house ATM - make money on the refinance. Rinse. Wash. Repeat. If things get very dire send loans to Fed balance sheet, let taxpayer deal with it. Pay out bonuses. It's a win/win/win.

Our Federal Reserve deems this to be (as laid out in the Constitution), and hence it must be. He who walks on water - Jamie Dimon - will levitate and talk of great conquests in very modest terms in premarket. At that point look for 18 hours straight of hero worship by CNBC and associated pundits. My gosh, how can this company be so profitable when we've killed the savers in this country by pushing oligarchs borrowing costs to zero! It's a mystery to us! There are some other sideshows Wednesday like chip company Xilinx (XLNX) and South Korean steel maker Posco (PKX) but why bother when we can lather ourselves in the aura of an oligarch.

Then comes Thursday morning when the other main player who runs the country, Government Sachs (GS) aka The Evil Empire aka He Who the US Taxpayer now Stands Ready to Backstop for the next 50 Years ala Frannie and Freddie reports. Lloyd Blankfein will similarly levitate as he talks about what a great quarter it is, and it's almost like its 2006 again (no wait! it's better!) as Timmy Geithner waits by his phone ready to do anything Lloyd and Jaime ask. S&P 1080? With what Goldman has to say we might get to S&P 1180. Ah there are some minor companies out there that also report Thursday but since the entire US economic system is now built around 5 banks it's really a sideshow. Speaking of government supported entities, Citigroup (C) reports as well that morning - but really who cares. The US government says Citigroup will be protected at all costs (with your money) and that's all you really need to know on that subject.

IBM and Google (GOOG) will also report - once more, it's like rolling out one near monopoly after another - huge entities that simply dominate their niche. Google's only failing is unlike most other major US corporations it has yet to outsource a good portion of its workforce... they should learn from IBM which was the first company to offer Americans the opportunity to relocate to India... at Indian wages. Why this has not caught on like wildfire is beyond me. I expect beautiful things from both; Thursday should be a blessed day indeed. This should drive up futures for Friday....

... which brings us to another of the companies our entire economy now revolves around (sort of like the Earth to the sun, except the oligarchs are the sun, and the rest of the economy is hostage to it) - Bank of America (BAC). Fitting name really. I have no idea how they will do but considering they and Wells Fargo (WFC) now originate half the mortgage loans in America, can take all the fees, and then offload all the risk to the US taxpayer via FHA - what's not to love? I only wish I was smart enough to run a business where I get the fees for the transactions and I can layer the risk of my business onto my fellow citizen - must be a nice existence. And we'll finish off with yet another dominant force (notice a theme this week?) with General Electric (GE). We used to worry about GE's commercial financing division until it become clear that American taxpayers will support the corporate chieftans of the country no matter what happens - as long as you make yourself big enough. So no worries about any of the issues GE faces in 2008 or early 2009; with currency weakness GE should benefit.

So all in all it's going to be a wonderful week of watching CNBC guests lather themsleves in Kool Aid, as I watch data of very bullish nature rotate between [a] companies that are near monopolies in their area (despite claims America is all about competition) and [b] our financial oligarchs. A truly golden era.

Ah, there are a couple economic reports too but do you remember that nasty unemployment report a week ago Friday? You do? Why? It doesn't matter - we already forgot about it... as shown last week. Remember, good news means good news, and bad news means more subsidization coming from the future US taxpayer to create prosperity. Win/win/win - as long as you are not part of the future generation.