Year 3, Week 11 Major Position Changes
Cash: 81.0% (v 72.4% last week)
23 long bias: 13.0% (v 22.2% last week)
4 short bias: 6.0% (v 5.4% last week)
27 positions (vs 31 last week)
Not much to add this week that differs from previous week... earnings will dominate the schedule, although some housing numbers out this week should also impact markets. Companies will continue to beat analysts underwhelming estimates, starting with Apple (AAPL) Monday night - instead of reading how companies are doing year over year, we'll celebrate the fact analysts are clueless and buy stocks at any valuation just because they beat a guestimate.
In other news the fully subsidized US economy continues - as predicted the minute the last stimulus plan passed (which I had predicted would be $500 B, but they even surprised me with the $787 B) the first signs of floating a new stimulus plan are surfacing although politicians assure us we need time to let the current stimulus work. Hogwash. Noting the state I live in filled HALF its budget deficit with stimulus money, part of these federal monies are simply direct bailouts of state budgets. So they will need to provide cover to do the exact same thing next year... after all it is only right that a good portion of our society gets to retire with full pension at age 56 while the rest pay for it; many now without work. So we'll continue to layer on debts onto future generations to pay for misalignments we have now. The economy is so hampered it's now to the point we are passing annual stimulus plans... its a Ponzi scheme economy; as with all Ponzi's it will only end when the people down the line ask for their money (in our case either creditors or the youth of the nation).
As for the markets, in case you missed it the regulators (an evil word the past decade) actually decided to do their job - which the financial industry must be screaming about because it stifles financial innovation. Innovation such as potential insider trading. In this case its Galleon Group (once a top 10 hedge fund) and its founder Raj Rajartnam. But it goes far behind him to a whole informal network; many of which exist in the upper tranches of high finance. You might think its pleasing that this is exposed but for each one out in the open you can only imagine the ones that will never be caught or exposed. When you are not fighting high frequency trading algorithms, your fighting networks of well placed people passing information to other people.
The most valuable commodity I know of is information. - Gordon Gecko
I've said it a many times - while I'm relatively decent at this racket, that's all it really is. A massively unlevel playing field where the house has so many advantages it is not even funny. And in our system much of the house is intertwined with the federal government - a quite sick and twisted situation. You can only imagine the trading opportunites that must be afforded to you when your people are placed all over government, helping to make decisions and national mandates. You think that Goldman upgrade of the housing sector last week was by chance? No, that's a home run indication from Washington DC Goldman alum that we're getting a new housing credit stimulus. You can extrapolate from there.
As for positioning, I see futures surged from -4 late last night down to +6 up as I type this in the early morning - why not, that's par for the course for the past 7 months. You cannot bet against the subsidized economy or market at this point as a government and central bank desperate to create an aura that everything is just fine, will do whatever is necessary to keep the mirage going. While I've cut back positions in case we see some sort of dip to fill that gap at S&P 1075 it need not happen anytime soon - that could happen in 3 days or 8 weeks. If the market makes a new yearly high we'll just add some index exposure on the long side. As for the short side, while we have 6% exposure, half of that is in 1 position we put on late last week and we could be out of it within minutes of a gap up open. I believe in the rubber band theory both for the markets and myself... when things get to 1 extreme there is a reversion to the mean. That is now no longer applying to the market since we are quickly approaching the close of the 8th straight up month but typically things just don't go in 1 direction. Late spring we had some of our worst performance in some 5 years for a good 10-12 week period and now we've had a great run... my worry is neither extreme is typical and hence I should be reverting to some mean and begin making some errors, or a string of them. I'm overdue - so when it happens I don't want to have too much money at stake and ruin a good year. That explains my high cash more than anything at this point.
Outside of that there is not much new and interesting other than to see how high and far they can take oil now that its repeated gold's breakout. Since I am not part of the insider cabal that runs the Street and whispers to each other, we'll just have to watch and see. For newer readers, you'll see us cut back even further on any long positions as they are about to report... 50/50 odds on if a stock will beat or only are for gamblers; not for us.