Year 3, Week 3 Major Position Changes

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

Cash: 58.6% (vs 62.9% last week)

24 long bias: 17.4% (vs 10.7% last week) *includes call option

12 short bias: 24.0% (vs 26.3% last week) *includes long term puts

36 positions (vs 36 last week)

Weekly thoughts

After a 1 week hiatus from rallying, the market shook off Monday weakness to post the 5th positive week in six, and continues to meld together a 6th consecutive up month. Even in long term bull markets, finding 6 consecutive up months strung together is a tough feat but this market the past 2 years has continuously done things rarely seen - both up and down. The pullback to S&P 980 was simply a resting point as a mid week oil inventory report was enough to send the market flying higher, and resistance over S&P 1020 was putty in the hands of bulls on the combo of Ben Bernanke's kind words along with what appears to be the 80th surprise housing report (seasonally adjusted of course).


It remains interesting how bad news has little to no effect on this market - retail earnings a week ago Thursday were dismissed, consumer confidence disappointing only hurt the market for 1 day (a week ago Friday) and that was mitigated by our post 3:30 PM special buying, China dropping severely hurt for a day (past Monday) but all other news was dismissed or enjoyed. The fact a weekly oil inventory report can skyrocket this market simply shows how treacherous it is for bears - if next week the same report shows the inverse of last week's data shall we expect an equally sharp drop in the market? Hardly.

As we celebrate Ben's calming words and vision for our recovery at Jackson Hole Wyoming 2009 - recalling that he completely missed the downturn we were heading into and hence his forecasting ability might want to be taken with a teeny grain of salt, let us take a short walk down memory lane and recall Jackson Hole Wyoming 2007.

Fed Chairman Ben Bernanke promised at the event two years ago that the central bank would not protect investors from bad decisions.

Ah yes... our memories are so short. Those words were quickly tossed out of the window once the oligarchs came begging for their lives ...

At this point technically the charts scream all bulls; we cleared S&P 1020 which was the next (so called) resistance - all resistances for 6 months have been scoffed at. We just completed week 6 off the S&P 880 bottom; typically since March we'd rally 6-7 weeks before some stall so I had been positioning for that. However, I had been under the guise that bad news would be able to drop the market for more than a session or so - so far despite more bad news versus good since a week ago Thursday, the market is indeed higher. Put another way, bad news puts small dents in this market whereas good news tends to create boomerang effects upward. There is very little I can offer bears here - the market is rewarding good news in a far more disproportianate scale than bad news. Bearish bets must be contained until that changes.

Looking at the economic calendar for the week; even MORE housing data that we can be surprised by - I use the exact same quotes each of the past few weeks around the word surprise because I continue to be amazed we can be surprised by the same news each and every week. Tuesday we can be suprised by Case Shiller index & Wednesday we can be surprised by new home sales. Just remember, whatever the news - be surprised and buy stocks in joyous rapture. Tuesday brings us another consumer confidence survey - however if its bad we WON'T be surprised since we just saw one a week ago Friday, hence you can buy stocks on that too - even if it's bad. Wednesday is the very volatile durable goods order - way too much focus is put on this month to month. I have not been looking close enough at the oil inventory data which comes out Wednesdays at 10:30 AM - based on the furious rally last week, I'll have to be aware of this one. Thursday brings us a revised GDP figure for Q2, which is old news at this point and jobless claims which this past week was worse than expected but ignored within minutes. Friday we have personal income and outlays - which will actually be interesting to me, but since the consumer apparently no longer matters (either being employed or spending) as long as corporations can fatten the bottom line by chopping heads I guess it's a moot report. All in all, the pattern for half a year has been to buy almost each and every report - if it's good buy; if it's bad hesitate - then buy.

For the fund, we came into the week well positioned for the massive 1 day selloff Monday (ahem). I was looking for the easy trade to the gap in the SPY chart (SPY 98) [The Easy Trade Short Has been Made] into which I expected a cursory bounce. So I lightened up on our put exposure as well as selling Valueclick (VCLK) completely and lightening up on various short positions, while adding some long exposure. This got us to a more balanced 1:1 long/short on the stock side of the portfolio very quickly. In retrospect that was the best move of the week. My guess for the market was after the cursory bounce I could remount short positions and we would finally begin to roll over - but only if we stayed in the box (S&P 980 to 1020). We positioned for that, getting much of our short exposure we got rid of Monday back by Thursday. But then Friday happen so we had to take evasive action - since we were not positioned well for a breakout, I added some short term S&P calls Friday once we got over S&P 1021+ just to offset our short weightings. That gave us some nice gains Friday, and I sold 2/3rds as I originally only planned to hold for the day but decided to keep 1/3rd as long as the S&P holds 1020. If we quickly rally to 1050 I'll exit the last of these. So that's the big picture strategy - the market has done an excellent job of rallying, clearing, and holding plateua after plateau. While remarkable in the complete and utter lack of pullbacks - not just in the 6 weeks (2% max pullback?) but the 6 months (7% pullback at worst) it just continues ever upward.


So that's about it for the week - I have become incredibly complacent and in fact sort of bored with a market that does everything in premarket, or the first 30-45 minutes and then last 30 minutes... and sits there and does nothing for 4-5 hours during the middle of the day. Hence, I'll rant for a bit....

We sit here now, as C.F.C. ends (dab tears) having pulled into the past month almost all the future car buyers of October - December 2009. I heard one chain of dealerships in New Jersey say 80% of all sales were cash for clunkers. Let me pull out my calculator - yes, so that leaves 20%. Which begs the question - what happens this Tuesday at car dealerships? Congress will realize they need to do Cash for Clunkers on and off for the next few years. Mostly they will disguise it with Chrysler and GM handouts - which effectively is a more down low way to hand out taxpayers money.

As with cars, we now watch all 2010-2011 vintage first time home buyers being pulled into 2009 with $8000 handouts, as Congress mulls how they can get the whole housing market even further subsidized. I truly believe the $15,000 credit for everyone is coming so we can pull all of 2010-2012's sales into 2010. Because that dear friends, is prosperity. I was heartened to see our Congress doing their work and finding ways to make sure the housing market never clears... as I saw 30 year mortgages down to 5.1% again last week. The subsidized at all costs economy is roaring... and our stock market rejoices as we layer debts onto the future to stoke asset values of all sorts today.

There are various bills in Congress... the most generous proposal would expand the credit to $15,000—the limit in the Senate version of the stimulus bill, which was watered down in the final draft—and apply the credit to new as well as existing homes.

See, what has happened in housing is all the (artifical) recovery has happened on the low end - which so happens to be the place the government is throwing the tax credits at (even though everyone benefits from the artifically low mortgage rates).

In as much supporters credit the current homebuyer credit, which expires Nov. 30, they are quick to note that its impact has been limited to the lower end of the market.

National Association of Realtors data support that. Homes priced under $250,000 are up almost 17.8 percent year over year through June. In contrast, sales are down 13.3 percent in the $250,000-$500,000 bracket, 18.6 percent in the $500,000-$1 million one and 32.7 percent in the $1-4 million range during the same period.

So government needs to fix that - because it is simply wrong for government to drop money from the heavens only for the lower priced homes where 1st time home buyers have rushed in to push sales up year over year (taking money from their neighbors - and neighbors children - to do so) Everyone deserves our grandchildren's money - Congress I demand the $15,000 for all! Do you see the pain in the $1-4 million range of housing - that is unacceptable in our society.

One thing I didn't realize is California already has been running such an incentive scheme - long before the federal government came up with theirs. Luckily, the fact CA can't balance a budget won't stop them from handing out their taxpayers money as well. But it sure helps to explain some of the action in the California housing market... $10,000 free for anyone and $18,000 free to new home buyers. Boo Yah - I love free money! What did mom say about free money? ... she was wrong, we have a new paradigm in America.

Supporters of an expanded tax credit also point to California—one of the hardest hit markets--where a 2009 homebuyer program geared specifically for new homes exceeded projected demand and exhausted allocated funding.

The $100-million program—providing as much as a $10,000 credit over three years—attracted 10.5 million people.

Coyle sales a survey of members shows 75-85 percent of new housing starts can be attributed to the tax credit. Both sales and starts are up since the program started in March.

This is awesome - in a country with 18M empty homes - we're creating new homes thanks to taxpayer money. Great plan... kudos!

Since we have cars, houses, and appliances now all subsidized with future generations money - we now can await Cash for Groceries... as 1 in 9 Americans is on food stamps. But we need to do more for the other 8. Congress are you listening?

After that I believe all major spending categories of Americans outside of television / electronic gadgets will have been covered. At this point there is no shame so Cash for Apple and Toshiba products can't be too far away. The full Ponzi economy is now on - keep on bringing new investors (future unborn generations) and pay out to current investors from the money of those who will come from the future. Where there is a shortfall, then the Ponzi ends. What's that? Oops - sorry, this is government... where there is a shortfall, print money. All problems solved.