09/30/2012 No, This Time is not Different

Small Portfolio	XLF & IAU	18.17%
Position	Date	Return	Days
DECK	6/15/2012	-23.65%	107
RIMM	7/16/2012	3.45%	76
DVN	9/7/2012	3.93%	23
OKE	9/25/2012	1.05%	5
SEAC	9/25/2012	-3.92%	5
CAJ	9/25/2012	-6.95%	5
DDAIF	9/25/2012	-6.17%	5
SSD	9/25/2012	-4.79%	5
AF	9/25/2012	-5.45%	5
AM	9/25/2012	14.13%	5
S&P	Annualized	5.31%
Small Portfolio	Annualized	13.60%
Large Portfolio	Annualized	16.28%

 

No rotation scheduled until near the end of the week, and no mandatory rotations.

The market is struggling, caught between a global recession and global liquidity from multiple central banks.

The fiscal cliff is looming, and the big money is in disbelief.

I’ve been looking through the history of national banking crises today in the book: This Time is Different http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691152640/ref=sr_1_1?s=books&ie=UTF8&qid=1348980803&sr=1-1&keywords=this+time+is+different

Here’s what the book says:

The sovereign debt is terrifying, which is usual for a nation that has just experienced a banking crisis.  The average amount of time until the nation starts increasing tax revenues (not rates, but revenues) after a banking crisis is five years, and the average explosion of sovereign debt is to increase it by 89%.

It’s been four years and our debt has exploded by (only) 60%.

Also, the average decline in housing value after a banking crisis is 40%.  Ours has only declined by 16%.

Just by averages, that would give us another year before the economy starts supporting the government instead of the other way around, with another 3 trillion in debt to go and another 24% of housing values to lose.

2013 is going to be an interesting year, no matter who is elected.

And people think they are going to time the market in this environment?  It’s all I can do to keep from stuffing everything into a mattress.

But that might be the worst of all, because these kinds of crises also end with an explosion of inflation.  Might as well throw the money away if you’re thinking of putting it into a mattress.

We live in interesting times.

Tim

 

09/27/2012 premarket (I'd buy this dip)

Small Portfolio	XLF & IAU	16.68%
Position	Date	Return	Days
DECK	6/15/2012	-24.51%	104
RIMM	7/16/2012	-3.45%	73
DVN	9/7/2012	1.36%	20
OKE	9/25/2012	-0.02%	2
SEAC	9/25/2012	-3.92%	2
CAJ	9/25/2012	-4.30%	2
DDAIF	9/25/2012	-5.40%	2
SSD	9/25/2012	-4.66%	2
AF	9/25/2012	-4.88%	2
AM	9/25/2012	13.27%	2
S&P	Annualized	4.93%
Small Portfolio	Annualized	12.56%
Large Portfolio	Annualized	15.70%

 

All of the position changes were successful the other day.  I’ll give a full trade history for the model this weekend.  This morning I want to take a quick look forward at the market.

Market breadth is lagging the indexes.  Small caps and fundamental selections (i.e. basically most of the stocks in my model) are likely to have difficulty for a while.

The market is losing momentum as well, but this is still an uptrend until it isn’t.  We’ve pulled back to short term support, but financials still have strong money-flow (hence XLF on the small portfolio).

On the full model the strongest industries are:

OILGAS

ENTTECH

ELECFGN

SHOE

BUILDING

AUTO

WIRELESS

THRIFT

PUBLISH

RAILROAD

 

And the weakest industries are:

B2B

BIOTECH

SEMICOND

SOFTWARE

FUNL SVC

DEFENSE

UTILEAST

DIVERSIF

PIPEMLP

DRUGSTOR

 

The weakness in DEFENSE is a reflection of cutbacks in preparation for the fiscal cliff.  While traders can speculate it will not occur, businesses cannot.  I’ve been noting the weakness in technology, and we have three technology industries lagging in money-flow: BIOTECH, SEMICOND, and SOFTWARE.  This is NOT a new bull market, nor even a young one.  But that’s stating the obvious.

What about the OLD bull market?  Is it dead?

I don’t think so.  Not yet.  I’ll confess to being a permabear on a gut level, but BUILDING, AUTO, and RAILROAD are not bearish industries.  What is missing here is AIRTRANS.  It’s been under pressure lately, and is only mid range on my model.  It’s neither a short nor a long, but should trend with the broad market until we have definitive guidance on the fiscal cliff in the US and the willingness of Spain to take a bail-out.

If I were timing (which I’m not, but if I were), I’d buy this dip.

Tim

 

09/24/2012 major rebalancing in the morning

Small Portfolio	XLF & IAU	16.68%
Position	Date	Return	Days
DECK	6/15/2012	-21.84%	101
CVX	7/5/2012	10.57%	81
RIMM	7/16/2012	-12.97%	70
UEIC	7/30/2012	32.62%	56
QSII	8/6/2012	10.30%	49
SWM	8/23/2012	4.53%	32
FCX	8/27/2012	11.49%	28
DWA	9/4/2012	4.48%	20
DVN	9/7/2012	3.49%	17
NPK	9/21/2012	3.26%	3
S&P	Annualized	6.29%
Small Portfolio	Annualized	12.64%
Large Portfolio	Annualized	16.26%

 

Major rebalancing:

1)      Selling – CVX, UEIC, QSII, SWM, FCX, DWA, NPK

2)      Keeping – DECK, RIMM, DVN

3)      Buying – OKE, SEAC, CAJ, DDAIF, SSD, AF, AM

With the rush of liquidity from Central Banks in Japan, Europe, and the U.S., the industries have basically been turned on their head.  No one has ever done a globally orchestrated money printing program of quite this nature before.

It’s impossible to nuance this.  I’m looking at fifty-two card pickup on a global scale as large players rush to reposition themselves to take advantage of (or protect themselves from) whatever is coming down the pike.

On the plus side, we have orchestrated liquidity.

On the negative side, we are facing the fiscal cliff.

The fiscal cliff includes tax hikes, so it’s better to rebalance now.

The liquidity includes risks of inflation, with the GOAL of inflation in the housing sector (hence SSD).

The worst sectors on my model include utilities, so that’s bullish.

I’ll check in the morning and rotate the best opening stocks on my sell list into the worst opening stocks on my buy list.  With luck, I can do the entire rotation in five minutes.

But I won’t spend more time on it than that.  I’ve never had to do this with the model before, and I have little interest in doing it again.

I’m getting tired of these “once in a lifetime” macro events.  “Once in a lifetime” is getting routine.  Someone needs to give Bernanke a valium before I need one myself.

Night everyone.

Tim

09/23/2012 the canary in the coal mine

Small Portfolio	XLF & IAU	20.28%
Position	Date	Return	Days
DECK	6/15/2012	-19.34%	100
CVX	7/5/2012	10.59%	80
RIMM	7/16/2012	-10.90%	69
UEIC	7/30/2012	33.85%	55
QSII	8/6/2012	8.99%	48
SWM	8/23/2012	4.28%	31
FCX	8/27/2012	12.51%	27
DWA	9/4/2012	4.48%	19
DVN	9/7/2012	5.02%	16
NPK	9/21/2012	3.04%	2
S&P	Annualized	6.49%
Small Portfolio	Annualized	15.40%
Large Portfolio	Annualized	16.87%

 

The Mousetrap doesn’t time for one very good reason: it tends to turn before the market does.

By the time it’s time to time, the time is passed for the model.

I had some sharp drops this week.

The Canary in the coal mine isn’t doing so well.

Be careful out there.

Tim