07/21/2013 The dog is chasing his tail

Sector Model	XLB & XLE	0.00%
Style Model	Small Value
Large Portfolio	Date	Return	Days
CAJ	9/25/2012	-0.64%	299
BOKF	2/4/2013	22.21%	167
ABX	4/11/2013	-31.65%	101
TPX	4/22/2013	-4.61%	90
TTM	5/6/2013	-6.83%	76
DLB	5/13/2013	-1.49%	69
MATW	6/6/2013	5.96%	45
OKE	6/17/2013	-1.78%	34
BTI	7/1/2013	3.41%	20
CLH	7/8/2013	8.02%	13
S&P	Annualized	11.23%
Sector Model	Annualized	24.49%
Large Portfolio	Annualized	30.14%

 

Rotation: selling BOKF; buying FAST.

This is an interesting one – selling a financial company in favor of one in the building supply industry.  That’s rather bullish for what is likely a late bull.

Meanwhile the sector model continues to whipsaw in the second position between XLE and XLK.  XLE is a late bull sector and XLK is an early bull sector.  In my own investments I’m only holding one position: XLB, which I’ll unload when it hits the third position in favor of whatever the new first place sector is at that time.  This avoids all whipsaws entirely.  However, the model will continue to track both sectors together – hence the 0% return listed for the current XLB & XLE combination.

But back to the market.

Most of the confusion in the market comes from trying to predict what the government will do and how it might affect the economy.  Bernanke is playing QE hokey pokey, trying to hint that QE will stop, continue, or even be reversed.  All they are trying to do is to see what kind of reaction the market will have to these trial balloons so they can guess their next move.

To make this clear, Bernanke is trying to follow a market that is trying to follow Bernanke.  NEITHER really know what to do here.  The dog will keep chasing his tail until he collapses.

I have no doubt that Barnanke’s “hints” are well known to some insiders so they can go long before a positive hint and short before a negative one.

This is a game played by people no more intelligent than we are, but with vast amounts of power.  I’m not even bothering to get suckered into their timing game.

Meanwhile, the Obama administration has announced that they will give a one year delay to the (un) Affordable Healthcare Act’s employer mandate, not understanding that businesses think further out than one year.  Obama’s problem is that he only has about 20% of the private sector experienced staff that most Presidents do: 8% against the typical 40%.  If only 8% of his staff has experience in the private sector, then it would be impossible for them to craft policy that would benefit the real economy.

This is a bubble of titanic proportions, and like the titanic it will not end well.  But it was a glorious ride UNTIL it ended.  And they played music up to the moment that the waves swallowed them whole.

There WILL come an end of this.  But predicting exactly WHEN is a fool’s errand.  And the NATURE of that end could take on any kind of destroying angel avatar one could imagine.  Deflation?  Maybe.  Hyperinflation?  Maybe.  Default?  Maybe.  The specific trades for each econo-pocalypse is different.  Guess wrong and you’ll be destroyed faster than those who don’t bother to guess at all.

I’m not guessing.  When the economy finally collapses my own trades will fall too.  But the plan is to sell the ones that fall less and buy the stocks that fall more, recovering far faster than the broad market.  If I could time the market, I would.  But timing is dependent on a market that is governed by businesses and traders, rather than one manipulated by the winds of hints that only Bernanke’s palls know in advance.  They scoop up our money as we lose on each whipsaw.

Careful readers will note that my own trades are slowing down.  By trading the first position on the sector model, holding through the second, and only selling when it hits third, my sector trades will be far less frequent than before.

The full model is also trading less.  The current trade period is once every two weeks instead of once a week.  That period will continue to expand until the full model will hold each stock for 1 to 2 years on average.  But we aren’t there yet.

Tim