Third Time Down
February 1st, 2008 by 
reality
The third time down finally arrived and patience was rewarded. The NDX fell 9% in January. I took a fair amount off the table near the lows, by rolling down the puts, and am currently rebuilding the short position by rolling them back up again as the market becomes overbought. Manipulation has become increasingly blatant as the boyz figure they’re as well hung for a sheep as a goat, and besides the chances of the SEC caring are somewhere between slim and none. However, the Minsky moment has clearly passed and the collapse of the credit bubble is underway. That the stock market is as high as it is (Dow 12,700, more or less), is a bad joke. Patience, grasshopper.
| Measure | January | YTD | Inception |
|---|---|---|---|
| Absolute Performance | 28.4% | 28.4% | 18.0% |
| Relative Performance | 41.2% | 41.2% | 1.5% |
Relative performance is based on Fidelity Magellan, FMAGX. Now “open” again, if anyone cares. Inception refers to reporting on the blog, and is based on the close of 2005.
1/31 portfolio.
| Asset class | % Allocated | Comment |
|---|---|---|
| Energy | 0 | |
| Absolute Return Funds | 0 | |
| Market Timing - Bear | 17.76 | Inverse funds and put options equiv. to 150-200% short (basis total equity). But there’s lots of gamma. |
| Market Timing - Bull | 0 | |
| Metals & Mining | 0 | |
| Real Estate | 0 | |
| Tech | 0 | |
| Fixed Income | 74.35 | Mostly T-bills, and a small long bond position. Moved out of WHOSX into HSTRX. About half of this is in Canadian T-bills, also sold the 2-years and added some FXA (Australian dollars), yields 6%. |
| Cash | 7.89 | And that means cash, not money market. |
Edit: At the request of the boss, “Since inception” has been added to keep things in perspective.
Posted in * Portfolio changes, Asset Classes, Strategy & Scenarios | 
February 1st, 2008 at 4:57 pm
reality,
Do you have any comment on (what I perceive to be) very violent moves up in some stocks ?
I could vote for “collusion”, or “entropy”, or maybe even “lack of supply” … but … but … there is some weird stuff going on here.
Just sayin’, sumpin feels very off to me.
February 1st, 2008 at 5:11 pm
I’m not sure which stocks you’re referring to, so it is hard to say. But the move up in the banks, $BKX, and the builders, $HGX, for example, which are both up nearly 30% from their recent lows, is hard to ignore. Certainly not supported by any miraculous improvement in their prospects. Prime suspects are simply bulls who think that buying beaten-down stocks is a smart thing to do, supported by profit-taking by the shorts. See the bottom call from Jim Cramer in Ed’s comment.
There are lots of hedgies who make a business of trying to squeeze heavily shorted stocks. Also, it is clear that a lot of quant funds got their butts kicked last month which probably contributed.
Anyway, the market is now moderately overbought by the measures that I look at. There’s probably not much more on the upside. I’ll be adding to my bearish positions next week.