Last month I said “Third time’s the charm.” So far, no third time down although it is looking a bit weak. The economy is tanking fairly quickly and we are moving into warning season. Hopefully things will perk down a little in the next couple of weeks. As you can see, I’ve really whittled down the sector shorts. While they’ve paid for my drawdown on the tech stocks, they’re fairly inefficient in terms of bang for the buck, the index options are much cheaper per unit of delta. So now I’m hoping for the kill in tech as the truth about the shopping season and the semi business comes out.

Relative performance is based on Fidelity Magellan, FMAGX. Inception refers to reporting on the blog, and is based on the close of 2005.

12/31 portfolio.

Well the portfolio looked much better a few days ago. Then the market retraced a month’s decline in four days. Hopefully the next time down will break support and we’ll get to the serious decline I’m looking for. Having said that, the Fed has made it clear it intends to pump and if that means jamming the stock market, then that’s just too bad, bears. I know Marty Zweig says, “Don’t fight the Fed”. But the Fed is wrong here. I’m using options, I can stand some pain in the knowledge my drawdown is limited and I am patient. I’ve realigned my portfolio to reduce the number of indices I’m using, but also added more far-out-of-the-money positions that will answer well if there is a substantial decline. I was driving around today and I thought, I’m reacting to this Paulson nonsense and the constant stream of Fed babble on the wrong level. What’s the real message here? It is panic. These guys are running around like chickens with their heads cut off, no semblance of staff work, planning or strategy. So I think things are much worse than we, the great unwashed, are being told. And this increases the probability of something blowing up in their faces.

Relative performance is based on Fidelity Magellan, FMAGX.

11/30 portfolio.

I confess: I’ve never actually seen a chicken running around with its head cut off. But after seeing Hank Paulson, I think I know what it must be like.

Obviously, the housing and housing finance related puts have been doing very well, as have the Canadian dollar-denominated assets. Equally obviously, being short tech and the broad market hasn’t been helpful, to say the least, but I remain extremely bearish. The good news is that the shorts in the financials, etc. are covering the drawdown in tech.

The financial system is having to deleverage fast. If a typical bank, leveraged 25:1, loses a billion dollars it must either raise $1 billion more equity (not so easy) or shrink its asset base $25 billion by selling off loans (also not so easy). What it can’t do is keep making new loans and that is the killer. And that is why I’m hanging in there on tech and the broad market.

Relative performance is based on Fidelity Magellan, FMAGX.

10/31 portfolio.

Divergences between the real world and the quant-driven stock market are increasing. When will the rubber band snap?

Relative performance is based on Fidelity Magellan, FMAGX.

9/30 portfolio.

Turbulent month with a significant selloff that was quickly reversed. Too quickly, IMHO. Anyway, I didn’t cover, I’m not in this for a 5% pullback. So not much worthwhile happened in August.

Relative performance is based on Fidelity Magellan, FMAGX.

8/31 portfolio.