Complete Stock Idjit

Positioning for next week

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I am assuming that the market will start to get rocky once the banks start reporting. I do not believe in any euphoric fix of the sub-prime mess, and with the market at the heights it is now it's time for me to reposition for next week.

I am selling AAPL and RIG because both are winners, yet not part of my "core." I started this fund with the idea that resources were always going to be in great demand (fueled by China, India, and the Western countries) and concentrated on metals and oil.

I dabbled in technology only because I do that for a living, and have practical insight into many of these vendors, like VMWare and EMC.

Now it's time to get possessive and lock in some profits. I want to have 35% cash, the max allowed, as I expect if the market turns downward there will be some bargains when the "baby is thrown out with the bathwater."

If memory serves, three banks report next week; BofA, Wells Fargo, and Citigroup(?) - I think the combined revelation of the losses will take this jittery market south.

As always, luck to all of you - and here's hoping I am wrong.

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Even a blind pig gets a truffle now and then

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...which is the simple explanation for getting lucky this week.

My last post had me repositioning the portfolio to accomodate what I feared would be a bloodletting based on the banks reporting. The market did respond in a half hearted fashion, being down at the close almost every day this week.

Friday was what I had envisioned, but earlier in the week after a couple of banks had divulged their soiled laundry.

What gives me pause is how the market struggled each day to go positive, even with bad news. I'm unsophisticated in the market, perhaps there are many possible explanations involving hedge funds, short selling, etc - my unsophisticated vantage suggests it's more akin to the "bubble" Phenomenon of year 2000 - little guys trying desperately to get into the market "..cause it always goes up, right?"

This mortgage paper is like the Terminator, and if you remember the quote from the movie, "..it can't be bargained with, it can't be reasoned with, and it absolutely will not stop until you are dead."

That paper is still out there, the mortgage companies haven't forgiven the loans, the government hasn't banished it, goats haven't eaten it - so who has it all? Likely, it's the folks who are not required to report it - banks have to, it's the law.

I expect plenty is offshore, with oil at record prices and profits likely similar, many of the countries that fatten themselves on our driving habits had to buy even more securities, the dollar is continues to weaken - my guess is they weren't buying that.

Until the "terminator" surfaces, we are on a guessing game - pure raw gambling, as most of the bad news may still lie ahead of us.

I locked in profits before this weeks downturn, and shorted the market with 7000 shares of SDS. It kept my head above water all week, including Friday's 266 point drop. I am going to take 12 seconds to pat myself for guessing correctly, but only 12 seconds.

A good guess does not a career make, so I remain anxious and leery of next week, but well positioned to weather whatever the market flings at me. I will continue to short until I see something that suggests otherwise, and will gradually liquidate other securities if the corpses start to pile up in the streets.

As always, best of luck to you folks, let's be careful out there.

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Question Of the Week

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Bush is an idiot, and like all idiots before him, he'll leave a mess for his successor to clean up.

By the election we'll have a better glimpse of the mortgage market fall out, add that to the falling dollar, and the obscene expenses of the Iraq war, and his replacement will have her hands full with the economy, and the rest of the world.

I see a "backlash" effect from this administration - akin to the one that elected Jimmy Carter.

As regards the financial outcome and how it will play on my portfolio, I do not see myself changing strategy at all. My fund is based on scarcity, metals and oil are the core. I prefer the Canadian oil companies because our relationship with the Muslim community will take many decades to repair, and copper and gold will still be in great demand, despite the election and the eventual winner.

I don't have any stocks in the traditional military industrial complex, if I did I would sell them before the election. Instinct suggests that the next President will pull us out of Iraq as soon as it is feasible to do so. The DuPont's and Northrop Grumman's will be selling less bullets shortly, and that will be felt in the bottom line.

I'm not sophisticated enough to know whether we're headed for a recession, but I think the combination of spending largesse on these Brushfire wars, sub prime meltdown, and increased oil prices, will lend urgency to the domestic issues of the next administration.

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A lot of frantic activity, some nail biting, and a new look

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By the time the dust settled from me shorting the market, and as quickly "un-shorting" - I realized I had passed some sort of unspoken milestone as an investor.

You remember, back in your youth when first exposed to stocks someone mentioned that you bought them on the hopes they went higher. You understood the concept instinctively because the kid down the block had offered you twice the cover price for your old Superman comic...

Betting on suffering is not something you want to do, somehow it ... isn't right.

I had never done it before last week, both virtually or in real life, now that I have done so successfully - have I simply lost my idealistic virginity, or am I on the road to the "no nonsense hardened investor?"

Time will tell, me - I'm still blushing over the fact I cheered when the market tanked. I'm just not comfortable betting against the home team...

The Frantic Activity part: I "phased" in my short, each day the market went down last week I increased the SDS holding by 1000 shares, not sure if this is a good thing - it's merely what I did. This week I reduced the short 1000 shares each day the market was positive, get in slow - get out slow - was my thinking.

I doubled-down on the VMWare earnings announcement as I knew it would be stellar. I work in the computer industry so this was based on first hand knowledge of the product and the effect it had on my organisation. The stock jumped nearly 11 points today, and I unloaded the new shares.

"Sell into the face of strength" is what I have always heard, so I learned how to do that as well. VMWare is a frothy investment, I fear most are in it because it is a recent IPO, and it's subsequent march upward has caught the eye of momentum-investors - those gamblers that aren't sure why it's going up, it just is, so they want some.

I see it as a "nosebleed" stock, too high in price to retain the extra exposure. I retained 1000 shares (my original investment) and sold the rest.

Looking at my portfolio now I realize it has changed form. What used to be a oil-metal centric fund has turned into an oil-agriculture-metal fund. Have I become one of those dreaded momentum chasers too?

I have been investing in ADM and BG since January 2007, ADM hasn't budged and Bunge has moved from the low 80's to the 100-Something range. I had figured that the folks best positioned to profit from alternative fuels would be the companies that were in that line of work already.

The combination of record crops, record prices for those crops, and the alternative fuels issue seems to be driving the boom in profits. That is part of the reason for the increase in price, my guess the balance comes from the investors canny to this market who are quickly followed by the momentum crowd.

Likely I will have a gut check this weekend to determine whether I should stay the course or return to what got me here. Am I still an investor, or have I surrendered to the "Dark Side?"

My only saving grace has been that I haven't used the "Play" word to describe an investment. That would mean I am reduced to "Talking Head" status, and have become what I loathe most.

As always, luck to all of you.

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Anyone have a crystal ball I could rent?

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Like everyone else I am eyeballing the bottom of the tea cup for insight. If you tune into the experts all they ever say is "buy" - which is of little help, and if they get introspective and let their gaurd down they might say, "buy less of this and more of that."

In every case these market pundits all urge "buy" - never a whisper about selling, even if they're chugging Maalox and Tums prior to purging in the employee wash room.

With the "experts" serving their own interests it's incumbent on us to figure out what the future holds.

A quote from one of John Markham's articles finally entered my thick skull and settled some of the outstanding issues I was contemplating - make that we as all of us are in the same miserable circumstance.

Because the administration in Washington knows that if all those loans are called in and consumers can't make good on them, there will be hell to pay. And a nasty recession just won't do in an election year.

So the government is in the process of twisting the arms of Federal Reserve Board members to lower interest rates by as much as 2 percentage points over the next year, including potentially a whopping half-point cut next week.

I had clean forgotten that next year was an election year, and no sitting president will allow his party to suffer no matter how ill conceived his economic policies have been...

In true political fashion, they'll mortgage anything to keep the economy on an even keel, allowing whomever wins the election to take the brunt of any imprudent fiscal policy they hatched to keep the worst of it at bay.

In light of the short duration of this contest, this would imply that we can expect a fairly agressive response from the Fed, and any other tools the administration can bring to bear. That won't proof us against suffering or market dips, but it's likely going to assist us for the duration.

No, I don't know what the Fed will do next week, or any week, but based on the above my instinct suggests it may lower rates. While this alone will not drive any choices in my portfolio, I will keep this in the forefront while agonizing over what's coming next.

As always, Luck to thee.

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