4 CHARTS THAT WILL GIVE YOU UNBLEMISHED PERSPECTIVE IN THE WEEK AHEAD
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PORTFOLIO UPDATE: WANDERING IN THE LAND OF THE ABSTRACT AND IMPERFECT
There are many facets of traditional portfolio management that I believe are ineffective. One of the most serious offenses against the habit of effective portfolio management is sticking to an investment thesis that is being disproved by the market, clinging onto statistics of a fundamental nature that inherently lag price. There isn't a disaster in investing that has not had the words "but the fundamental outlook seemed so great," attached to it. Just ask those who bought AAPL at 600+ last year. Or real estate investors in Las Vegas and Miami in 2006. Or even the investors who were clamoring to buy BAC at 50+ in 2007. All of the aforementioned modern day lessons in cultivating capital losses have an investor attachment to a fundamental scenario that is on the edge of a cliff in common. You won't find clues of what is to come in any 10-Q, press release or investor presentation. Often times, management at the company doesn't realize that the the land is shifting beneath their feet. The greater wisdom of the financial markets is the only tool that accurately surmises when a fundamental shift of dramatic proportion is occurring in any one industry or sector. And the greater wisdom of the financial markets is only evident in price and volume. If you sit around and wait for a press release or analyst rating to get you out of a failing company or industry you will be getting out with every other Joe who is searching for the exact same information you are in order to make an effective decision. This isn't kindergarten recess we are talking about here, where you get hugs for scraping your knee and sliced fruit when you need a snack. This is capital allocation where your capital is up for grabs the minute you place into the arena of the finance. There are no hugs here without a kick in the groin. And any sliced fruit you are offered will likely be laced with arsenic. The ability of the investor to accurately gauge and react to information is what creates the difference between success and failure. The information necessary to make the decision that sets you apart from the stampeding herd will always be abstract and imperfect in nature. It is conceptual rather than factual. And that is why so many who are successful in every other endeavor they have attempted fail so miserably in finance, trading, investing or whatever you choose to label it as. Wall Street is a consistent exercise of making decisions using abstract, imperfect information. There is nothing in the "real world" that prepares one for such...
PORTFOLIO UPDATE: SEARCHING FOR SUGAR MAN
If you haven't seen the documentary, "Searching For Sugar Man" it is well worth your time. Much like this bull market, it is the story of a highly-talented artist that went largely undiscovered for decades except among the people of South Africa who thought of him among the greatest singers of all time. While I am unsure of whether the people of South Africa are driving this rally, I am sure that this market is highly-talented. I am also sure that the potential of this market is largely undiscovered by investors. A statistic blew through my Twitter feed earlier today that went something like this: The Dow has not experienced 3 down days in a row for the past 100 days, which is an all-time record. I painstakingly went through the daily chart of the Dow to see where the 100 day mark started. December 31st is the date this 100 day period began. There is some important information coming so pay close attention to what I am about to say. First, let me remind you that I have been talking about the generational trajectory points on the Dow for years now. Ever since I started this website, a break of the generational trajectory points was what I said would lead to great things. There are countless examples on the website. Here is one from August 2, 2012, where I said the following: "The power of these generational trajectory points is clearly demonstrated here. As is the importance of a break above 13,500. A break that will usher in a brand new bull market lasting for years to come." The full article from August 2012 is here http://www.zenpenny.com/the-power-of-trajectory-points-starring-the-dow/ Now back to the 100 day thing. December 31st, 2012 is the date this 100 day period began, to repeat myself. On January 2nd, 2013 the Dow took out the first important generational trajectory. This was the one that originated at the 1932 lows. On January 17th, the Dow took out the generational trajectory that originated at the 1937 highs. What does all this have to do with the 100 day record we are in the midst of? The 100 days without more than two down days is a confirmation that the market recognizes the scope of what has occurred here in 2013. This is the beginning of an extended period of strength of US equities. By extended, I don't mean weeks or months. I mean years. I mean that this is 1982 or 1995 or 2002. The market is talking through its actions thus far in 2013. Nobody seems to care though. All that seems to occupy the minds of...
MAKING THE CASE FOR INVESTING IN REGIONAL BANKS: STARRING HMPR & SBCF
AN OVERVIEW We begin this exploration of the opportunities prevalent in today's investment environment by exploring trends in the real estate market, with a focus on how those trends are influencing the balance sheets of small, regional bank names. It goes without saying that small regional banks were the hardest hit among the names from the recent debt/housing crisis. In fact, there remain nearly 800 banks on the problem bank list published on the Calculated Risk Blog monthly. Both of the names presented in this report today are on the troubled bank list. I have expressed my disdain of "green light" investing in my postings on many occasions. Green light investing is the act of waiting for the market to give you a thumbs up, shiatsu massage and steak dinner to make your decision to invest a comfortable, cozy and pleasant experience. The greatest opportunities in the marketplace are those born from the inability of market participants to surmise the risks involved correctly. To be cozy and comfortable in an investment is a sign that the marketplace for that particular idea has matured to the point of a positive consensus opinion. It is in that positive consensus opinion that the seeds of dramatic and sudden losses are born. To invest in small, regional bank names here is certainly not the uncertain proposition it was in 2010 and 2011, when a majority of the names in the sector were seeking relief from government, hedge fund and private equity sources. There is, however, a large degree of uncertainty that remains due to the sustained losses of a period of years, the resulting dilution that occurred as a result of the numerous rescue packages thrown together to aide these companies and the inability to gauge accurately whether the recovery in real estate is sustainable over the long term. As exhibited by the two charts below, we are in the early period of a recovery perhaps reaching normalized levels into 2015: click chart to enlarge (all charts courtesy of Calculated Risk) Perhaps more importantly with respect to regional banking investments, according to the Mortgage Bankers Association, the 4 week moving average of mortgage applications just made a 4 year high as demonstrated by the chart below: With what is an obvious environment geared towards firming, with the potential of a ramping up taking place over the next few years, let's look at two regional bank names that stand to benefit. Hampton Roads Bankshares (HMPR) Hampton Roads Bankshares, Inc. operates as the bank holding company for Bank of Hampton Roads (BOHR) and Shore Bank that provides community and commercial banking services primarily to individuals...
PORTFOLIO UPDATE: HOT IN HERE
During the trading day Friday, I tweeted the following: The research report titled, "Making The Case For Regional Banks: Starring SBCF and HMPR" will be posted to the site Monday morning. SBCF position was taken in the 2.10 range. HMPR position was taken in the 1.30 range. As of the close Friday, the portfolios are 85% long, with a 15% cash position. Current portfolio positions include: WMIH, IWSY, MITL, CIDM, HMPR, SBCF and JMBA Don't forget...all research reports since I began publishing them in January of 2012 can be found here. The "research" link provides a concise view of where I have been and where I am currently invested, along with detailed reports on all past and current...
A PIRATE’S LIFE FOR ME
The current market is a bandit. Better yet, a pirate. It isn't giving itself away too easily so that riches are bestowed upon every participant who dares to open the coveted treasure chest of the market. It isn't making the voyage too difficult so as to dismay or dissuade investors from making the trip. It is giving away gifts. It is taking away treasures. It is chuckling, spirited pirate who seems to have a lot more behind the curtain than people care to believe. Here are some observations I am making regarding this piratical market: - If you look at the major averages on a long-term basis, using weekly or monthly charts, the scope of the breakouts that is taking place in 2013 begins to smack you in the face. If you can't see it, then you don't know price. As difficult as this is to believe, we are closer to a beginning here than we are any conceivable end. I'm talking long-term here, not whether or not a correction will take place over the next few weeks or months. - Bringing me to my next point: Yes, the market is overdue for a correction. What do you have to gain by insisting on and planning for that correction right here? Nothing. I have had one firm signal this year to hedge exposure via TZA in February. It didn't work out and I quickly moved on. Since then, I haven't had anything close to any signals to get short or hedge long exposure. There is a rather surprising contingent of market participants who remain (it has been months now) insistent that a significant correction is around the corner. These are the clueless and inexperienced among us. Pay them no mind. - The easy money on the long side of AAPL expires on Friday. After Friday, I have AAPL becoming a choppy, irreverent drunk. A short opportunity will come down the line. It is not here yet, however. - Portfolio exposure remains significantly under where it should be at this point. In fact, it has been this way a majority of 2013. 60% long and 40% in cash is the current allocation. I'm in the process of putting more to work in a new name. Opportunities that offer the proper risk/reward simply don't exist here. I'll have details on the new name later this week. - If you did not check out the interview with David Tepper on CNBC today, please do so http://www.cnbc.com/id/100734343 - Anybody thinking about what US oil supplanting OPEC does for the US economy long-term? If not, get to thinking. Here is the story http://www.bloomberg.com/news/2013-05-14/opec-spare-capacity-to-surge-amid-u-s-shale-boost-iea-says.html - TSLA is an...
4 WEEKLY CHARTS THAT DEMONSTRATE A MARKET THAT KEEPS EATING AWAY AT RESISTANCE
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THIS SENTIMENT INDICATOR JUST REFUSES TO GIVE BEARS WHAT THEY WANT
What is it about the current market that has left so many otherwise intellectually esteemed individuals dumbfounded when it comes to proper allocation of assets? Admittedly, this has been a difficult market to keep up with if the quality of your work is predicated by your ability to keep up with a benchmark. Without passing judgment or exercising bias of any sort let's look at exactly what is going on in the market as of the close Friday. Again, no passing judgment or exercising bias. Simply a look at what is occurring in 2013: - Dow is at an all-time high - S&P 500 is at an all-time high - Russell 2000 is at an all-time high - Nasdaq Composite is at a 10+ year high - Dow Transports are at an all-time high - NYSE Healthcare Index is at an all-time high - XLP - Consumer Staples ETF is blazing a new all-time high each week It is not just market strength we are talking about so far in 2013, it is strength in key sectors that typically attract a large international, institutional presence. Joe Smith from Wichita, Kansas doesn't wake up one day to turn on CNBC seeing that the markets are hitting new highs and put in a buy order for Kellogg or Colgate Palmolive. It is the institutional money that is seeing increased demand for a properly performing asset class that doesn't have an increasing potential for debt orchestrated periods of shock and awe to the downside that is buying up these names. It is not just any institutional investor either. It is Asian, European and Latin American institutions, alongside US firms that are piling into these names. The prototypical image of a rally of this nature being led by a bunch of dummies simply doesn't apply here. Those of you who are constantly drawn to this image need to rewire your synapses to correspond to the present day. This isn't the 90s or the 2000s. It is an entirely different market ecosystem that instilled enough fear and hate for equities into the masses that they are perfectly fine with allowing all-time highs to become nothing more than a news event, as opposed to anything having to do with enhancement of their overall net worth. When the general public does return to the market their footprints will be clear. Speculative stocks will rise in a manner that is disproportionate with any positive fundamental developments. Buying becomes sloppy. Pullbacks become more difficult to gauge accurately. The entire infrastructure of the market becomes increasingly unstable as a result of the erratic participation this class of investor brings...
PORTFOLIO UPDATE: DIVERSIFY THIS
During the trading day Friday, I tweeted the following: To take profits on SPNS was a difficult decision for me since I believe the company is in an early growth stage here, with upside possibility far in excess of where it is currently trading. I did want to free up capital, however, to take advantage of newer opportunities that present a more balance risk/reward trade off going forward. I am looking forward to buying it back at more advantageous prices in the months ahead. I have been adding to a couple of existing positions over the past couple of weeks, with an eye on those positions within the portfolio that offer a substantial cushion against risk in the event of a market pullback. Those additions will be detailed in the May monthly summary. What can easily be gleaned by the performance of the portfolios YTD is that they function completely independent of the market averages. There is little correlation to any specific benchmark, which has its advantages and its drawbacks. The drawbacks come when you have a runaway train for a bull market that is focused on mid to large cap names that have some measure of name investment recognition involved. The small-cap names that I follow have been reluctant to move unless fundamental developments that warrants an adjustment in valuation take place. This again firms my view that we are in an institutionally driven market advance that hasn't even come close to reaching the speculative proportions that signal a market top of any significance. With that said, I expect there to be a substantial "catch up" in the portfolio names as the second half of the year brings about positive fundamental developments as well as a more speculatively inclined investor. There continues to be an excess of cash in the portfolios relative to the 100% allocation towards equities my model says I should have here. Again, this excess of cash is a risk management decision as opposed to any bearish short, intermediate or long-term bearish opinion on the markets. As of the close today, the portfolios are 60% invested in WMIH, CIDM, JMBA, IWSY and MITL. The remaining 40% sits in cash for the time being. This 60/40 allocation has been in place for over a month now with some slight tweaking taking place to add or subtract exposure along the way. On another note, I am going to further tighten the parameters I use to determine whether a name should be included in the portfolios. In looking over my results over the past 18 months, I have noticed that my focus has been spread thin among 12-14...