Friday, January 2, 2009

+2.82% for 2008

I did the math on the accounts I actively manage and the total return on all the money was +2.82%, net of fees. Normally I would say that that number stinks, but considering the following, I am okay with it –

The Fed did everything it could to trump Short Sellers, even making the practice illegal for several weeks

The 3-month US Treasury Yield spend most of 2008 below 2% and the last 4 months below 1%

Accounts were in 40% Short Term Treasuries almost all of the year

Accounts were at least 30% cash most of the year

I don’t remember a time where accounts were more than 40% invested

2008 was all about preservation of capital. The goal was to make sure that clients had the assets to allow them to continue to live their 2007 lifestyle in 2008. I lived through the Tech Wreck in 2000-2003 and promised to NEVER life through that again. I achieved my goal.

The S&P 500 was down -37.5% in 2008. That is its worst year since 1937, when it was down -37.6% (do you think it is a coincidence that the market rallied just enough in the last 2 days of trading to beat the returns of 1937? That would have been a marketing nightmare for the mutual fund industry).

So I beat the market by over 40% in 2008! I can stay in cash for years and the market will have to rally 80.6% to get back to even with me…

I expect to have to take 2009 day-by-day. I expect it to be another grind. My most optimistic case for 2009 is a successful retest of the November 2008 lows. My most pessimistic case for 2009 is that the Treasury markets refuse to finance the $2 Trillion the US will need to borrow in the first half of 2009 and the markets have another large crash.

My crystal ball is cloudy and I have no clue how the year ends. I don’t even have a clue how next week ends. I will continue to study and try and be on the side of Big Money.

Right now, Big Money has been buying defensive shares – Healthcare/Biotech, Utilities and Consumer Staples
If and when Big Money starts to bet on an economic recovery, then they will start to buy the more cyclical shares, which they have been spurning – Financials, Technology, Industrials and Transports

Until Big Money starts to accumulate risky assets, with big flows of money, I will continue to take things one day at a time.

I Have Stop Orders in to Go Short

I figured that they could take the markets up to the top of the recent trading range. I actually figured that we would overshoot the tops of the range to suck in a bunch of Stop Buy Orders. That has occurred.

Most people are home on vacation, so the volume is light and the last few days of each month/first few days of each month have a positive bias, because retirement plans invest payroll deposits.

A recent phenomena is that Pension Funds do significant reallocation of assets in the last few days of each month. That has meant they have sold US Treasuries and bought Stocks and Commodities.

So I am taking this rally with a grain of salt and actually have but in Stop Buy Orders to buy the Inverse (Short) ETFs above current prices. I like DUG (-2x Energy Stocks) and SKF (-2x Financials). I sold SKF in the mid $120’s last week and now have orders in at $106.

Monday, December 29, 2008


This morning, the markets got down to the hourly support levels for the recent trading ranges, so I sold the remainder of my SKF (-2x Short Financials) and all of my PSQ (Short NASDAQ).

I figure that they won't let things crack this week.

The NASDAQ (QQQQ) has been stuck in a trading range since early December. Here is the hourly chart of the QQQQ with volatility bands. The +/- 0.5 band (Black Lines) has defined this trading range.
I covered my shorts on the NASDAQ this morning, by selling my PSQ (Short NASDAQ).
The NASDAQ will break out of this trading range soon. I’m just don’t think it will occur this week.

Financials (XLF)
The Financial Index is now testing the low of its recent trading range at $11.50 (Orange Line). $11.50 is support, until proven otherwise. So I sold my SKF (2x Short Financials).

These trading ranges may break down tonight, or support may hold. I have no clue.
But I know that if support holds, yet again, then I would be really ticked at myself for not booking small profits.

I am now operating under the assumption that they do not want prices to fall hard in the last week of the year.

I will scan charts tonight to see if anything is setting up. From what I have seen so far, there may be a short set up in Gold and US Treasuries. We’ll see if big money shows up and the trades trigger.