HEDGEfolios year-to-date stock performance for 2009 (through 02/27/09 close) was up 7.55%.

Over the same time period, the S&P 500 index was down -18.59%.

At the end of February, the HEDGEfolios universe consisted of 3,246 stocks.

Commentary: The S&P 500 had its worst January performance and followed that up with an 10.99% decline during February.  HEDGEfolios advanced 4.95% during this month and is at +7.55% ytd.  At the end of January, I mentioned that I had moved towards a neutral position and that increasingly bearish positioning continued during February to its current level of 39% UP signals.   I am seeing some early signs of an opportunity to rally for a short term, and yet, most of those indications are not substantial enough for me to change signals.   When I become more convinced, I will write a post.

Prior Years’ Performance:

• 2008, HEDGEfolios performance was +30.51% vs. -38.47% for the S&P 500 index
• 2007, HEDGEfolios performance was +21.78% vs. + 3.55% for the S&P 500 index
• 2006, HEDGEfolios performance was +25.54% vs. +13.62% for the S&P 500 index
• 2005, HEDGEfolios performance was +19.99% vs. + 3.00% for the S&P 500 index
• 2004, HEDGEfolios performance was +31.19% vs. + 9.00% for the S&P 500 index

Disclaimer: Nothing in my performance quoting is intended as an advertisement or in any other way meant to encourage anyone to subscribe to HEDGEfolios. These performance figures have not been audited or verified by an outside party and are NOT in compliance with the CFA’s AIMR Performance Presentation Standards. They don’t net out any transaction costs such as commissions or management fees and are not a total return calculation as I do not include dividend yields or any compounding factor. These performance figures cover a hypothetical portfolio of the entire HEDGEfolios stock universe with an equal weighting of each security. The calculation is simply the cumulative total of all gains and losses from the signals during the period in question.

Bernanke is the source.    According to the media and their market gurus, yesterday’s rally was provided by Chairman Bernanke’s testimony to the Senate Banking committee.  That’s pathetic, whether it was the real reason we rallied or whether people just liked hearing and believing it was the reason.

Consider the source.  When Bernanke says his forecast is that there is a “reasonable prospect” we will come out of this recession in 2009 and have a recovery in 2010, I had to laugh.  Really!?!?  This from the same source who didn’t forecast the recession we are now in and denied the ideas of people who were warning of coming economic distress years ago.   Brilliant!!!  So if you or the market really responded to Bernanke’s economic recovery forecast as a good reason to rally yesterday, I wish you all luck.

As for Bernanke’s reassurance that the banks would not be “nationalized” …well at least not entirely.   Consider the source.  Bernanke has no authority to speak for the administration or Treasury.   Remember?  The Fed and its chairman are supposed to be independent.   Of course that is a sham based upon how the Fed has behaved through this mess.   But never mind that Bernanke has no authority to guarantee what the Treasury does or does not do in the future.   Consider the source.  When you hear him assure everyone that the government will not take over a majority of Citi or some other bank, do you believe that?   Did you believe him when he said he didn’t want to see the government have to take over another financial institution after they acquired 100% of Bear’s bad assets (less JPM’s first loss)?   A few months later, how did you feel when Fannie and Freddie happened or when AIG became 79.99999999% owned by the government?   Did you still believe Bernanke about what he doesn’t want to do….but it ends up happening anyway?   Consider the source.

When Bernanke spins and says that most banks are well capitalized if you want to use the regulatory meaning of “well capitalized.”  Consider the source.   Do you ever remember Bernanke saying that the banks in question were not well capitalized?  Two years ago until today…go try to find any reference to Bernanke saying he was concerned about the capital adequacy of Bear Stearns, Lehman, Merrill, Citi etc. etc.

As for this “stress test” charade and the mechanism he laid out to Sen. Corker(R-TN), do you believe that this process will uncover anything they didn’t already know?  Consider the source.  The Fed has had broad regulatory authority to analyze the stability of the banking system and yet, where were they before this crisis was exposed?   Why is it so easy to be reassured that the stress test will do anything meaningful other than justify Bernanke’s funding mechanism to provide more capital to banks he has consistently said were well capitalized?

When you hear Bernanke make economic prognostications or promises to ensure that the banks are properly capitalized…..CONSIDER THE SOURCE!

Market gurus and economists will tell you, “We need to fix the banking system before the economy and the markets will improve.”    Makes sense….right?   It must be so.   After all, politicians like President Obama keep repeating the same message and just to prove the point, he and Secretary Geithner say they have “big and bold” plans to fix the system (maybe they’ll actually tell the rest of us someday.)  Who dares to doubt them about something that seems so evident?  Over and over, the message is being sent via every media outlet that doesn’t mind blindly repeating something so it can become indisputable truth that leads you to a conclusion that if we fix a particular problem, then the economy will be healed.

Actually, we have two such “facts” that have become part of the recovery plan.   The first is that “We need to fix the housing crisis before the economy and markets will improve.”   Makes sense….right?  It must be so.  Market gurus, economists, and politicians (the people with all the answers), they have said all that for the past two years.  Program after program from MLEC to HOPE NOW to mitigating/halting foreclosures to TARP to Good Bank / Bad Bank to bankruptcy judges writing down principal to whatever Geithner has announced he will announce at some future announcement has been aimed at fixing the banking mess and the housing/mortgage crisis.   Never mind how those programs have failed to work.   Apparently, the only thing that matters is that we keep trying.   Because Because Because????  Because why?   Well, it’s obvious right?   Until the housing / mortgage crisis and the banking system are fixed, we will suffer.

I agree that the economy and markets will struggle for at least as long as the credit and housing markets are impaired.  However, I just get the sense that the “Fix Fixation” is setting us up to believe that fixing those problems will fix the economy and market.   There is no guarantee that if the banks are healed, that the economy will rebound.  We have had numerous periods in our history were the banking system was not dysfunctional and we still had a bad economy.   Since the Great Depression until the past two years, we didn’t have a national housing crisis like we have now and yet we had several periods where the economy struggled.

Our problems are much deeper and wider than many people want to acknowledge.   If you believe government programs can fix everything or that they are the only ones that can fix our current problems, where will you turn when the economy still sucks after credit markets are not so terrible and/or when housing levels off?

If you haven’t been following the Stanford Financial Group story, I suggest you do some homework.

Since November, I’ve heard quite a few market technicians (or at least people pretending to be experts on technical analysis) suggest that multiple retests of the 820 (or 805 if that is what you prefer) support level on the S&P 500 means that it is more likely that these levels will hold.

I disagree with the theory that many retests at a given level ensure that it is a sturdy bottom.  I’ve criticized talk about triple bottoms in the past when the S&P was at 1400 and don’t feel any different now that we have lost 40%.

I agree that successful retests are important and yet, so are failures.   If you have 5 successful retests over 4 months that does not mean that the sixth retest will not fail.

It only takes one failure of a “strong” support level to wipe out your belief in all the times it held.

Regardless of whether we bounce off 820 again, what have all the “successful” retests given you?

Until a support level holds and a resistance level is broken the next time we rally, don’t get too optimistic.

Politicians from President Obama to President Speaker Pelosi to President Senate Majority Leader Reid and all the Keynesians in Washington are here to save you.   Well let’s just say… “rescue” you or “recover” your economy for you or at least “stimulate” you.  Good luck with that.   For the record, they will not be doing those things for me as I don’t expect it or want it or need it or “hope” for it.

Hope springs eternal it seems.   Never mind the reality of all past interventions that were seen by many as hopeful solutions.

Along the way for the past two years, every stock market rally has been precipitated by either a Fed rate cut, a Fed lending program, a Treasury program, a fiscal stimulus plan or some similar efforts - all of which have not worked.   These are tradeable opportunities for hedgies and program traders and individual speculators to exploit.   They are not investing opportunities and the long term results are all the proof you need.  Please don’t confuse the two.  It is possible to make money trading bailout hype.   I acknowledge that, but fooling yourself into believing this is a solid basis for investing is dangerous.

I doubt that the traders who exploit these bailout speculations and announcements have an opinion about the merits of the plans for their long term implications on the economy and markets.   That is largely irrelevant.   What is required is that they believe they can create short term profits by going long now and dumping later.   And by the way, when they dump later as they have every other time, I don’t think it is relevant that they have an opinion on the merits of the plans either.

When long-only investors stop selling on their own initiative and start buying in size without the benefit of a hopeful rescue, I will have some confidence that we are truly moving higher.  Until then, I will stick to the facts about the economy, our bankrupt country and the dangerous condition of personal employment, income, wealth, consumption and leverage.

“Change” as a concept is powerful and painless, “change” as a reality can be powerful and painful.

Listening to our “leaders” you will be repetitively informed that we cannot wait.  We cannot do nothing.   According to them, governments must do something.   I don’t share that view.   Doing “something” is not the requirement.  Doing “some right things” should be the standard.  And if you cannot do “some right things” - do nothing.   DO NOTHING?  DO NOTHING?  Sometimes doing nothing is considered negligent and I am sure the Keynesians believe that is the case now.   I just disagree.

Instead we have spin that goes something like this.   Politician says….”If we don’t act now, if we don’t do something big and bold now, this is what is going to happen.   First, we will lose “X” million jobs, banks will fail, the economy will come to a halt, etc. etc.”

Whenever you hear that please ask yourself how they know with certainty the number and extent of calamities they present as reasons why they “must” act now.   Please ask yourself how they know those things.   REALLY!  And if you have the opportunity, don’t just ask yourself…ask them.   Ask them what they knew with certainty would happen three years ago and what they did back then to take immediate action to save you.

HEDGEfolios year-to-date stock performance for 2009 (through 01/30/09 close) was up 2.47%.

Over the same time period, the S&P 500 index was down -8.54%.

At the end of January, the HEDGEfolios universe consisted of 3,258 stocks.

Commentary: The S&P 500 experienced its worst January monthly performance and HEDGEfolios managed to advance 2.47%, primarily due to a timely reduction in UP signals.   By the end of January, HEDGEfolios moved back towards the center with 57% UP signals (vs. 88% at the beginning of January).  Whenever I am expecting a significant move in the market, HEDGEfolios moves to a position that provides the most flexibility.  Needless to say, I am currently sensing that a clear direction will appear within weeks, not months.  Right now, I have no clarity which way we are heading.

Prior Years’ Performance:

• 2008, HEDGEfolios performance was +30.51% vs. -38.47% for the S&P 500 index
• 2007, HEDGEfolios performance was +21.78% vs. + 3.55% for the S&P 500 index
• 2006, HEDGEfolios performance was +25.54% vs. +13.62% for the S&P 500 index
• 2005, HEDGEfolios performance was +19.99% vs. + 3.00% for the S&P 500 index
• 2004, HEDGEfolios performance was +31.19% vs. + 9.00% for the S&P 500 index

Disclaimer: Nothing in my performance quoting is intended as an advertisement or in any other way meant to encourage anyone to subscribe to HEDGEfolios. These performance figures have not been audited or verified by an outside party and are NOT in compliance with the CFA’s AIMR Performance Presentation Standards. They don’t net out any transaction costs such as commissions or management fees and are not a total return calculation as I do not include dividend yields or any compounding factor. These performance figures cover a hypothetical portfolio of the entire HEDGEfolios stock universe with an equal weighting of each security. The calculation is simply the cumulative total of all gains and losses from the signals during the period in question.