HedgeFolios.com

Beware The Ides Of March!!!

Mike — Sat, 13 Mar 2010 17:02:54 +0000

Last week, 95% of all 3094 stocks I cover with HEDGEfolios had UP signals. That level has never happened in over 5 years of HEDGEfolios…it is not sustainable…it is OVER.

I am beginning to move in the other direction.

Be very careful with your portfolios. The majority of the market is on the same side of the trade . When that happens, the potential for a painful unwinding is very high.

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Index Projections

Mike — Sat, 13 Mar 2010 16:48:04 +0000

On February 18th, 2010 I finished my last post with this line….

My projection for the S&P 500 Index is 1151 within the next 20 trading days.

It took 16 days to have a print at 1151.

Some comments I have gotten suggested that it was a lucky guess. It wasn’t “lucky”… just as when I am wrong it is not an “unlucky guess.” It was a guess. That is for sure. But it was an “educated guess”…just like everything else I have done with the signals in the database and my prognostications in the blog. All educated guesses. I work extremely hard to educate myself everyday to make sure that I am better than everyone else who is guessing either with me or against me.

A few other comments suggested that this 1151 was an obvious target and that I should “not get a big head.” Apparently, quite a few other people smarter and more famous than me have mentioned this target and I was just stating what I heard elsewhere. If you believe that, I doubt you have ever met me or have not paid very close attention to my values regarding humility, transparency, honesty and the independence of my work.

As I have mentioned here several times over the past 5 years, I do very little technical analysis on the chart of any index, inclusive of the Dow or S&P 500. So telling me that 1151 was obvious because the people “smarter and more famous” than me were drawing double top patterns using the S&P Index chart…well, that is irrelevant to me. I do not care what techniques other people use whether I use them or whether my assessment is the same as theirs.

To avoid any more of this nonsense, I am breaking with my practice of not explaining how I do what I do (at least a little.)

Each month, and whenever there is a directional change in the market, I decompose the index down to its individual components. Using my technical analysis, I determine an expected value for each stock 20 days from that point. By multiplying the index factor (derived from the weight) by each individual component’s price estimate and then adding all them up, you get a number. On February 18th, that number came to 1151. It’s a lot of work. It takes a lot of data and experience. It’s not complex. It was an educated guess. It just happened to be correct.

Uncharted Territory

Mike — Fri, 19 Feb 2010 01:09:17 +0000

Currently, HEDGEfolios covers 3104 stocks and 93% have UP signals. The previous record high reading was 88% on January 5, 2009.

Of the 2884 UP signals, 2599 have been given in the past 4 weeks. Meanwhile, of the 220 DOWN signals, 162 were given in the past 4 weeks.

Four weeks ago, HEDGEfolios only had 20% UP signals. The annualized turnover I am seeing since the beginning of this year is almost double the ridiculously high levels of 2009.

The HEDGEfolios Timing Indicator has an HF Bullish reading of .8070. If you look at the chart from its inception until I stopped publishing it at the end of 2009, you will see that the previous upper limit or record high was .6047 on November 3, 2008.

The HEDGEfolios Timing Indicator has an HF Bearish reading of .0538. The previous record low level of .0614 was April 4, 2008.

My projection for the S&P 500 Index is 1151 within the next 20 trading days.

Not a Glass-Steagall

Mike — Thu, 21 Jan 2010 19:46:20 +0000

In light of President Obama’s attempt to separate some of the investment banking operations from “banks” that get government funding, bailouts and deposit protection, I encourage you to read something of mine from June of 2008.

PDCF vs. Regulation ….take your pick. The Fed and the Treasury and influential members of Congress are suggesting that they need to regulate the investment banks because they ~~didn’t in the past~~ created a new facility to bailout ~~JPMorgan~~ Bear Stearns and since public money is going to be lent to these institutions, some political agency deserves to provide oversight. Okay, I got that.

But I think this debate will string out as long as the firms really need the liquidity that the PDCF offers. If that period ever ends, I expect that they will evaluate the goodies being available at all times vs. their desire to not have big brother looking over their shoulder. Stronger firms like Goldman Sachs may want to opt out. Is it fair that - if you don’t borrow or never have borrowed, that you have to be regulated? I can hear the bullshit arguments now….”that will stifle financial innovation”….”that will cause us to be less competitive compared to non-US investment banks”…. “that might cause us to have to leave the US.”

The industry got what they needed to avoid a meltdown and I have a feeling they are going to say “no thanks” if that means they can go back to minimal / no oversight. It’s the best of both worlds actually. The Fed has made it clear that they will not let one of these guys fail. Bear Stearns set the precedent. So why not just end the PDCF when it isn’t desirable or necessary? That leaves everyone off the hook. No regulation.

And if they get themselves into trouble again???? How much do you want to bet that the Fed will make another short term creative exception, bail out the industry and then revisit this whole debate. Whoa…wait a minute… you might say. The Fed/Treasury/Congress is in charge here. ((((((LAUGHING)))))) Maybe the politicos will force this regulation upon them. Just remember that they get a win if the PDCF goes away too. With regulation comes responsibility and accountability. At least it should (but hasn’t.) If they are supposedly providing regulation and something goes wrong, then it might make the politicians look bad.

How predictable!

Negligence

Mike — Thu, 21 Jan 2010 18:12:04 +0000

In May of 2007, before the financial crisis began, I wrote a post called Newbies. I’d like you to read it (or re-read it).

When this market finally takes a turn for the worst, where will your money be? Most likely it will be with a “Newbie.” I know most money managers will tell you that this bull run has a long way to go. But just consider the possibility that they are wrong. The last time we had a bearish direction in equities, there were far fewer hedge funds and they were managing a lot less money. The same can be said for mutual funds, money managers and stock brokers. Just think about the funds that are funneling into emerging market stocks and you have to realize when the last bear market was in play, US investors had very little in foreign markets. I hate to leave out all those ETFs that have come on board in the past few years. How about you gold bugs and commodity players? And as for bond funds, it’s been a beautiful 25-year bullish move. We have had simultaneous bull runs in almost every asset class for years. In this expansion, money is flowing in and performance is key. But what about risk? I think it’s time that you ask the people managing your money what they were doing the last time it was really tough to make money and even tougher to avoid losing it. What experience do they have with adversity? If you get on the train that has gone straight and fast for long periods of time, don’t you think it’s important to ask whether the driver has any experience with curves and hills? For that matter, do they know where the brake is and how to apply it. There are a lot of experienced people managing investments and if you are lucky enough to be with the few whose experience includes getting beaten up before, you will be better off. If you are with the “Newbies”, you may turn out okay and you may not.

Do you think anyone listened to me back then?

It doesn’t really matter. But what does matter is whether you will listen now. You have another chance. Look back on the performance of you or your financial advisor in several time frames.

What did you or your advisor do to earn your returns from March 2003 until July 2007? Were they lucky or good? Did you see any signs of risk management during that bullish period?

What did you or your advisor do to avoid losing money from July 2007 to March 2009? Was there a proactive plan or were there constant reactions to the next bunch of bad news? How was your portfolio adjusted to manage the risks?

What did you or your advisor do to earn your returns from March 2009 until now? Have you seen any risk management?

In May 2007 I warned you about the dangers of money managers who had never experienced a big bad bear market. Now I am warning you about the new Newbies and an even more dangerous bunch….the negligent financial advisors, the people who are proud to tell me that they were long term investors and held on during the 2007-2009 decline and have been proven right as their portfolios have rebounded or recovered all their losses. They did nothing on the way up (2003-2007), they did nothing on the way down (2007-2009) and they have done nothing on the way up again (March 2009 until now).

Take a hard look at your portfolio and your portfolio manager and yourself. If you have a portfolio that went up or avoided significant loss that’s great. However, make sure you can objectively say that there were strategies and actions that achieved those results, not blind luck. We all have another chance to do better the next time around.

Cessation On The Dips

Mike — Thu, 21 Jan 2010 17:27:13 +0000

Over the past 10 months, there have been numerous times where stocks and the S&P 500 index finally start to take a dip. And then, out of nowhere, the selling stops…on a dime without any substantial fundamental or technical reason and we have a sharp reversal to new highs. I hate the line “don’t try to catch a falling knife” but in this case, knives are in freefall and the majority of times, they have been caught without a problem. It’s not natural. It’s like watching a ball drop from the ceiling only to stop after 3 feet in mid-air and then float rapidly back to the ceiling. It’s not natural, but it keeps happening. Bulls would probably see this as some evidence of their superior strength or mention some bullshit like “normal profit taking” or “buying on the dips” or “bargain hunting” or “squeezing the shorts” or “all that cash on the sidelines” coming in from those that have “missed the train.” Come up with whatever explanation you want. I look at more technicals than anyone else and I am telling you that there is no good explanation for this phenomenon. To me, it looks like a bunch of investors who try to dump their overpriced crap from time to time and quickly see that it’s not going to work…the selling stops and prices reinflate. Since March, it’s worked for the index and it’s worked for thousands of stocks. Sooner or later, the cessation of selling on the dips will not happen and I hope you are able to recognize it.

Adds and Deletes

Mike — Tue, 19 Jan 2010 16:25:39 +0000

I have decided upon 301 stocks to add to coverage and about 350 to delete. Almost all of the additions are in excess of $500 million in market cap and if you ever find that I do not cover a US headquartered stock that exceeds that limit, please send me an email with the symbol and I’ll evaluate it. I have my fill of foreign-based stocks and ADRs so unless it’s a signifcant company in excess of $2 billion in market cap, I won’t consider adding it. New stocks will be added when I give them their new signal and old stocks will be deleted when I change their current signal. I need to do this for data integrity reasons, transparency, and to ensure the proper calculations for the HEDGEfolios Timing Indicator. For the website to start showing a stock, I must have completed the fundamental evaluation and give it a new signal based upon my technical analysis. About 20 of the new additions should have appeared over the previous 2 weeks of this year, but I had not yet completed their initial fundamental analysis until yesterday (note I spent about 30 hours doing the initial review on these stocks.) Consequently, before these stocks are added, they will have to complete the signals I gave over the past 2 weeks. Depending upon how long these recent signals last, it might be a few months before all the stocks are added. Most of the stocks I am dropping from coverage have fallen significantly since I added them years ago and no longer exceed $500 million. Given that most of these stocks have no (or minimal) analyst coverage, I understand that my deletions will be disappointing to some of you microcap traders. If you are trading stocks like these, I trust that you have honed your own set of analytical tools and should not be relying on me or any other analyst.

Additionally, I am dropping coverage on 160 ETFs and am not planning to add more than a handful, if any. The only way I’ll add an ETF is if it is unique compared to the other ETFs I cover and if it has a substantial “market cap” and is very liquid. I used to be a fan of ETFs as a category. However, over the past 5 years, their expansion has really turned me off. There are way too many ETFs that cover the same baskets and they are very small in both “market cap” and dollar trading volume. About 5 years ago, I noticed that I had to have two forms of technical analysis…1 for stocks and 1 for ETFs. Over the years, I have mentioned how dislocated ETFs have become compared to their underlying stocks. At times, I would see stocks changing direction up to 4 weeks later than their related ETFs and vice versa. In the past six months, I have lost confidence in the fundamentals and technicals of many ETFs and for an increasing number of these products, I see great risks that are not being acknowledged by most of their investors or sponsors. I recognize that my opinion on ETFs is not consistent with all the supposed experts and financial gurus that keep hyping this asset class (for their own profit). If you are a fan of ETFs, I am sure there is an abundance of analytical tools (other than HEDGEfolios) to keep you happy. Good luck with them.

MBS Questions

Mike — Fri, 08 Jan 2010 03:57:30 +0000

Very few really tough questions are ever asked of the Federal Reserve and the Treasury. Apparently, Bernanke and Geithner feel they only have to answer to the President and Congress. We are not privy to questions the President might ask them and I don’t feel we should be entitled to invading that privacy. And as for Congress? That’s a joke. Of course, that’s largely open public record and we get to see the Congressional testimony by Geithner and Bernanke on multiple networks (even though I still haven’t seen them swear to tell the truth and nothing but the whole truth).

But what do we ever learn from either the testimony or the “questions”? If you have ever watched one of those circus acts, you’ll see a lot of political speeches and very little substance. Usually, you see your representatives showing total ignorance of capitalism, markets, economics, finance, accounting and relevant subjects. Occasionally, somebody like Rep. Ron Paul or Senator Bunning might have the microphone and show that at least a few of these people have the intelligence to ask insightful and tough questions. On those occasions, both Bernanke and Geithner (as their predecessors did before them) will seem offended or just look with disdain at someone for daring to stand up for Americans and demand accountability and competence. The answers are rarely (if ever) insightful or even come close to responding to the actual question. As for the media, they do a great job lobbing softball questions and making sure they don’t upset the guest so they have a chance at another future useless “interview.” In the few times somebody like Bloomberg wants to ask real tough questions that the Fed and Treasury don’t want to answer it has to file a FOIA lawsuit and you’ll get appeals from our government all the way to the Supreme Court just to avoid answering them. So in the end, we get lies and avoidance and incompetence from the people in power.

As for the common American, Bernanke and Geithner are not accountable to us. But we can at least ask some questions knowing that they will never be answered or answered correctly or answered honestly. But we should ask them anyway! I have asked questions of the Fed via their email mechanism and after a long time, got a useless response. But I asked anyway. I have asked more than a few painful questions via this blog to put these people on the spot and of course, nothing happened. But I asked anyway. It’s important to do that for several reasons. First, it causes awareness of problems that the politicians would much rather ignore and second, it attempts to preserve one of the few elements left of our previous rights and the representative democracy I used to believe existed in this country - the right of free speech and to question your government.

I’ll keep asking the questions.

When AIG went down, the government made a lot of promises that have not been kept and made deals under powers that they do not have. At the time, very few questions were asked. Political leaders just rolled over and let Bernanke and Geithner and Paulson do what they wanted to do. The media reported the garbage they were fed by the government. And for the most part, most Americans did nothing other than say they were happy that the government was stepping in to save us. It is only after the damage is done and we see that AIG is a bottomless pit, that AIG was used to bailout its counterparties, that taxpayers will lose billions of dollars on their AIG investment, that the NY FED led by Geithner asked AIG to withhold the truth, etc. etc. that we finally find out some of what was going on. Now questions are being asked but after all this time and all that lost money, what will we get out of asking them? Do you think it will undo the damage? Do you think it will prevent a similar problem from happening?

In the AIG example, people were outraged about the payouts at 100 cents on the dollar to Goldman and other AIG counterparties. But the money is gone. And as Geithner said, it won’t come back. Remember, that was about $100 billion.

Here’s a few questions on a similar but much, much bigger issue….

1) Of the $1.25 TRILLION the Fed is using to buy Mortgage Backed Securities from “Primary Dealers”, how many cents on the dollar did the Fed purchase them for?

2) Who did the Fed purchase them from exactly? (as in provide a list of names and how “much” was bought and at what price)

They will never answer those questions. Yet, they are the same kind of questions we are asking now about AIG when that money is already gone. Given that the Fed is suggesting it will extend and expand its MBS purchase program, wouldn’t it be nice to get the answers?

HobbyFolios

Mike — Mon, 04 Jan 2010 04:02:28 +0000

Rather than shutting down HEDGEfolios at the start of 2010 (tomorrow) as I had planned, I have decided to keep it open for a bit with a few major changes that will reduce the quality of the site.

I am no longer committed to publishing the signal changes for each week by any particular time or day. They might come out on Monday or Tuesday or Wednesday, etc etc….so they will be of varying quality with regards to timeliness. When I was trying to make money by selling subscriptions and trying to analyze my performance, I endeavored to get the data out to you as soon as I could. That meant I devoted usually 20-30 hours of every weekend for the past 7 years doing my fundamental and technical analysis techniques that include such things as looking at about 30,000 to 50,000 technical indicators depending on how difficult the previous trading week was. After the first trading day of the week, I have to go through many additional hours just to get the site updated. Now that 2009 is complete and I have finished the year for performance measurement purposes, I feel like it’s time to ease up on myself. I had planned to stop altogether but am willing to give this a try for a while. It’s a hobby for me now to support my own investing career…not an attempt to treat this as a business with customers. If you want to follow along and get some insight into what I am doing, then that’s fine.

Some other changes:

Starting with signals on or after January 4, 2010, I will NOT be posting monthly or year-to-date performance calculations. If someone truly cares, they can take the time to do it themselves. I will always believe in ultra transparency and all the signal data (the good and bad) will remain on this site for anyone to review.

I will not be publishing the updated HEDGEfolios Timing Indicator each week. I’ll still be using it for myself, but I won’t be making it available here. Consequently, the HEDGEfolios Timing Indicator chart shown on this site is not relevant after December 31, 2009.

I plan to keep coverage of about 3,000 stocks as seeing that many each week is a significant reason why I have outperformed over the years. However, I will stop coverage on many stocks that are less than $500 million in market cap and I will add a few that have come public in the past few years that I just never added (such as Visa). On all but a few ETFs such as (DIA, SPY, QQQQ) I will be stopping coverage once I decide to give them a signal change. My opinions of the ETF universe has declined so much that I cannot stand covering them here. In my opinion, except for a few quality ETFs, they are highly illiquid and not the lower risk well-diversified offerings that their sponsors have promised. Right now, most of the current ETF signals are wrong so I don’t feel good about removing them until I complete their current signal.

I am not sure how much I will be writing. If I have something meaningful to mention, I’ll probably put it out there.

As I move forward with this more relaxed version of HEDGEfolios (aka HobbyFolios), I am sure there will be some other changes and I’ll let you know when they happen.

Thanks for following me over the past 5 years since HEDGEfolios showed up on the Internet.

Good luck with your investing.

Performance Through December 31, 2009

Mike — Mon, 04 Jan 2010 02:05:26 +0000

HEDGEfolios stock performance for 2009 (through 12/31/09 close) was up 94.89%.

Over the same time period, the S&P 500 index was up 23.49%.

At the end of December, the HEDGEfolios universe consisted of 3,090 stocks.

Commentary: I will post a final review of HEDGEfolios performance in the next few days. Good luck with your investing.

Here is a chart showing the performance of HEDGEfolios vs. the S&P 500:

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.