Aggressive Trader Portfolio Update

The 2009 ATP is currently UP 18.3% for the year.  The S&P 500 is DOWN 6.4% for an outperformance of 24.7%

We will be temporarily getting out of our Gold position (DGP) at tomorrow's open (Friday).

Aggressive Trader Portfolio Update

We'll be jumping back into FAZ and EFU at tomorrow's open (Thursday morning).

Picture issues...

Is anybody else having problems opening the pictures I post as part of my blog entries?  Please post a comment below to let me know.

The Aggressive Trader Portfolio Update

As promised, we sold out of FAZ, SRS, FXP, and EFU this morning.  Current portfolio is showing a gain of 17.17% on the year: (click)

The Monthly Stock Portfolio Update

Well, this portfolio was overdue for an accuracy scrubbing.  (All edits actually improved the performance of The Monthly Stock Portfolio).  Eight of the twenty stocks had paid dividends that were not reflected in the last performance report.  Additionally, ATW had a 2:1 stock split in July of 2008 that I completely missed.  The updated performance puts us less than 0.5% behind the S&P 500 since the inception on 1 Oct 2007.  Therefore, the new adjusted portfolio looks like so: (click)

Update on the 2009 Aggressive Trader Portfolio

We're off to a SOLID start! Seven winners of nine picked, up an average of 16% (click):

Due to the nice move we've gotten, I'm going to take four trades off the table for a little bit and lock in some nice gains.  Effective at Thursday's opening price, we will sell:  FAZ, FXP, SRS, and EFU.  Stay tuned for other moves...

Some additional insights into the future of our economy

One of my readers from France recently emailed me with some detailed questions.  After typing up my response, I thought it might be useful for all to see where my thoughts are right now.  If nothing else, I'll be able to look back at this post in a few years and see how I did...

RATES: 

* What has the bond market done in 2008 and what do you expect to see in 2009?

I generally don't trade bonds, as I don't understand them as well as I do other investment vehicles.  High yield (junk) corporate bonds will look attractive early this year, but beware of high default rates as the year progresses.  Same story for municipal bonds.  US Treasuries will be a safe place to hide out, but don't expect  it to beat inflation over the long run.

*  How do you expect major currencies to perform in 2009? (£, $, Euro) 
 

I expect the major currencies to perform as  follows (best to worst)

1) US Dollar

2) Japanese Yen

3) British Pound

4) Eurodollar

EQUITIES: 

* What have equity markets done in 2008 and how do you expect them to perform in 2009?

I think you know how they did in 2008.  One of the worst years since the 1930s.  I expect 2009 to start off strong (sucker's rally) but ultimately look a lot like 2008, and end lower (20-30% lower).

* If you could invest in a company / sector today - which one would you choose and why?

I've been using inverse ETFs, as I am a shorter-term trader and believe we are headed lower over the short term.  If I HAD to buy equities right now, I would  buy solid large cap companies, that  pay high dividends that are selling at low PEG Ratios.

FX: 

* What were the biggest currency themes in 2008?

In my mind, it was the collapse of the Euro and the rise of the US Dollar that started in July of 2008.

* If you could invest in one currency, which one would you choose and why? 

The US Dollar.  Despite the US Fed "printing" tons of money, the US Dollar will be seen as the best of a bad lot and a safe haven compared to other  currency options.

COMMODITIES: 

* What have commodity prices (agricultural/metal) done in 2008 and what do you expect them to perform in 2009 and why?

Early 2008, commodities continued strongly higher, but once July/August hit, the bubble began to deflate.  I expect deflation to continue throughout 2009, and commodities to trade lower.  Commodities are also difficult to predict because  of their sensitivity to weather and politics.  You could see some mini-spikes in food commodities and energy  commodities, and gold could make a run towards the end of the year, otherwise, I expect commodities to trade lower.

* What do you think the price of oil will do in 2009?

Drop to $25/barrel, then start a slow steady climb finishing the year between $45 and $85 depending on the prevalence of global conflicts.

* What do you think the Chinese economy will do in 2009 and how will this affect commodity prices?

China will continue to deflate.  Growth will subside dramatically.  The US consumer is tightening its purse strings.  Chinese exports will fall.  Chinese imports will also be cut back as they won't need the commodities necessary to make the goods usually purchased by Americans.  This will further deflate the price of commodities.

CREDIT CRUNCH: 

* Which economies are the worst hit?

Globalization has made ALL economies get hit hard.  Mass consumption started in Japan and the US, but has spread to the UK, the Eurozone, and emerging economies as well.

* How has the attitude towards risk taking changed in the last one year?

DRAMATICALLY!  Consumption is going down.  Savings are going up.  Look at all the money being pulled out of equity markets and being parked in money markets and US Treasuries.  

* If you had 100£ pounds today, what would you do with?

Convert it to US Dollars, then buy an inverse ETF.

* Which asset class has been the best / worst performer in 2008? What is your expectation for the same in 2009?

This is off the top of my head, but I think health care was probably the best and financials were the worst asset classes of  2008.  For 2009, I expect health  care to continue to outperform the market and real estate and consumer goods to be the worst performing sectors.

* What is deflation? Is US entering an economic cycle similar to Japan in the 1990s?

Deflation is caused by too little money chasing too many goods.  This  results in prices spiraling lower and wages also spiraling lower.  The consumer has no incentive to spend because they expect prices to continue to fall, the longer they wait.  It's a very dangerous economic situation that can kill growth for a long time, if not handled properly.

Yes, I believe the  US is heading down the same road  that Japan has since the 1990s.  Japan is still not out of their problems.  I believe the US has applied a LOT more stimulus to its economy than Japan did and will recover quicker.  It will still take the economy until 2011-12 at  the earliest, in my opinion to recover, with equity markets bottoming in 2010.

The Monthly Stock Portfolio Update

Closed Two Trades today (DRQ and LNDC) and replaced with HMY and FWLT.

Here's a snapshot of the current holdings (click):

Here's a list of closed trades:

Ticker Buy Date  Buy Price  Sell Date  Sell Price  Return

EGO     1 Oct 07      6.12      10 Nov 08     5.20      -15.0%

DRQ     1 Oct 07     49.00       1 Jan 09     20.86     -57.4%

LNDC   31 Dec 07   13.41        1 Jan 09     6.59      -50.9%

Nine Ways to Profit from 2009

The Big Picture:  

Resist the urge to jump into this sick market.  Anyone looking at 2008's near 40% decline will feel tempted to jump in at these bargain-basement levels.  If you reference the year 1930, (one year after the start of The Great Depression) you may think twice.  Despite all the fiscal and monetary stimulus being thrown at our economic mess, the US, and the world economies will look a lot like they did in 2008.  

Political and Economic Predictions:

- Oil falls into a range of $20-$30 where it settles for a short period.  Be on the lookout for a complete collapse of Russian and Venezuelan economies as they cannot exist on such a low oil price.  Expect military conflicts to ensue around the world, which will raise the price of oil somewhere between $45 and $85 by year end (depending on severity of conflicts).

- Eastern Europe's massive debt loads and Western Europe's over consumption, and economic infighting cause massive upheaval within the EU.  Expect European banks to rapidly erode, followed by the fall of the Euro, and maybe some major EU partners pulling out of the EU, or at least pulling out of the Euro.

- Global recession continues.  Talk of resisting isolationism is overcome by reality.  Isolationism and protectionism accelerate global recession, causing commodities to continue the path of deflation.  Talk of hyperinflation will be prevalent in 2009, but will not be seen until 2010 or later.

-  Hedge fund industry (with massive amounts of cash on hand, ready to move back into the market) cannot save the economy.  Calls for new regulation, and inability to make profits under the current "2-and-20" high watermark standard leads to massive hedge fund closings.  We have only seen the tip of the iceberg on this one.

- Gold ultimately trades higher.  I expect gold to waffle around its current price in the near-term, with a possible trend to the downside (due to commodity deflation), followed by a year-end rally (flight to safety) that closes out above $1000/oz.

- 2007 was the subprime crisis, 2008 was the credit crisis, 2009 will be the consumer crisis.  Unemployment will hit double digits (maybe not until 2010), housing markets will continue to fall, consumer defaults on mortgages, credit cards, and student loans will explode.  Expect retail, and automakers to continue to struggle.  China's economy will continue to falter (at a more rapid pace) due to the falling US consumer demand.  Tech stocks finally take a long-overdue beating.

- Despite attempts to lower mortgage rates to 4%, the move will fail to kick start the housing market.  Refinancing will balloon, leading to a further split between the "haves and the have-nots."

Nine Ways to Profit from 2009

One lesson learned from my 2008 predictions was not to lock myself into any theme for a full twelve months.  All of these predictions will be employed with the ability to trade in and out of themes as prices and conditions warrant.  All moves will be posted before they are made on my blog.

The following themes investments will make up the 2009 Aggressive Trader Portfolio:

Theme 1:  Short Banks.  We have not seen the end of this story.

Action:  Buy FAZ.

Theme 2:  Short Oil to $25, then reverse and go long.

Action:  Buy SCO.

Theme 3:  Short Technology.

Action:  Buy REW.

Theme 4:  Long Gold.

Action:  Buy DGP.

Theme 5:  Short REITs.

Action:  Buy SRS.

Theme 6:  Short China.

Action:  Buy FXP.

Theme 7:  Short Europe.  Although I'd like to short the Euro, that currency play would be too risky.  With the Fed publicly acknowledging it's plan to use Quantitative Easing, (and the ECB's lack of willingness to do the same), I cannot feel confident that the Euro will fall, relative to the US Dollar.  Instead, we will short European markets by shorting the MSCI-EAFE Index, which contains about a 70% share of European weighting.

Action:  Buy EFU.

Theme 8:  Short Retail

Action:  Buy SCC.

Theme 9:  Short Toyota Motors (TM).  Although they are in a healthier financial position than any of the Big Three Automakers, Toyota is facing the same falling demand, and the same discerning consumer.  On top of that, expect the new administration to throw billions more at the American companies with nothing going to TM.  Finally, a strengthening Yen makes US auto sales less meaningful and less rewording to the company's bottom line.

Action:  Buy TM.SK (July '09 Put Options 55.00 Strike Price)

As always, standard disclaimers apply.  No guarantees are implied.  Do your own research and invest at your own risk.  Good luck in 2009.

2008 Aggressive Trader Portfolio Review

Well, 2008 has closed out and as it turned out, it was one of the worst years on record for the Stock Market.  Although our politicians and news media would have you believe that no one saw this coming, I could see "the writing on the wall" as early as the summer of 2007.  That is why I decided to post about how to make a profit amidst the turmoil that was to come.  How did I do?  How's nearly tripling your money sound?  Okay, enough back patting, let's review...

On December 31st, 2007, I posted my eight themes for 2008.  Several were right on the money, several were not.  Let's start with what I did not expect to see in 2008.  First and foremost, I did not expect to see commodities melt down like they did.  Although anyone who was paying attention could see the global recession on the horizon, I did not go one step further and see the rapid pullback in commodities that would follow.  Lesson learned.  The second lesson that I learned was that government intervention is a powerful force.  The Federal Reserve, the SEC, and Congress, acting together, have come up with numerous ways to prolong the agony.  Many of the themes I expected to see play out early in the year were simply pushed back by the forces that be.  The term "kicking the can down the curb" comes to mind.  Finally, I learned that locking yourself into one particular theme for a full twelve months is foolhardy in a global economy that is as fragile and as volatile as we find ourselves in.  I would have loved to dump the Long China theme by about March of this year, but had already committed to the theme in December of '07.  With the lessons learned behind us, let's delve into the actual themes to see how we did.  Several of these themes involved trading into and out of options at selective times.  All of those moves were documented on my blog.

Theme 1:  Long China.  (-43%).  As I stated in my last paragraph, this was a theme that I would have liked to have jumped out of by March '08 when the global recession was becoming apparent.

Theme 2:  Long Yen.  (+320%)  The Yen itself gained about 20% on the US Dollar during 2008.  By using options and selective timing, we were able to capitalize on this theme.

Theme 3:  Long Canadian Dollar.  (-100%)  The Canadian Dollar fell about 20% compared to the US Dollar during 2008, and I was out of this trade early in the year on an options trade that expired worthless.

Theme 4:  Short British Pound.  (+1100%)  Clearly my best call of the year.  If I had gotten all seven other calls wrong, and only scored on this one, the portfolio would still be up over 50% on the year.  The British Pound dropped against the US Dollar by 28% during 2008.  By using options and timing, we were able to make a killing on this theme.

Theme 5:  Long Gold.  (-3%)  Gold itself was up about 4% on the year.  Using an ETF, and a little bit of timing left me with a small loss.

Theme 6:  Short REITs. (-57%)  By far, the most frustrating theme of them all.  By all accounts, real estate has had another dismal year, and commercial real estate is showing signs of cracking as well.  The double inverse ETF that I invested in (SRS)  has really taken a dive lately.  Stay tuned, I'll be keeping this theme alive for 2009.

Theme 7:  Long Agricultural Stocks.  (-30%)  These stocks started off the year strong, but quickly turned sour as the market and commodities sold off.  Yet another theme I would have liked to have been out of by about July or August.

Theme 8:  Long Volatility.  (+381%)  This theme really went nowhere until October's market meltdown.  Then the VIX really took off, taking my December 30 Call options with them.

Themes in review:  Although only 3 of 8 showed in the green, 4 of 8 were correct calls.  Using options really enabled us to capitalize on a few of these themes.  In summary, we divided $1,000,000 of ficticious funds evenly among these themes.  The final value of the Aggressive Trader Portfolio was $2,959,924.06, for a total return of 196% outpacing the S&P 500's decline of 38% by 234%

The Monthly Stock Portfolio Performance Update

The Monthly Stock Portfolio was started on 1 Oct 07.  Since then, it has fallen 50.8%  Over the same period, the S&P 500 has fallen 40.9% resulting in an underperformance of 9.9% for The Monthly Stock Portfolio.

Here is a list of the closed trades: (only one so far)

Ticker Buy Date  Buy Price  Sell Date  Sell Price  Return

EGO     1 Oct 07      6.12      10 Nov 08     5.20      -15.0%

Here is a snapshot of the current portfolio holdings.  Keep in mind that DRQ and LNDC will be replaced  by HMY and FWLT at tomorrow's open:

(Click for larger image)

The Monthly Stock Portfolio

     It has been awhile since I posted anything regarding The Monthly Stock Portfolio.  A big reason for  that has been out of frustration for how the portfolio has been performing.  When I set forth on the notion of starting a portfolio of stocks selectively screened for stringent fundamentals, it was with the idea that forcing myself to hold stocks for a full year would not only allow time for those fundamentals to play out, but also would allow any sales to qualify for long term capital gains instead of short term capital gains.  Fifteen months into this portfolio, I am realizing that in today's choppy market, tying yourself up in a particular stock for a minimum of 12 months in order to take the tax advantage is not worth what it may do when the market turns.  Although I'd like to just cast this portfolio aside and move on, I will continue to post monthly picks for at least another year to see how this thing turns out.

     

     With that said, I have some catching up to do.  I missed December's Stock of the Month, and January's pick is also coming due.  So effective at tomorrow's opening price, we will be adding the  following two stocks:  Harmony Gold (HMY) and Foster Wheeler (FWLT). 

     

     I hated to let go of El Dorado Gold (EGO) to make room for the November stock of the month, so HMY is somewhat of a late replacement.  Here are the fundamentals of HMY:

Market Cap:  4.4B

PEG ratio:  0.30

Recent Performance:  27% above 50-day moving average

Sales Growth Estimated this Qtr:  18%

ROE:  0.8%

ROA:  2.5%

Insider Ownership: 2.6%

Total Debt/Equity:  0.16

     

     Foster Wheeler operates in the Heavy Construction sector and may get a boost from the planned Obama infrastructure rebuilding.  Here are FWLT's fundamentals:

Market Cap:  3.1B

PEG ratio:  0.31

Recent Performance:  5% above 50-day moving average

Sales Growth Estimated this Qtr:  22%

ROE:  72.6%

ROA:  10.8%

Insider Ownership: 7.3%

Total Debt/Equity:  0.24

To make room for these two plays, we'll be cutting two stocks according to the Portfolio sell criteria.  Those two stocks are:  DRQ and LNDC.

All moves will be made at the opening price tomorrow, 2 Jan 09.