TraderGordo

A blog to share my thoughts about trading, frugal living, money and the economy. Occasionally I might even throw in a few things about better living, technology, futurism, and science but these are always in some way related to finances or speculation.

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Location: Phoenixville, Pennsylvania, United States

"I have become all things to all men so that by all possible means I might save some."
-Paul

Monday, October 02, 2006

Deceptively Narrow Rally in Bigcaps and Fed Hope

The market has been acting well over the last few months, even the housing sector which was the focus of much doom & gloom has had a big rally. There has been muted excitement about the DOW hitting a new all time high. And yet MANY signs of concern persist.

Lowry's writes: “The rally in big-caps has been deceptively narrow. As of Thursday's close, with the DJ Average within just a few points of a new all-time high, none of the 30 components rose to new all-time highs. Further, 63.3% of the components showed losses of -20% or more from their individual all-time highs, and 43.3% showed losses of -40% or more. As of Thursday's close, 5.7% of domestic common stocks rose to new 52-week highs, while 26.7% already show losses of -20% or more. A concern for the future is that this degree of selectivity has typically been found near major market tops.”

John Hussman further writes: "Of all the hopes that investors have at present, the strongest ones are centered on the Federal Reserve and its probable decisions regarding the Federal Funds rate. This obsession with the Fed comes at the expense of attention that should be focused on profit margins, normalized valuations, market internals, credit spreads, fiscal policy and the U.S. current account. In hopes of refocusing attention on factors that matter, my hope is that the following bit will further explain why the Fed is, in my view, irrelevant.

"I should note at the outset that yes, as long as investors believe the Fed matters, it is important to consider the Fed. The real issue, however, is whether the Fed actually has any impact, and my argument is that it does not. It's an argument that goes against what we're conditioned to take for granted (and even what I once used to teach my own economics students). Nonetheless, the evidence against an effective Fed, when you scrutinize the data, is fairly compelling."


I recommend you read Dr. Hussman's analysis (he publishes every Monday at http://www.hussmanfunds.com/). I remain very cautious and largely out of the market with the exception of some HSGFX (Hussman Strategic Growth Fund), a tiny exposure to international funds (American Funds), and a short on oil and coal (uncovered calls written almost to the day at the recent peak of the oil market).

If you are interested in lower risk internation funds see this article:
3 global funds for uncertain times.

4 Comments:

Anonymous Rich Gates said...

Hi,

Have you ever looked at the TFS Market Neutral Fund? If so, any thoughts would be appreciated.

Its ticker is TFSMX. Like HSGFX, it is in Morningstar's 'Long Short' category and is also no-load.

Rich Gates
TFS Capital LLC

5:24 PM  
Blogger TraderGordo said...

Never heard of TFSMX, but I looked it up on morningstar - I'll keep my eye on it, you guys did very well this year for a market neutral fund, but you only have a short history. The main reasons I like Hussman (HSGFX) so much are the remarkably low volatility, the good performance even in the 2000-2002 bear market (never a losing year) and the fact that he posts his market commentary every week and it is almost always informative and insightful. Most academics don't make it as money managers; Hussman is the exception to the rule. I believe his strategies can and will protect assets under management and at the same time achieve decent performance over the long haul though bull and bear markets.

8:43 AM  
Blogger TraderGordo said...

The other thing is that TFSMX has a relatively high expense ratio.

9:50 AM  
Anonymous Anonymous said...

Hi Trader Gordo,

You are right that the TFS Market Neutral Fund has a relatively high expense ratio. For every dollar in the fund, we have about a dollar long and 66 cents short. In other words, we are managing about 66% more money than the typical long only manager.

Have you seen any other long-short funds that you like?

Rich

9:46 AM  

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