Thursday, March 31, 2011

The Song Remains The Same

Today is the end of the quarter which means earnings season will soon be upon us and set the tone for stocks once guidance is provided. For the past few months I've primarily been reviewing books and analyzing stocks and want to update you on The Ithaca Experiment Portfolio. If you've been reading this blog, you are well aware I have been out of the market since October of 2008 and have been in leveraged and short ETFs since the Summer of 2009. This self inflicted wound has made me miss a significant ride in the market. To say I don't regret my investing decisions would be sour grapes. However, what's past is past, and, I didn't give up the ghost in regards to my portfolio allocations despite the nice rebound the market has experienced of late.

In examining the S&P 500, you can see that it closed at 1319 on 2/7/11 and was at the same level when the bell rang yesterday. In essence, my short ETFs have treaded water for the last 7 weeks which has kept my game going. I realize my thoughts on market direction are not in vogue at this time. I take the nonconsensus view that not only are we in store for a double dip of the lows in March 2009, but, I believe the market will actually go lower. This is why I'm still short with The Ithaca Experiment portfolio and in my personal accounts am hording cash. I really believe that there will be a much better time to back up the truck when shopping for securities somewhere down the line. The sooner the better, too.

To use that old Wall Street cliché - "the market climbs a wall of worry" - is warranted in describing the market's unbelievable rise the past two years. Nothing seems to be able to derail it. One thing that helps my cause is that I've bought some time the last few months with the market going nowhere. The third year of a bull market tends to be choppy and less vigorous than the first two years of the run. I'm not going to tell you what will cause the markets to reverse course because I've been down this road before with no such luck. What I will say is that I still believe that there are accentuating circumstances that may help me out this year.

Sovereign debt, especially in Europe remains a concern. The same thing goes for local, state and federal debt in the United States. We can't keep printing money forever without some severe ramifications. One third of all mortgages in the United States are underwater. This will deflate consumer spending. Unrest in the Middle East will put pressure to the upside on oil prices which will drag down the economy. There is also the tragedy in Japan where the Geiger counters are at full tilt and supply chains have become disrupted, especially in the semi-conductor industry. These are issues I think about and that I believe will exacerbate the slowdown.

Right now my strategy will remain the same and stay the course. My biggest fear is getting cold feet and selling my short positions right before we get an about face and experience a severe correction. As far as this blog is concerned, I will continue analyzing stocks that are candidates for inclusion in my portfolio once valuations are much more reasonable. Reviewing investment books will also be in the grand scheme of things. Once every so often, I will also cover pertinent financial topics like high frequency trading or dark pools. Take the hands off the clock, we may be here for awhile.