TCA Mid Month Update - February 18, 2009
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The past few weeks have been difficult for any money
manager. We were all surprised the day of President Obama's inauguration when
the stock market went into a steep sell-off. Then yesterday, the markets closed
lower after a long holiday weekend. Coincidentally, it was the same day the
President signed the stimulus bill into law while visiting Denver. Could it be that Obama fever is over?
So far, the plans of this administration are having far less
impact on markets than the Bush administration. Last fall, every time they
wanted to prop up the market they just got on the television and announced that
they were stopping the recession dead in its tracks. The market would respond
with waves of joy as buyers sought anything and everything. The current
administration is having more problems stimulating excitement. Part of it may
be the new Treasury secretary. When everyone is expecting some good news and
all that is delivered is a promise to reveal a future promise then credibility
is lost. President Obama himself may be the greatest hindrance. When you tell
the nation that without the stimulus package that we will go from crisis to
catastrophe then you may not inspire a lot of buyers to go shopping. The
President's PR department is really falling down on the job.
The days just have not found us finding any good deals. The
markets literally seem to alternate daily between gains and losses. I have
often considered (as a joke of course) a fool proof strategy of buying on
Monday, Wednesday and Friday and selling on Tuesday and Thursday. If this trend
keeps up that strategy might actually work!
We are going through what is known as "trading ranges." A
trading range is simply a period of time where the stock market literally gets
stuck and cannot break out one way or the other. For money managers, this is
all but impossible to deal with. Until we see a breakout in something one way
or the other then we will not be able to make much progress.
In spite of the trading range, it does appear that the
market is drifting downward. This is still a dangerous market to read simply
because everyone is sensitive to news, especially good news. Any sniff of a
good rumor is enough to buying. Unfortunately, we cannot play this kind of
game. Our portfolio management is based on substance not rumor. From time to
time, we do allow ourselves to place very small positions based on future
expectations. Our gold positions were just that.
Last month, we added a small position in gold believing that
it would start to go up. Gold has been in a decline since commodities drop in
recessions. We heard (actually read in the Financial Times) that wealthy folks
in Europe were buying gold and storing it in
their private vaults. Now we are seeing gold actually go up and will possibly
be adding to our positions soon. Trend following is what we do best but the trends
are simply not there. Gold may be the exception for now.
We are still holding the same positions that we wrote about
in our February print edition. We have a slight downside bias and have more positions
in high yield bonds than we have in some time. High yield bonds are a great
indicator of recovery. The yields are attractive and we are trying to maximize
returns with dividends. From trading daily as we did in the fall to trading
every few weeks has lessened our stress factor. No doubt there will be some
significant events coming up in the very near future. We will write of them as
they unfold. For now, we are keeping our positions fairly neutral with an eye
on capital preservation and returns will happen as the markets stabilize in one
direction or the other.
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Working for your wealth and peace of mind,
The Vance Capital Management Team | |
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