Thursday, May 03, 2007

Portfolio April 2007

I haven’t been writing as I adjust to my role of a full-time Dad this week; however, I do plan to keep blogging…

The raw numbers for April were +2.2% for my portfolio and it was very evenly distributed between the AM and AA accounts. This is fairly close to the 2.34% clocked by the composite benchmark of 20% SPY + 20% IWM + 24% EFA + 6% EEM + 30% AGG, but lags the S&P (~1.8%) by a pretty wide margin. As noted before, I continue to maintain over 40% in bonds in my asset allocation portfolio as well as a healthy amount in HSGFX, a hedged equity fund that tends to underperform in bull markets.

It means, necessarily that there are other parts of the portfolio that are doing better than the market averages. Indeed, the energy complex continues to do well. On the other hand, PMs were very volatile. My AM portfolio was up over 7% in the middle of the month when the HUI finally surpassed the 362 resistance level (link). I wrote then: “If we look further back, there was another peak at 369.38 established last September. For now I’m expecting it to be taken out partially because of the breakdown in the USD.” Well, 369 did turn out to be a critical level. Although the dollar remained weak as predicted, the PM complex came under selling pressure and the HUI got as far as 369.69 before it was taken down. It just goes to show that the market has a mind of its own!

With an additional week of hind sight we know that the HUI bottomed out at 333 and has begun a new leg up. There is a good chance that this correction has finally come to an end. There has been some chatter about the long term HUI:GOLD ratio and whether we are in wave III or not. I’ll take a closer look later but for now all I can say is that I’m already at my maximum PM allocation so I’ll simply sit tight and wait.

General Market
I have heard numerous people saying that it feels like 99 all over again. I couldn’t agree more. Actually, my reaction is, “Great! I’ll try not to miss out that final couple of months this time!” I have long called for a housing related economic slow-down. The preponderance of evidence so far: weak 1Q GDP, personal consumption expenditure, and the latest jobs number all point to a likely recession later this year. All the while, the market makes new highs day after day. I’d like to hear efficient marketers explain that one! The fact is, given its size, the market is no longer a subset of the overall economy but rather has a life of its own. Of course, in due time it will correct to give the fundamentalists a chance to claim victory, but if profit is our goal then there simply is no arguing with the market at any time!

My current stance is: enjoy the party while it lasts, and don’t fight it by any means. For those “bears with conviction”, shorting now only provides fuel for the market to go even higher! I took a more defensive posture after the Feb 27 mini-crash, but I take solace now in the value of my company options which I have three months to exercise following my departure. For now, my fundamental view and my wish to maximize the option value are keeping me on an even keel regarding the trajectory of this market.