During the month of September, we are going to be adding a special section to this site.
The TDI Managed Growth Strategy provides a private “client-only” blog where we discuss the day and our general outlook. Areas that we cover range from current holdings analysis, economic reports, political commentary and more.
The primary purpose of the “client-only” blog is provide information so that clients for whom we manage money will have a better understanding of what is the rationale for portfolio decisions. In addition, the information is designed to be educational so that readers can learn from both our mistakes and successes.
On a daily basis, simply follow www.thedisciplinedinvestor.com or use an RSS reader and point it to : http://tinyurl.com/3u3jahy or http://www.thedisciplinedinvestor.com/blog/category/stocks/insideedition/feed/
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Latest Podcast Episode: TDI Podcast 227: Futures 101, Cycles and Recession Forecasting (S&P@500?)
Guest(s): Professor Charles Nenner and Jon Markman
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2011-09-01
Position Adjustments 8/31/11:
- Sold HANS (no loss no gain) and Quality Systems (Off of our screen)
- Added Hedges against the portfolio of 8% domestic (24%) and 30% International (split)
- Also, as discussed we added two broad based ETFs – XLU and EPU
General Markets: Generally, volume trailed off throughout the day as there were directional moves that swung the S&P 500 Index from close to a 1.5% gain on the index to a loss before late day buying came in to boost stocks to a positive finish. The news/rumor of Greece hiring a law firm to guide them on an exit from the Euro was just one of the headlines that spooked investors. The AT&T takeover block also provided some factor that allowed for sellers to come in at the key resistance point of 1,225. What is clear is that the past few days were all about sector rotation strategies and month-end mark ups. News on the economic front has been mixed and without the recent hints by the FED that additional stimulus could be available, there would be less enthusiasm to bid up prices. While the S&P 500 was positive on the day, there were many laggards among some of the industry leaders and the R2000 small cap index finished in the red.
(Click to Enlarge)
This week has been full of important economic releases, but the ones that will prove to be the most market moving will be occurring over the next two days. Manufacturing and employment have been a large concern and that is not going to change. Estimates for Friday‘s NFP payroll number are for a gain of 70,000 non-farm and 100,000 private jobs. The recent ADP number is supportive of these levels as there has been a somewhat tight correlation of the two over the past few years.
Looking at the recent data, there has been a slight drop in layoffs on a year-over-year basis. That may be a good sign, but looking back to the year ago level, the increase from July 2010 August 2010 may have made the comparison easier. This is an important turn in the YoY trend, but still not as significant as the fact that there was still close to a 50% increase in layoffs as compared to the year ago period.
Comparing the Hiring and Firing data shows that while job cuts are down in the latest period, there has not been much of an increase in the hiring level. This translates as an environment within corporate America that is concerned about the future and will make due with existing employees. Expansion may be on hold (as will hiring) until there is a better understanding of what the future will bring.
This jobs data thus far ties out with the lack of optimism that CEOs are felling. Between the recent natural and man-made disasters along with dismal economic news, CEO Confidence has been trending lower since January.
There is a good chance that the employment report on Friday will come in under estimates. As initial claims have been climbing and manufacturing reports have shown a large decline, the optimistic level of 77,000 new hires may come closer to a figure under 55,000. Either way, even if the actual number of hires exceeds 100,000, that is not nearly enough to bring down the level of unemployment. Estimates are for a 9.1% print and it will be interesting to see if the Labor Participation Rate has declined enough in the recent period to keep the rate from climbing. A range of 9.0% to 9.2% will come as no surprise, but anything over or under will be a catalyst that will surely move markets.
NYSE Volume Light until End of Day
China‘s manufacturing report was released overnight and was the lowest in 29 months. Coming in slightly higher than last month (50.7) the 50.9 was just under estimates of 51. Initially that was viewed as a positive, but combining the trend and the comments from Prime Minister Wen proved otherwise.
“China‘s top priority is stabilizing prices and the government doesn‘t plan to alter the direction of economic policies, Premier Wen Jiabao said. The slowdown in the economy is “reasonable” and within government expectations, Wen wrote in an article in the ruling Communist Party‘s Qiushi magazine.”
General Plan: Our long positions are hedged out with the use of inverse ETFs (TZA and SPXU) until there is a clearing above key resistance. In addition, smaller positions short the European markets and Emerging Markets have been added as these will tend to see volatility into important U.S. economic reports. If reports are taken well and the U.S. dollar responds the offset of the rise in the equities will provide some cushion. The plan is to stay with the hedge positions as long as Friday morning, after the NFP report if there is a surprise to the downside. The short Emerging and European positions are positioned until a break of resistance. (more on this over the next few days.)
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