Week 41 performance of the mutual fund

Comments: The equity market continues its 2 month run of happiness and joy, discounting "everything" from here to 2010. Good news is great, and bad news is even better. Because "it's all priced in". Much of what we've seen lately makes about as much sense as some office workers we all know in our lives, but we can't dismiss them completely. The animal spirits are here, and it is what it is. Commodities remain on fire, and the inflation they create on both consumer and producer is completely ignored and/or "priced in". (more on that this weekend) Godzilla just attacked Tokyo - but it's "priced in". Etc. We now approach the highs of the year and although certain bloggers who clearly don't understand how great everything will be in "6 months" express caution [Risk is High], the market can only laugh off such simple mindedness. In fact, the investment bank's... err, the people's champion, Uncle Paulson has come out today to assure the minions that the economy will be rebounding by the 2nd half of 2008. Judging that this is coming from the man who runs Treasury and is the great seer of all things financial in America and was able to discern in April 2007 "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained", I feel ever confidant in his most current analysis. Conclusion: Buy stocks.

Again, as I say every week if you believe commodities are overpriced in any manner due to the Federal Reserve (and every government in the world tied to the US dollar who must also print their currency like mad to remain pegged), than you must believe equities are also overpriced to some degree as this flood of paper currency flows into all things of limited supply, of which equities are one. I opined back in the late summer/early fall that the Fed would create a new bubble to get us out of the swamp from the old bubble (i.e. the solution for a bubble brought on by low rates, is to create a new bubble with low rates).... I thought it would either happen in emerging markets or commodities - it is looking more and more like commodities will be the winner of that contest; and this is coming from an avowed commodities bull. :) So I suppose crude can get to $150 and it will have no effect and/or it is all "priced in". Perhaps we return to an equity bubble like the turn of the century... as earnings fall in sector after sector, stock prices go up, creating 50+ P/E ratios. Only now it won't just be NASDAQ stocks; and people will keep buying because what else are they going to do with all that newfound cash? Everything else has negative real returns with inflation at 12-15%... err... 3%. Conclusion: Buy stocks.

For the fund, after a ridiculous display last week, trouncing the markets by nearly 5%, I had written " I expect to give some of this back next week since the gap versus the indexes was so huge." And so it came to be true. Our hedged policy just does not work that effectively in weeks like this where you must throw a dart and be long anything and everything. So much of our gains on the long side were eliminated by the quite sizeable short exposure. Unfortunately, we cannot short individual names and the index shorts are proving less effective in a "sideways" market than they were in last fall's/early winter market. So we suffer a bit on weeks like this; thankfully what we do have long was in general working very well so it helped offset the damage done by the short exposure, and high cash (15-20% all week). Coal continues to work very well, solar had a boffo week, oil services nice, and the metals stock (what little we own) were simply unstoppable.

I've cut back these "winning" sector weightings as far as I wish, so I really am hoping for a fallback to rebuild positions (the day it does come I do expect it to be severe) I continue to try to find new buys, or increase exposure outside of commodities in positions that I believe in for more than just a 3 day or 7 day trade (i.e. retail). But if you look at fundamentals (which apparently only I and three old men in Wichita seem to do anymore), the pickings are slim. If however you discount everything from here to 2019, pretty much every stock is a steal. And that seems to be the current market mindset. Conclusion: Buy stocks.

Going forward we will remain in a defensive posture, but if the markets break out to new yearly highs and over the 200 day moving average, we have to rethink things. Because at that point, every technical trader on Wall Street (and their computers) will have signals to jump into the market. So we'll cross that bridge when we get there; but if we under perform the market for a bit here until we see if that technical breakout is indeed the next step, we'll go down that path... and hope our long positions can make up for the 40% of the portfolio either sitting in cash or betting against the beast that is this Bull. Conclusion: Why the heck am I not buying stocks?

The S&P 500 & Russell 1000 both laughed all the way to the bank, gaining 2.7% and 2.8% respectively this week. Rising Tide Growth Fund sniffled along with a 1.6% gain (the Ultrashorts mock us this week) . So on the plus side with only about 60% long exposure (and 20% betting against the market) we still made some good return this week, and in fact did not give back as much (versus the market) as I anticipated after last week's large beat.

Price of Rising Tide Growth: $12.277
Lifetime Performance to date (vs Aug 3, 2007): +22.77%

Comparable S&P 500: 1,425.4 (-2.72%)
Comparable Russell 1000: 780.5 (-1.98%)

Fund return vs S&P 500: +25.49%
Fund return vs Russell 1000: +24.75%

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2

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