Things Are Still Getting Worse Out There

The recent market rally prompted us to close out some positions in the Forbes Special Situation Survey. In the last few days, we pocketed gains of 38% in 2.5 months on Chicago Bridge & Iron (CBI) and 35% in 6 months on Goodrich Corp. (GR). In March, we closed out EnerSys (ENS) for a 123% gain in 4 months and Western Digital Corp. (WDC) for a 46% gain in 3 months. However, Thursday, we took a 64% loss on Coventry Health Care (CVH) in 28 months. These sells have reduced the number of open positions in our recommended portfolio to 13.

According to the Hulbert Financial Digest, our recommended portfolio has gained 7.2% on an annualized basis (excluding dividends) over the past 3 years. That ranks us #4 overall out of 183 investment newsletters. Our 5-year record comes out to 10.1% on an annualized basis, good enough for #5 overall. Year-to-date, Hulbert has us showing a 16.1% gain.

One reason we have pared back our holdings is because we are somewhat skeptical of the recent rally. While things are getting worse at a slower rate, they are still getting worse. We believe there is more bad news to come. Investors may react by selling aggressively when that happens.

Comments

[prudentinve...:]

Agreed. Even if things stop getting worse, it is quite likely that the recovery, if and when it takes place, will be tepid, and unlikely to create jobs and corporate earnings that propel us back to the bubblesphere. Besides, demographics suggest net outflows from equities over the coming decade (or, at the very least, a diminution of net inflows). Additionally, the structural problems that created the problems are all still intact, if not exacerbated by recent policies.

I have been taking profits incrementally and increasingly since the S&P got into the mid 800's, and these have exceed my expectations in both magnitude and speed, and even if I am wrong, I'll still have had a very profitable year, and wish the same for all independent investors out there.

May 08 07:51 AM

[Obi-Wan:]

Agree with the article as well. I expect a mile to sharp pullback over next 90 days, 10-12%. Maybe there are some signs of 'green shoots', but in my mind, they are being artificially grown in some respects, and the weeds are still choking out many of them in the short term......

May 08 09:59 AM

[notsosmart:]

all weeds. i figure app.10% of all lost jobs will never come back even as things improve.so will the phony gov. figure of 5% unemployment ever come back. they may tell you so but i dont believe it.6.5-7% will be the norm in the future.hope im wrong but have been right about a lot in the last 2 years.(cleared my portfolio @ 14,000dj).not cause im smart but got scared.held no financials.never had enron or worldcom.dumped gm @ $22.sold pseg @ $86.etc.consider myself fortunate not to have listened to the liars & scoundrels & crooks.

May 08 05:05 PM

[Fred Voetsch:]

Do you also publish your losses and the amounts? ;-)

May 08 07:06 PM

[Old Trader:]

Cetin,

FT had an interesting piece today about anti-trust investigations being mounted against Google. Do you happen to recall what happened to MFST while first the US, and then the EU investigations dragged on, a few years back?

Not saying GOOG has, or has not, done anything "wrong"...just suggesting what may lay ahead, vis a vis the market price.


On May 08 08:45 AM Cetin Hakimoglu wrote:

> This article reads like an advertisement. Anyway, this rally has
> much further to go because fundamentals are improving. The futures
> are surging, and i'm long MA POT and GOOG
>
> ----------------------...
> One reason we have pared back our holdings is because we are somewhat
> skeptical of the recent rally. While things are getting worse at
> a slower rate, they are still getting worse. We believe there is
> more bad news to come. Investors may react by selling aggressively
> when that happens.

May 09 12:08 AM

[ifuwish2:]

you are stupid as the author here,,you look for a 10 to 12 5 pullback in the next 90 days and in that 90 days it will gain 30% ,,any fool knows there will be a pullback,,but you stay out of the market and wait for that 10% pullback and you are the loser which u are anyway

May 09 12:47 AM

[ifuwish2:]

i meant to say 10 to 12% pullback

May 09 12:48 AM

[donzelion:]

"While things are getting worse at a slower rate, they are still getting worse."

One can cost-cut one's way to outperformance for one quarter - but one cannot cost-cut one's way to stable earnings over time. From Sept 08 - Feb 09, companies were in layoff mode - they terminated junior employees, easy redundancies (they're never easy when you're the one who is redundant), and employees approaching retirement.

Way I see it, "massive stimulus + 'easy' cost-cutting" = bear market rally, rather than "green shoots." Time to take profits...

May 09 11:04 AM

[winindthedust:]

The Google investigation is pure FUD and smoke screen.


On May 09 12:08 AM oldtrdr wrote:

> Cetin,
>
> FT had an interesting piece today about anti-trust investigations
> being mounted against Google. Do you happen to recall what happened
> to MFST while first the US, and then the EU investigations dragged
> on, a few years back?
>
> Not saying GOOG has, or has not, done anything "wrong"...just suggesting
> what may lay ahead, vis a vis the market price.

May 10 12:11 PM