Weighting My Model Portfolio

by: BlindReason

Before the end of the quarter I do a quick analysis of the financial markets and make tune ups where needed. Here it is for June 30, 2009. Note it's not a recommendation to do the same thing and is provided for your entertainment and discussion purposes only.

--------------------------S&P ----CURRENT
Health Care--------------13%----------5%

30% Total Us Equity

15 % Preferred Stocks and Credit. Senior Secured Bank notes. Preferred bank stocks have low risk and good payout.

10% Short US 10 year (or greater duration) Treasuries. Even if the economy stagnates, US debt issuance still cannot even be quantified. We don't need inflation for this play to work. Requires some patience though.

15% Emerging Markets Total Allocation. Banks, Wireless Carriers, metals, Interactive Gaming (Shandra Interactive (NASDAQ:SNDA)). iShares Taiwan (NYSEARCA:EWT) gives you Taiwan index with heavily weighted chips and it's got a decent reward vs downside.

25% Cash and Macro Foreign Exchange- Cautious about the consumer and aggregate levels of consumer, financial and US government debt. These numbers still are getting worse. Eventually ability of Fed to reflate will be constrained.

Rationale by Sector:

  1. Technology: Have been publicly overweight on sector since last year's surprise list. Sector still strong because of best balance sheets, good growth. Old line tech and chips doing well over next few quarters.IBM, RF Micro (RFMD), Oracle (NASDAQ:ORCL), Cypress (NASDAQ:CY), Broadcom (BRCM), Intel (NASDAQ:INTC), Starent (STAR-OLD), Alcatel (ALA) (for LTE). Don't like Palm (PALM), Rim (RIMM), Ericsson (NASDAQ:ERIC), Dell (NASDAQ:DELL) or Nokia (NYSE:NOK). Intel needs a transition plan to phone size devices. On Apple (NASDAQ:AAPL), they'll probably blow the quarter out again but longer term issues around the price of the Mac line relative to competition have yet to be sorted. Microsoft (NASDAQ:MSFT) has a little energy with OS 7 and Bing but the CEO is bad and the company is losing its battle to keep control of the OS and Office market. It's a trading vehicle not an investment. Not a good CEO.
  2. Financials. Good Yield Curve provides longest growth curve even over tech. Currently Wide Spread but declining. JP Morgan (NYSE:JPM) (Jamie Dimon), BofA (NYSE:BAC), Goldman (NYSE:GS) (US government sponsored hedge fund, hop on board). BofA would be an even stronger pick with a strong CEO replacement.
  3. Health Care: Highest probability is health care plan fails or is watered down this year. If that occurs, you'll get a lift here to exit. Better to take that opportunity to exit. Why play here until 100% visibility on government action. Exceptions? Cerner (NASDAQ:CERN), Athena (NASDAQ:ATHN). Health care billing/IT captures increased spend and gives you exposure to out of control share of US GDP.
  4. Energy. Good values here. Broad ETF is okay here. Oil services -Transocean (NYSE:RIG) is the best although hard to see its backlog hitting 2007 levels. Natural gas may have bottomed but upside unclear as supply issues require more information.
  5. Staples. While these are necessities, consumer is still paying off debt, margins and top line will continue to be under pressure here.
  6. Industrials. Emerging market build out and possible increase in infrastructure plays possible here. Slight overweight. Emerging markets directly are also a good play. China has short term growth headwind hitting at end of year but long term strong.
  7. Consumer Discretionary. Avoid. Consumer debt has huge implications and problem not resolving quickly. Exceptions are emerging retails which always exist.
  8. Materials. Surrogate for the dollar. These markets are small so prices will continue to reflect dollar diversification. Freeport (NYSE:FCX).
  9. Utlities. Nominal Weight.
  10. Telecom. AT&T (NYSE:T) and Sprint (NYSE:S). AT&T over Verizon (NYSE:VZ) because of better technology choices and upgrade paths. AT&T is potential problem if exclusivity with Apple fails. T-Mobile (DT) network not quite ready yet though except 1 more year of lock up. AT&T heavily dependent on that exclusive deal and time is running out. Sprint is speculative but may recover its phone line up becomes more interesting. Morale issues may have broken the company. Highly speculative but interesting.