Terry Monahan Jr.'s  Instablog

First of all let me begin with a performance update.  YTD the blog portfolio is up 11.98% realized gains and 5.48% unrealized totaling a 17.46% return.  I am making a couple trades today.  I am selling (F) Ford at $13 (for a gain of 26%+) and I am selling (RIG) Transocean at $57 (for a 16%+ gain).  I am buying (SGY) Stone Energy for $13.50 and (VSH) Vishay for $9.20.  This trade creates some overweight in technology but I think there is enough correlation between the consumer discretion sector and this stock to warrant an imbalance.

Here is another update of the portfolio as it stands today. 

I thought the following 2 pieces of information were very interesting.  The first piece breaks down the market technically.  It is an excerpt from my favorite technician Carter Worth. 

“At the time of this writing, there are three reference points that matter for the market, by our work.

 #1  The intra-day low last Friday at 1107.17 found the market right at the up trendline in effect since the July 1st low of 1010.91.    This up trendline is a reference point for the market. As such, weakness below 1107 would be significant.

#2  The recovery of the past five weeks (off the July 1st low) puts in play the June 21st high of 1131.23. Said intermediate high is a reference point for the market. As such, strength above 1131 would be significant (just as the inability to move above 1131 would be significant).

 #3 The recovery of the past five weeks (off the July 1st low) leaves the SPX up against the all-important 150-day moving average… a time-tested reference point. As such, how the market responds to the 150-day average in the period immediately ahead will be very significant.”

Okay, with the technicals the way they are I have been asking myself am I a Bull or am I a Bear?  To answer the question I went to the credit markets to see what I might be missing and along with everyone else noticed over the past month, both equity markets and Treasuries have rallied.  An event like this requires a little more thought and so I discovered the next piece from Citi that says " forward rates are pricing in the Fed’s willingness to support low rates, and that in such an environment low rates and equity appreciation can co-exist.  In an environment where expectations for Fed tightening are pushed out further and further on the curve, and real yields are declining, demand for yield should remain strong.  In order to get this yield, investors will be forced to take on more risk.

And, a lower rate environment requires lower equity yields.  All else, equal, as rates decline, the required yield that equity investors require should decline as well, which allows for equity price appreciation.  Given the yield on the 10 year, equities are very attractively priced, yielding nearly 4% more than Treasuries.  This valuation mismatch has persisted through the crisis as investors have flocked to safehaven assets.  However, in recent weeks we have seen investors moving out the risk curve into higher yielding assets in search for return.  Bank loans, EM Corporate Bonds, HY Debt, and high yielding dividend stocks (ETFs: UTY, SDY, PFF) have all seen significant inflows since early July."

Finally, "all eyes are on the FOMC meeting on August 10 as to the form QE 2.0 will take.  If the Fed decides to reinvest principal from maturing mortgage bonds into Treasuries, it will support a continued rally in Treasuries and a further pushing down of real rates.  Given the liquidity on the sidelines and the desire for yield, further QE should force investors into higher risk assets in order to generate returns, which would provide a supportive near-term backdrop for equities."

We will see.  I am still sticking with my full allocation of equities in this portfolio.  However, my proprietary portfolio still maintains a rather large amount of unique assets that have performed exceptionally well this year too...the next five months will be very interesting indeed.

Good Luck!

Terry Monahan
Cincinnati, Ohio

I know I just added Nvidia but the stock has to go.  Nvidia issued a statement saying cost increases led to a greater-than-expected shift to lower-priced graphics chips, as well as personal computers running lower-end integrated graphics. The company also cited economic weakness in Europe and China. And therefore, Nvidia now expects revenue of $800 million to $820 million in the quarter ending August 1, down from its estimate of $950 million to $970 million.

If a company is having problems with revenues on a continued basis then I don't want it in the portfolio.  I grossly miscalculated the revenue shortfall and apparently so did most of Wall Street.  I would rather own Research In Motion at 9 times earnings.  That being said I am selling NVDA and replacing it with RIMM.  I am taking a hit here but it is better to take it now versus having it get worse. To clarify I am selling NVDA at $9.20 and buying RIMM at $55.

  I am also looking at removing US Steel (X).  I have not made a decision because it requires more research.  X had a terrible quarter and the outlook concerns me.  I will provide an update if I decide to sell.

Good Luck!

Terry Monahan

I am adding another stock today.  The stock is Mosaic or MOS at $45.  This stock is global agriculture recovery play.  Here is a link to the Mosaic investor relations website to get some insight into their company...http://phx.corporate-ir.net/phoenix.zhtml?c=70455&p=irol-irhome

Essentially Mosaic is the world's biggest producer of phosphate, with about 13% global market share, and the second-largest potash producer behind PotashCorp.  These chemicals are a must for the growing emerging markets. 

This is another stock that could experience some volatility with earnings in a few days.  However, I like it here at $45.

Good Luck,

Terry Monahan
Cincinnati, Ohio