Sunday, May 15, 2011

Keep On Dancing Till The World Ends?

It was a rainy and cold weekend in Montreal so I spent most of it doing the one thing I hate the most, shopping. I bought a new mattress, a new television, some clothes and re-tailored my suits, jackets and pants because the first tailor did a terrible job (losing weight is healthy but expensive).

Tonight, I had dinner at my brother's house, saw my nephews and sister-in-law and enjoyed some BBQ burgers and hotdogs (once in a while, it's good to indulge!). My brother's neighbor was over with his two young girls and we talked shop a little. Montreal's investment community is small. Turns out he works at Stanton Asset Management, which is the portfolio advisor to O'Leary Funds, private clients and institutional clients.

According to their website, the investment team at Stanton is responsible for over $1 billion of assets under management, invested in Canadian and global markets, including investment grade bonds, high yield bonds, convertible bonds and equities.
I know Connor O'Brien, Stanton's Chief Investment Officer, as he used to run a small fund of funds focusing on delivering high risk-adjusted returns.

My brother's neighbor told me the O'Leary Funds have performed extremely well with low beta, helping assets grow. It also helps to have Kevin O'Leary, who everyone knows as Canada's unrepentant dragon, to market the funds. I told him I'd be more than happy to plug Stanton on my blog and have other ideas that I'd like to discuss with Connor and Kevin O'Leary.

Speaking of marketing, before I get to my latest comment, I want to clarify something. Pension Pulse is a blog I created to share my perspective on markets and pensions. I don't care if you agree or disagree with my views, but take the time to read them carefully. I do not have a monopoly on wisdom but I try to offer a fresh perspective that most analysts do not bring.

I am not a permabull or a permabear. In fact, I was extremely bearish back in 2006 and it ended up costing me my job (they claimed I was too negative). It's all in the past for me but I recently started asking for donations on my blog and would appreciate your financial support, especially from the large institutions that read me on a daily basis. But there are others too, brokers, bankers, unions, federal and provincial MPs, government agencies, non-profit groups, etc.

You can click on the donate button at the top of my blog and give whatever amount you can. If your organization can't donate, then donate as an individual. PayPal calls them donations but they're not really donations. I'm not a charity; I'm the most underpaid pension and market analyst in the world and would appreciate your financial support. If I do not get support, I will start charging a flat annual subscription fee for my blog and close it off to only a few institutional clients. I prefer to keep my blog open to everyone but a free blog which provides a fresh perspective isn't compensating me for the time and effort I put into it (just the links on the right-hand side took me forever to put up and I keep adding more).

Back to business. Two years after I wrote my Outlook 2009 on post-deleveraging blues, I am still bullish on stocks for the simple reason that there is plenty of global liquidity to drive risk assets much higher. Liquidity is primarily coming from the Fed pumping billions into the financial system, but it's also coming from global pensions, sovereign wealth funds, endowment funds, mutual funds and insurance companies. Importantly, hedge funds are back with a vengeance, growing larger as assets set to surpass the 2008 all-time high. This too is a driving force behind stocks, bonds, commodities and currencies.

But the bears only see doom and gloom. Some of them act like religious zealots. Just check out the nasty comments I got on Zero Hedge following my last post on my lunch with a bear. There are a lot of smart people over there but they're so many idiots who just like to insult me because I do not share their views. I got thick skin and can take whatever they got to dish out but sometimes I engage them and then end up regretting it.

Most of the bears on Zero Hedge accuse me of being a "permabull" who only sees through rose colored glasses. Can't I see that the US dollar has tanked as stocks and commodities rise? Can't I see it's only the Fed's quantitative easing propelling risk assets higher? Of course I can but it doesn't change the fact that I've been right in telling people to keep buying the dips over the last two years as the liquidity tsunami will wash over whatever negative macro events come our way.

And my detractors love throwing my calls on Greek bonds and National Bank of Greece in my face. Both are priced for default (good contrarian plays). The reality is that Greece is hurting but last time I checked, it's still part of eurozone. My buddy tells me 40% of Greeks want to go back to the drachma. Ah yes, the good old drachma years where you have a worthless currency and you're stuck engaging in competitive devaluation hoping you can export your way out of your economic woes. These are short-term fixes, Greece needs structural changes.

But Nobel Prize winning economist Joseph Stiglitz is right, austerity measures “don’t work” and prevent countries from creating jobs needed to generate economic growth. Too much austerity can kill an economy, which is what is going on right now in Greece and what risks happening in the periphery economies and even the UK. At one point, people will just stop consuming because they can't get a loan and they're scared to death they'll lose their job.

One last thing on macro events. Lots of pundits are fixated on the US debt ceiling. Gurus like bond king Bill Gross and hedge fund legend Stanley Druckenmiller are warning of a catastrophe. I think you should all watch ABC's This Week's roundtable discussion on the economy and listen to what another Nobel Prize winning economist, Paul Krugman says about that (love him or hate him, Krugman is 100% dead right on the debt bogeyman).

Now, onto my latest topic. I called it "Keep on Dancing Till the World Ends" because after turning 40 recently, I'm listening a lot more to pop music. I got the radio on Virgin Radio 96 FM all day and listening to Britney Spears, Jennifer Lopez, Rihanna, Lady Gaga, and a bunch of other pop stars. It gets annoying after a while because they keep playing the same music over and over, but it's a perfect title for this post.

Those of you who haven't read it, should go back to read my comment about Leo de Bever on when the music stops. At one point, the music will stop, but for now, I agree with Britney Spears, you got to keep on dancing till the world ends. And despite what those bears on Zero Hedge think, the world isn't ending anytime soon.

I know, "sell in May and go away", the summer doldrums are just beginning. China will collapse, commodities and energy will tank, Greece will default and the world is a hair away from total calamity, but I remain bullish and ignore all this noise. It's more of a distraction that scares retail money away while elite funds load up on more shares.

Last week, I wrote an introduction on how I track activity from elite funds. I even gave an example of Greenlight Capital buying up Internet-giant Yahoo (YHOO) and electronics retailer Best Buy (BBY). If you read that comment carefully, I specifically stated that I use this information to build a portfolio of stocks I track across many industries but I'm careful not to buy any stock blindly, even if elite funds are buying it.

Picking your spots of when to buy or when to sell a stock isn't easy. It takes traders years to built up this skill and even then, they're extremely lucky if they're right 60% of the time. That's why I focus on a few stocks across 10 industries I track regularly, and try to pick my spots carefully, going in when a stock is tanking on high volume for no apparent reason (noticed it's best to buy towards the end of the day on such days).

Those of you who have tracked my stock comments know I love solar stocks. But I don't just track solars. I like medical device companies, healthcare, energy, software, networking, storage, and many other sectors. Solars are fun (for me) because they move strongly in both directions and offer good trading opportunities. But solars are not for most most investors because they're too volatile and a lot of people get scared away.

There are plenty of stocks out there. For example, one of the top performers this year is Green Mountain Coffee Roasters (GMCR, click on image to enlarge).

Now, have a look at their top institutional holders (click on image to enlarge):

Data is lagged but among the top holders, you have Fidelity (FMR), Blackrock, Wellington and some hedge funds like Coatue Management and Winslow Capital Management.

You might be thinking, who cares? I care more about what top funds are actually buying and selling then what some analyst is touting or what George Soros, Bill Gross and Stanley Druckenmiller are saying on the television. Show me your actual book, not what you're recommending on TV.

Next week, I'll get into specifics on which top funds I'm tracking and what are their top holdings. I want people to do their own research and due diligence as I don't believe in spoonfeeding anyone, but I'm going to give you the tools to be able to dissect the portfolios of these elite funds.

Finally, please be kind enough to donate whatever you can to my blog efforts. You can do so by clicking on the donate button under the pig at the top of my blog. And remember, these markets are a lot like Britney Spears, up, down and very volatile. But don't let those permabears scare you away. Have no fear, keep buying the dips and keep on dancing till the world ends. :)

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