Its been a long time

Sorry for long gap between posts. I had five final exams this winter, three of which are finished, with the last two falling tomorrow and next Tuesday.

Portfolio has done basically nothing but go down as WAMU has been in rally mode along with the rest of the banks based on lower treasury yields and borrowing costs. General expecation is that the lower rates will fuel another refinancing cycle and help to permit borrowers who are getting hammered in an adjustable rate mortgage to refinance to a fixed rate. No comment right now on the merit of that argument (you can guess my opinion though ;)

Last position is in JPM stock has been flat for past 3 months since the position was initiated at a cost of $1 per $45 January put option. I have not given up on this one as I think that its place in the Dow index and lower lending margins should serve to generate a move down of 10-15% if we ever get the long awaited market correction a la last May.

I am basically flabbergasted at the complete bull market of this fall. Although I am glad that I did not commit more capital to the PUT options by getting overly confident in the bearish stance and I don't really have anymore energy to espouse the fundamental reasons why the market should go down.

At this point even negative readings in GDP and earnings are being spun that economy's slow down will generate Fed rate cuts. These are in turn expected to stabilize housing and allow the bull run to continue throughout 2007. My opinion has already been articulated far better by Nouriel Roubini @ www.rgemonitor.com who expects GDP growth of 0% for Q4 2006 and negative GDP growth in Q1 2007. How these statistics will be spun at that pont is a matter of debate.

Another than the portfolio update the best news I can give is that I am working on a spreadsheet right now that I will post along with the real property securities tracker later this month. The spreadsheet has graduated from Microsoft stock quote puller to using dynamic web queries that will allow me to pull more meaningful valuation metrics and technical indicators directly from Yahoo finance or Clearstation. The spreadsheet will track the Cara 100 (www.billcara.com) which segregates Bill's opinion of best securities in each S&P 500 index subsector (re: energy, basic materials, consumer cylical, consumer staple, financials, technology, etc.)

Using the RSI values and the % off of 52-week high reading in the spreadsheet, the portfolio should allow a view of which sectors are currently out of favor and which are hot based on these different readings. It should also be interesting to review the shift in portfolio composition over time as a certain subsector begins to comprise a greater % of the indexes value. Just as Tech composed 25%+ of the S&P in 2000 and energy less than 10% of S&P in 2000, these statistics have reversed course as energy has come into favor and tech somewhat out of favor in comparison based on appreciation and funds flow over the past five years.

The strategy which can be based off the spreadsheet will be basically a regurgitation of Bill Cara's portfolio strategy where certain out of favor sectors are picked up at favorable points of low valuation in the sector cycle. The stocks are not even necessarily picked up but you can write PUT options on the lower valued securities at depressed prices and then have the stock of those you like put to you at an even lower cost. Likewise when securities reach a higher price and high valuations you would write covered Calls on them to allow you to either have the stock called away from you at a target sell price or if you hold to at least allow for some income to further reduce your cost basis in the stocks.

This would allow for more of a longer term value based approach which will probably be the focus of the blog for the coming years. I still plan to dedicate a certain % of assets (probably under 20% to more speculative endeavors such as long calls or puts which are at the money or slightly out of the money - based on the prevailing secotr trend whether bull or bear).

I will try and do some follow up posts near the end of this month that include links to the spreadsheets (or make them availble via e-mail) and also discuss some of the broader macro trends that I think will govern the next two years returns in the market.

In closing I am only long JPM puts at this point - no other holdings. And I still EXPECT the following stocks / sectors to perform poorly throughout 2007 (homebuilders, mortage lenders, CMCSA, CFC, WM, TOL, LEN, PMI, etc.)

Best regards,

BG