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8/6/2019 Market Haven Monthly Newsletter - May 2011
1/13
MARKET HAVEN MONTHLYPAGE 1
T he Fed took an unprecedented step inholding the first press conference in modern
history. Weve come a long way from the days of
analyzing photos of Greenspans briefcase in
order to discern the direction of monetary
policy. Indeed, Bernanke said things would bedifferent; and they have been. Gone is the
Greenspan mentality of if
you understood what I
said, I must have
misspoken.
The message the Fed
delivered in the press
conference was nothing
short of unremarkable. It
became apparent to some
that the Bernank was
using his face time with the press to try and talk
up what Fed policy is not going to be able to do
on its own.
Yes, QE2 is planned to end on schedule. But the
Fed has no intention of shrinking the balance
sheet. So, while the Fed may be pausing
directionally, it is still very much maintaining an
accommodative stance with its $3 trillion
balance sheet. It is after all the size of the
balance sheet that matters more than th
direction of Fed policy.
Whats more, according to Bloomberg reports,
QE3 isnt off the table either. The Fed still views
the economy as week and
in need of assistance. The
near-term effect of all of
this is that stocks will likely
continue to rally despite
reaching overvalued levels.
Once the Fed steps away
(or its policies catch up
with us) stocks will take a
hit.
A related concern of ours is
the disparity in exchange rates between the
Asian currencies and the U.S. dollar. The graph
above from x-rates.com shows that the dollar
continues to slide vis--vis the RMB. This will
only continue as China finds it unsustainable to
maintain the currency band while importing our
loose monetary policy.
Market Haven Monthly
2011
M A Y
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 2
Wheres the Va lue?
Stocks
Our Static Model is an easy way to hedge out
much of the market risk in an unemotional way.
Through regular rebalancing and a fairly
conservative asset allocation, the portfolio has
done a good job of dampening volatility risk.
The beta of our long portfolio has historically
been about 1.3 allowing investors to get full
market exposure while leaving some cash on the
sidelines. Net long exposure for the Static Model
is +50%. Our Timing Model, on the other hand,
factors in market valuations and adjusts market
exposure regularly. Net long exposure currently
is -30%.
Strategy StaticModel
TimingModel
Long Exposure +80% 0%
Short Exposure -30% -30%
Net Exposure +50% -30%
At 1363, market p/es are at 17.6x. We continue
to believe that there is limited upside and lots of
downside potential from here. The Feds lowinterest rate policy is the primary factor
levitating the market at these levels.
Earnings are above trend by about +12% and
still rising. We expect this to continue for a few
more quarters, which could contribute to stock
gains. Eventually, that will change. We usually
see earnings reverse direction once they have
exceeded trend earnings by about +25%. A note
here: stock prices dont always coincide with
downturns in earnings.
The rising yield environment is not good for
stocks. But yields have been trending down for
the month of April. Well see if it is enough to
push the signal into bullish territory for stocks.
Corporate spreads are also still in the 80th
percentile, which is not good for stock returns.
We still advise investors to not try to time the
tops. No one can know how long these
conditions could continue. And on average it is
better to be invested fully than to be on the
sideline. That said, we would definitely be
trimming our stock investments at this point.
Sectors
As we mentioned last month, the number o
companies making it through our screen has
diminished significantly making the sector
weights appear a little more dramatic than
usual. For instance, this month no healthcare or
discretionary stocks made it through the screen
to the buy list. Part of the reason for this is that
healthcare stocks have been the best performing
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 3
sector over the last three monthsup +18%,
even more than energy stocks. This has made
the stocks in that sector less attractive.
Relative to the market as a whole, our screens
are showing that the best places to find value are
in materials, technology, financials, and
telecommunications.
The steep yield curve should be fostering a good
environment for financials, however, the
financials continue to suffer as the worst
performing sector-up +5% over the last three
months. We still think there are opportunities in
this space.
Oil continues to run, and with it energy stocks,
as civil unrest spreads throughout the middle-
east. We still like energy longer-term for the
greater secular forces that will play out. For now
the run up in valuations has left energy stocks
too richly valued.
Materials companies have continued to perform
well and still offer attractive valuations even as
commodity prices retreat from higher levels.
Market Cap
Mega cap stocks continue to become cheaper
relative to smaller companies. It is a general rule
of thumb that loose monetary policy benefits
smaller companies and this most recent
experience seems to be consistent with that
thought. Nevertheless, large, stable, profitable,
diversified behemoths are becoming better
values every month. Some of the largest names
are missing earnings expectations which is
sending share prices south for a time. We view
these misses as temporary and short-sighted.
More important to us than a companys abilitymeet guidance is its ability to generate free cash
flow. The most short opportunities continue to
exist at the lower capitalization ranges.
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 4
Volatility
We are glad to have provided readers with the
table last month of our targeted price targets
and weightings to volatility. April was another
interesting month that saw volatility begin
above 17 and dip below 15. If you followed the
table below you would have added to volatility,
bringing your exposure to 100% of your targeted
allocation. At levels below 15, volatility seems
like a very high probability bet given our current
uncertain environment.
VIX Weighting
35.0 0%
Commodities
Wow. We must have a lot of market participants
following us. We mentioned that silver and
gold were both buys and look what happened.
SLV jumped +27% during the month of April
while GLD advanced +10%.
That seems too fast for SLV. Expect some kind
of a pullback near term. But GLD still looks
solid. Of course, as we have mentioned before
SLV is a more volatile investment anyway and
would recommend extreme caution in the metal.
The reason we continue to recommend GLD has
to do with the increasing global currency
imbalances. We believe GLD is a great place to
be long term and would continue to add to the
position. The Asian currencies are anywhere
between -35% and -70% undervalued agains
the dollar. At some point, that difference will be
corrected. In PIMCOs vernacular, we have a
two-speed world economy. The fixed exchangerate system that connects the emerging and
developed worlds must break at some point. In
our opinion, until another currency (or
currencies) shows itself to be a viable
replacement for the dollar, gold is the next most
widely accepted currency replacementove
silver. We are long commodities.
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 5
Some Investment Ideas
Here are a few names that have shown up
recently as potential investment ideas on our
screens. Some of these may appear in the
portfolios. Some may not simply because the
names currently in the portfolio havent worked
their way yet.
Diversification is an important part of our
investment process. We like to have north of 30
names in the long portfolio and 60 or more inour short portfolio. We let the ideas that are
working continue to run. Conversely, the ideas
that are not working become a smaller
proportion of the portfolio simply by the
diminishing market cap they exhibit. This also
lends to the comfort we have taking chances on
stocks that may have headline or operational
risk from time to time.
Dont forget to do your own homework. Were
not your financial advisor so we do not know
your specific financial situation and what
makes sense for you individually. Dont take
anything we talk about as financial advice.
Power-One Inc . (PWER) - long
PWER is a $900 million company that makes
power supplies for various industries. Its OEM
customers include the likes of Cisco, Nortel, and
Teradyne. The company is in a strong industry,
but is sputtering a bit. As it tries to augment
revenues, the balance sheet is solid enough and
the price cheap enough that the company should
have time to find its stride. Its p/e is less than
7.0 and p/b is less than 1.0. We would take a
chance on the stock at this valuation.
Banco Mac ro S.A. (BMA) - long
BMA is a financial institution based in
Argentina offering traditional banking products
and services. It has a market cap of $2 billion
and a nice yield of 5.6%. There is some risk in
this stock, but we believe it is priced cheaply
enough to compensate investors for the risk.
Innophos Holdings (IPHS) - long
IPHS is only a $1 billion company, but it is the
largest manufacturer of specialty phosphates in
North America for consumer, pharmaceutical,
and industrial applications. Mexico provides
20% of revenues alone. The stock has an
earnings yield of 15%, p/e of 11x, and a dividend
yield of 2.2%.
TIM Partic ipacoes S.A. (TSU) - long
Were keeping with a bit of an internationa
theme with TSU. But this one is larger. At $11
billion, TSU is the third largest wireless provider
in Brazil. It is the sole player with nationwide
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 6
coverage. Sure, there is a lot of political risk in
Brazil, but as it is turning out, there is quite a bit
of political risk in the U.S. as well. The p/e is a
little higher at 18x, but the earnings yield is
about 10%. Investors get a decent 2.7% dividend
yield and are only paying 1.5x sales.
Lam Research (LRCX) - long
LRCX is a $6 billion company that makes
equipment used to make semiconductor devices.
More specifically it is the largest manufacturer
of machines that etch away portions of films to
create integrated circuits. Over 90% of LRCXs
business comes from overseas. Major customers
include Samsung and Toshiba. The company
has ROE of 29% and a p/e of 8x. There is no
dividend, but the company has grown its cash
flows in excess of maintenance capital at a rate
of 9% over the last seven years.
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 7
Portfolio Changes Last Month
It was not a big month for trades. In the long
portfolio we bought one stock and replaced it
with another one.
There were no trades in the short portfolio.
Previously Mentioned Ideas
Below are the investment ideas that we have
highlighted in past issues. Additionally, we have
updated the current model recommendation for
each stock.
April 2011
Vale S.A. (VALE) buy
Rio Tinto Plc (RIO) buy
ON Semiconductor (ONNN) buy
IBM (IBM) buy
Par Pharmaceuticals (PRX) buy
March 2011
CNOOC Limited (CEO) buy
Credicorp Limited (BAP) buy
Abbott Laboratories (ABT) buy
Newmont Mining Corp (NEM) buy
Harris Corp (HRS) buy
February 2011
LHC Group (LHCG) buy
Compania Cervecerias Unidas SA (CCU) hold
NetEase.com Inc (NTES) hold
Aflac Inc. (AFL) buy
Microsoft Corp. (MSFT) buy
January 2011
Amedisys (AMED) hold
Warnaco Group (WRC) hold
Alliance Resource Parnters LP (ARLP) buy
BHP Billiton ADR (BHP) hold
Dec ember 2010
Harbin Electric (HRBN) buy
Trina Solar (TSL) hold
Best Buy (BBY) buy
MasterCard (MA) buy
Cliffs Natural Resources (CLF) hold
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 8
November 2010
Global Payments (GPN) - hold
Research In Motion (RIMM) -buy
Cash America International (CSH) -buy
Telecom Argentina (TEO) -buy
Cephalon (CEPH) - hold
Oc tober 2010
Alpha Natural Resources (ANR) - hold
True Religion Apparel (TRLG) - hold
St. Jude Medical (STJ) - hold
General Dynamics (GD) -buy
Kraft Foods (KFT) -buy
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 9
Newsletter Portfolio Performanc e
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHLYPAGE 10
Newsletter Portfolio Performanc e
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHL
Symbol Name Price
Portion Of
Fund Shares Held Value
Current
Rating
NOV National Oilwell Varco Inc $76.69 5.6% 800.00 $61,352.00 HoldWDC WESTERN DIGITAL $39.80 5.1% 1,400.00 $55,720.00 HoldDECK DECKERS OUTDOOR $84.86 4.2% 540.00 $45,824.40 Hold
JOYG Joy Global Inc $100.95 4.2% 450.00 $45,427.50 HoldCOH COACH INC $59.81 3.8% 690.00 $41,268.90 HoldINT WORLD FUEL SERVICES $39.58 3.2% 880.00 $34,830.40 HoldHLF Herbalife, Limited $89.78 3.2% 390.00 $35,014.20 HoldESV Ensco PLC $59.57 3.1% 560.00 $33,359.20 HoldFCX FREEPT-MCMO COPPER & GOLD CL B $55.02 3.1% 620.00 $34,112.40 HoldNEM Newmont Mining Corp Holding Co $58.61 2.8% 520.00 $30,477.20 HoldABT ABBOTT LABORATORIES $52.04 2.7% 560.00 $29,142.40 HoldMUR MURPHY OIL $77.48 2.6% 360.00 $27,892.80 HoldAFL AFLAC INC $56.19 2.6% 500.00 $28,095.00 BuyNTRI NUTRI/SYSTEM INC $15.04 2.5% 1,820.00 $27,372.80 HoldMIDD MIDDLEBY CORP $89.67 2.5% 300.00 $26,901.00 HoldMA Mastercard Inc $275.89 2.5% 100.00 $27,589.00 BuyPCP PRECISION CASTPARTS $154.52 2.4% 170.00 $26,268.40 HoldARLP ALLIANCE RESOURCE PARTNERS LP $82.36 2.4% 320.00 $26,355.20 HoldRIO RIO TINTOPLC ADS $73.21 2.3% 350.00 $25,623.47 BuyHRS HARRIS CORP $53.13 2.3% 470.00 $24,971.10 BuyMSFT MICROSOFT CORP $25.92 2.3% 970.00 $25,142.40 BuyGPN Global Payments Inc $53.24 2.2% 460.00 $24,490.40 HoldBHP BHP Billiton Ltd $101.24 2.2% 240.00 $24,297.60 HoldBAP CREDICORP LTD $96.52 2.2% 250.00 $24,130.00 BuyKCI Kinetic Concepts,Inc. $59.03 2.1% 380.00 $22,431.40 HoldTPC Tutor Perini Corp $26.66 2.0% 830.00 $22,127.80 HoldGD GENERAL DYNAMICS $72.82 2.0% 300.00 $21,845.97 BuyANR Alpha Natural Resources Inc $58.17 2.0% 370.00 $21,522.90 HoldBYI Bally Technologies Inc $38.99 1.9% 540.00 $21,054.60 HoldCEPH CEPHALON INC $77.02 1.9% 270.00 $20,795.40 HoldFRX FOREST LABORATORIES INC $33.16 1.8% 580.00 $19,232.74 HoldJCOM J2 GLOBAL COMMUNICATIONS NEW $29.46 1.8% 650.00 $19,149.00 Hold
ENDP ENDO PHARMACEUTICALS HLDS INC $39.16 1.7% 460.00 $18,013.55 HoldACN Accenture Plc $57.13 1.7% 320.00 $18,281.60 HoldWMT WAL-MART STORES $54.98 1.4% 280.00 $15,394.40 HoldAMED AMEDISYS INC $33.32 1.3% 420.00 $13,994.40 HoldALGT Allegiant Travel Company $44.87 1.2% 280.00 $12,563.60 HoldLHCG LHC Group, LLC $29.62 1.2% 460.00 $13,625.20 HoldMDT MEDTRONIC INC $41.75 1.1% 290.00 $12,107.50 HoldESLT ELBIT SYSTEMS $55.92 1.0% 200.00 $11,184.00 HoldBBY BEST BUY CO INC $31.22 0.8% 290.00 $9,053.80 Hold
Long Portfolio
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHL
Symbol Name Price
Portion Of
Fund Shares Held Value
Current
Rating
WY WEYERHAEUSER CO $23.01 4.1% -3,541.00 ($81,478.41) ShortARMH ARM HOLDINGS ADS $31.46 3.8% -2,410.00 ($75,818.60) ShortMF MF Global Holdings Ltd $8.41 2.8% -6,670.00 ($56,094.70) Short
PEGA PEGASYSTEMS INC $37.12 1.9% -1,030.00 ($38,233.60) HoldPTIE PAIN THERAPEUTICS $9.51 1.9% -4,020.00 ($38,230.20) HoldDNDN DENDREON CORP $43.43 1.9% -860.00 ($37,349.80) ShortNATI NATL INSTRUMENTS $30.32 1.9% -1,215.00 ($36,838.80) HoldPXD PIONEER NATURAL RES $102.23 1.8% -350.00 ($35,780.50) ShortMNTA Momenta Pharmaceuticals Inc $18.86 1.8% -1,850.00 ($34,891.00) ShortREV REVLON INC'A' $17.22 1.7% -2,010.00 ($34,612.20) ShortOCN OCWEN FINANCIAL $11.97 1.7% -2,850.00 ($34,114.50) ShortCPTS CONCEPTUS INC $15.43 1.7% -2,170.00 ($33,483.10) ShortQDEL QUIDEL CORP $13.27 1.7% -2,510.00 ($33,307.70) ShortCOG CABOT OIL & GAS 'A' $56.28 1.7% -590.00 ($33,205.20) ShortDXCM DexCom, Incorporated $16.65 1.7% -1,990.00 ($33,133.50) ShortFL Foot Locker Inc $21.52 1.7% -1,530.00 ($32,925.60) HoldFXEN FX ENERGY INC $8.21 1.7% -4,010.00 ($32,922.10) HoldMCHP MICROCHIP TECHNOLOGY $41.04 1.6% -790.00 ($32,421.60) HoldLTD Limited Brands $41.16 1.6% -770.00 ($31,693.12) HoldEXEL EXELIXIS INC $12.26 1.6% -2,570.00 ($31,508.20) ShortHOT STARWOOD HOTELS&RESWORLDWIDE $59.57 1.6% -520.00 ($30,976.40) ShortEVR Evercore Partners Inc $34.89 1.6% -880.00 ($30,703.20) ShortGDOT Green Dot Corp $43.16 1.5% -710.00 ($30,643.53) ShortRDEA Ardea Biosciences Inc $28.35 1.5% -1,080.00 ($30,618.00) ShortLEN LENNAR CORP $18.99 1.5% -1,550.00 ($29,434.35) ShortTLM TALISMAN ENERGY $24.10 1.5% -1,210.00 ($29,161.00) ShortCMO CAPSTEAD MORTGAGE(NEW) $13.24 1.5% -2,190.00 ($28,995.60) HoldCDXS Codexis Inc $10.49 1.4% -2,720.00 ($28,532.80) ShortTIF TIFFANY & CO $69.44 1.4% -410.00 ($28,470.40) HoldFICO Fair Isaac Inc $29.88 1.4% -910.00 ($27,190.80) ShortSRSL SRS LABS $8.15 1.4% -3,330.00 ($27,139.50) ShortFO FORTUNE BRANDS $65.08 1.3% -410.00 ($26,682.80) Short
LUX LUXOTTICA GROUP ADS $33.19 1.3% -780.00 ($25,888.20) ShortNOVL NOVELL INC $6.10 1.3% -4,220.00 ($25,737.78) ShortRIGL RIGEL PHARMACEUTICALS $9.11 1.3% -2,800.00 ($25,508.00) HoldMSCC MICROSEMI CORP $23.60 1.3% -1,080.00 ($25,488.00) ShortEQT EQT Corp $52.62 1.3% -480.00 ($25,257.60) ShortMAN ManpowerGroup $66.25 1.3% -380.00 ($25,175.00) ShortSTEI STEWART ENTERPRISES INC CL A $8.11 1.3% -3,080.00 ($24,978.80) ShortKW Kennedy-Wilson Holdings Inc $11.45 1.3% -2,180.00 ($24,961.00) HoldACXM ACXIOM CORP $14.56 1.3% -1,710.00 ($24,897.60) HoldFDX FEDEX CORP $95.67 1.3% -260.00 ($24,874.20) HoldNSM NATL SEMICONDUCTOR $24.12 1.3% -1,030.00 ($24,843.60) ShortLGF LIONS GATE ENTERTAINMENT $6.34 1.2% -3,860.00 ($24,472.40) HoldEXP Eagle Materials Inc $29.09 1.2% -830.00 ($24,144.70) ShortGKSR G & K SERVICES CL'A' $33.10 1.2% -710.00 ($23,501.00) HoldALE Allete Inc $40.49 1.2% -580.00 ($23,484.20) HoldBMS BEMIS CO $31.34 1.1% -720.00 ($22,564.80) HoldPFS Provident Financial $14.52 1.1% -1,510.00 ($21,925.20) HoldCFR CULLEN/FROST BANKERS $59.24 1.1% -360.00 ($21,326.40) HoldCADX Cadence Pharmaceuticals, Incorporated $8.48 1.1% -2,510.00 ($21,284.80) HoldCBSH COMMERCE BANCSHARES $42.56 1.1% -497.00 ($21,152.32) HoldWTR Aqua America Inc $22.55 1.1% -930.00 ($20,971.50) HoldHTLD HEARTLAND EXPRESS $17.25 1.0% -1,200.00 ($20,700.00) HoldNVEC NVE Corporation $58.96 1.0% -350.00 ($20,636.00) HoldTXI TEXAS INDUS $42.17 1.0% -480.00 ($20,241.60) HoldMYGN MYRIAD GENETICS $21.44 1.0% -920.00 ($19,724.80) HoldPC Panasonic Corp $12.29 1.0% -1,590.00 ($19,540.94) HoldCYN CITY NATIONAL $57.11 0.9% -320.00 ($18,275.20) HoldAA ALCOA INC $17.00 0.9% -1,060.00 ($18,020.00) HoldCMA COMERICA INC $37.93 0.9% -470.00 ($17,827.10) Hold
Short Portfolio
8/6/2019 Market Haven Monthly Newsletter - May 2011
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MARKET HAVEN MONTHL
XXIA IXIA $16.34 0.9% -1,090.00 ($17,810.60) ShortLM LEGG MASON INC $37.15 0.9% -460.00 ($17,089.00) HoldCVC CABLEVISION SYS'A' $35.23 0.9% -480.00 ($16,910.35) HoldCWT CALIF WATER SVC GRP DELAWARE $37.72 0.7% -350.00 ($13,202.00) HoldCNW Con-way Inc $38.92 0.6% -330.00 ($12,843.60) HoldMLM MARTIN MARIETTA MATERIALS $91.19 0.6% -140.00 ($12,766.60) ShortONB OLD NATL BANCORP(IND) $10.35 0.6% -1,130.00 ($11,695.50) ShortOMX OfficeMax Inc $9.96 0.6% -1,150.00 ($11,454.00) HoldCGA China Green Agriculture Inc $7.04 0.5% -1,510.00 ($10,630.40) Hold
JNY The Jones Group Inc $13.63 0.5% -770.00 ($10,495.10) HoldPBCT PEOPLE'S BANK $13.70 0.5% -660.00 ($9,038.70) HoldBXS BANCORPSOUTH $13.55 0.4% -640.00 ($8,672.00) ShortFTR Frontier Communications Corp $8.27 0.4% -1,040.00 ($8,600.80) HoldBKS BARNES & NOBLE $10.99 0.3% -600.00 ($6,594.00) HoldHQS HQ Sustainable Maritime Indust $2.78 0.3% -2,290.00 ($6,365.97) Hold