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Portfolio Positioning for the Coming Week: Risks and Opportunities

By: SeekingAlpha
Posted: 10/10/2010 6:20:00 AM
Soos Global Capital submits:

This article is a slightly different version of my weekly "Setting Up for the Opening Bell" series. It combines a review of this week's activity with a preview of next week's, and is supplemented with a thought-provoking sharing of actual positions along with key ideas that are driving our investment decisions.

All week long I've been trumpeting the horn of "political will", arguing that the markets face a heightened level of risk overall largely due to the question surrounding whether or not politicians (and in this, I broadly include all financial officials with policy implication jobs) would do as they say…or not. In colloquial terms: would they 'walk the talk' or not?!

The key to knowing what currency exposure to tolerate in one's portfolio, for example, is now, more than ever, driven by how you assess the likelihood of countries such as Japan, US, China and the EU getting together to multi-laterally deal with what is quickly becoming an all-out currency war of "devaluation-to-deter-deflation".

It was challenging to have these trumpeted sounds resonate while the world anticipated the NFP data release, being that consensus, rightly, holds that the problem in the US is about three things: jobs, jobs and jobs!

And the skittishness of markets was probably most evident on Tuesday when the market soared almost 200 points largely due to a slight uptick in Non-Manufacturing ISM data, an outsized move for a number that is not your usual market moving factoid! That market reaction led me to publish a giant "caveat emptor" within which I had the following graph ( click to enlarge ) that points out just how modest this up-move in Non-Mftg ISM was and therefore just how seemingly absurd was the market's response to it!


Friday's NFP data can be summed up in one word: BAD! Or maybe two words: REALLY BAD!

One could try to find a silver lining, but you'd have to try very hard. The mere 67k increase in private sector jobs was below expectations and barely puts a dent in the massive private sector unemployment situation. The collapse of government jobs, down 159k, could only partly be explained by the elimination of Census workers, but more troubling was the 76k component that reflected state and local government job losses.

click to enlarge

The markets had a funny (or not so funny) reaction to the data…a quick up-trade on futures both here and in European markets, probably on the hope that the weak employment data would spur the Fed to launch QE2 that much sooner. But that mild euphoric reaction didn't last long and markets reversed course heading south into the US open. Then, with the positive news from the ECRI Weekly Leading Index coming out, the markets headed back up with the Dow piercing the 11,000 mark where it flirted most of the day (closing a tad above 11,006).

One has to wonder: Are market participants so giddy with the prospect of more quantitative easing by the Fed and by other central banks that they're willing to take stocks higher in an uninterrupted fashion?


But if history teaches us anything, it's that wars of any sort are cause for concern…..and we are in the middle of a global currency "devalue-to-deter-deflation" conflagration!


These are just some of the all-important questions that investors need to be asking…..and answering!

In addition to that, the markets would be right to focus on the earnings parade that was started on Thursday evening by Alcoa ( AA ) with its earnings beat and optimistic outlook. That's good news. And Friday's ECRI Leading Index is good news. But both should be taken in the context of this week's disappointing ADP private sector job report (down 39k) and Friday's troubling NFP (down 95k).

Furthermore, this weekend's G20/IMF meetings could cause considerable market movements depending on whether "political will" manifests itself in the form of a multi-lateral program for dealing with competitive devaluations or in the form of a free-for-all where open warfare is the effective modus operandi for now. This would not be a weekend to defuse from the market madness of the past week, but rather to stay glued to word coming out of DC.

As for the coming week (Week of Oct 11), the calendar of economic data is chock full of inflation and retail sales indicators, as well as sentiment indicators, most of it back loaded at the end of the week. More in focus is likely to be the steady stream of earnings that will be coming out through the week.

On the US economic front , offers the following:

Week of October 11 - October 15

Date ET Release For Actual Consensus Prior
Oct 12 14:00 Minutes of FOMC Meeting 9/21
Oct 13 07:00 MBA Mortgage Applications 10/08 NA NA -0.2%
Oct 13 08:30 Export Prices ex-ag. Sep NA NA 0.5%
Oct 13 08:30 Import Prices ex-oil Sep NA NA 0.3%
Oct 13 10:30 Crude Inventories 10/09 NA NA 3.09M
Oct 13 14:00 Treasury Budget Sep NA -$59.5B -$90.5B
Oct 14 08:30 Initial Claims 10/09 NA NA 445K
Oct 14 08:30 Continuing Claims 10/02 NA NA 4462K
Oct 14 08:30 PPI Sep NA 0.3% 0.4%
Oct 14 08:30 Core PPI Sep NA 0.2% 0.1%
Oct 14 08:30 Trade Balance Aug NA -$44.5B -$42.8B
Oct 15 08:30 CPI Sep NA 0.2% 0.3%
Oct 15 08:30 Core CPI Sep NA 0.1% 0.1%
Oct 15 08:30 Retail Sales Sep NA 0.3% 0.4%
Oct 15 08:30 Retail Sales ex-auto Sep NA 0.4% 0.6%
Oct 15 08:30 NY Fed - Empire Manufacturing Survey Oct NA 7.0 4.10
Oct 15 09:55 Mich Sentiment Oct NA 67.0 68.2
Oct 15 10:00 Business Inventories Aug NA 0.6% 1.0%

And on the earnings front , it's worth a visit to's earnings calendar to see the lineup and expectations.

Portfolio Thoughts

(BEAR IN MIND: this is NOT in any way meant to be investment advice! It is merely some food for thought. Each investor is responsible for his/her own investment decisions and should not take what is in this article as advice as to what is appropriate for their unique situation. The comments in this section reflect positions in accounts that we manage for our clients. Our client accounts are tailor made for each investor based his/her unique financial profile and risk tolerance. Please read the disclaimer at the end of this article and remember that opinions expressed here can change without notice):

  1. Beware of the market overall . The market's love-fest this week with otherwise uninspiring data is troubling. Too much seems to be made of the likely effectiveness of QE2 should it happen. And rallying the US stock market as a result of higher commodity prices that are driven by a weaker USD, seems to us to have the 'causal effect' going the wrong way. I'd feel much better if strong US growth led to strong equities which in turn drove commodities higher…but that doesn't seem to be the situation. That said, frequent readers will know that I've been adding to my equity exposure on market dips, focusing my buying on global companies who have meaningful amounts of their business in Emerging Markets and in developed countries around the world, such as Caterpillar ( CAT ) and Deere & Co. (DE.) I also own Australia, Asia ex-Japan, Brazil, Germany, China and the BRICs ETFs. In addition I have some direct exposure such as Telefonica ( TEF ), Vodafone ( VOD ), Teva ( TEVA ) and Petroleo Brasileiro ( PBR ). My cash position, which is still rather large, is being patiently placed on the sidelines with the hope of taking advantage of any market pullbacks that we expect to face, especially given how choppy rather than trendy the markets have been.
  2. Beware of banks . The "mortgage foreclosure fiasco" could snowball into something awful for banks. Pelosi's call for the Justice Department's investigation into big names such as Bank of America ( BAC ) and JP Morgan ( JPM ) could keep them and others under pressure. I am long (very) Citigroup ( C ) despite these concerns, though, as I anticipate that government ownership is coming to an end, and many signs point to the 'bad bank' component delivering on their mission of ridding C of its toxic assets.
  3. On my "wish I owned" and "wish I owned more of" lists, I have names such as FedEx ( FDX ), Cummins ( CMI ), 3M ( MMM ) and Posco ( PKX ). I'm watching each closely and determining appropriate entry levels. The market waters have gotten choppy...very choppy. Navigating them successfully is going to require a broader, more global view.

Disclosure: Long: C, MMM, CAT, DE, EWZ, EWG, TEF, VOD, TEVA, PBR, EWA, FXI, BRXX, GMF. Could trade any of these and others mentioned in the article soon

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