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Market Haven Monthly

T he Fed took an unprecedented step in
holding the first press conference in modern
accommodative stance with its $3 trillion
balance sheet. It is after all the size of the
history. We’ve come a long way from the days of balance sheet that matters more than the
analyzing photos of Greenspan’s briefcase in direction of Fed policy.
order to discern the direction of monetary
What’s more, according to Bloomberg reports,
policy. Indeed, Bernanke said things would be
QE3 isn’t off the table either. The Fed still views
different; and they have been. Gone is the
the economy as week and
Greenspan mentality of “if
in need of assistance. The
you understood what I
near-term effect of all of
said, I must have
this is that stocks will likely
continue to rally despite
The message the Fed reaching overvalued levels.
delivered in the press Once the Fed steps away
conference was nothing (or its policies catch up
short of unremarkable. It with us) stocks will take a
became apparent to some hit.
that the Bernank was
A related concern of ours is
using his face time with the press to try and talk
the disparity in exchange rates between the
up what Fed policy is not going to be able to do
Asian currencies and the U.S. dollar. The graph
on its own.
above from shows that the dollar
Yes, QE2 is planned to end on schedule. But the continues to slide vis-à-vis the RMB. This will
Fed has no intention of shrinking the balance only continue as China finds it unsustainable to
sheet. So, while the Fed may be pausing maintain the currency band while importing our
directionally, it is still very much maintaining an loose monetary policy.

Where’s the Value? more quarters, which could contribute to stock

gains. Eventually, that will change. We usually

Stocks see earnings reverse direction once they have

exceeded trend earnings by about +25%. A note
Our Static Model is an easy way to hedge out here: stock prices don’t always coincide with
much of the market risk in an unemotional way. downturns in earnings.
Through regular rebalancing and a fairly
The rising yield environment is not good for
conservative asset allocation, the portfolio has
stocks. But yields have been trending down for
done a good job of dampening volatility risk.
the month of April. We’ll see if it is enough to
The beta of our long portfolio has historically
push the signal into bullish territory for stocks.
been about 1.3 allowing investors to get full
Corporate spreads are also still in the 80th
market exposure while leaving some cash on the
percentile, which is not good for stock returns.
sidelines. Net long exposure for the Static Model
is +50%. Our Timing Model, on the other hand, We still advise investors to not try to time the
factors in market valuations and adjusts market tops. No one can know how long these
exposure regularly. Net long exposure currently conditions could continue. And on average it is
is -30%. better to be invested fully than to be on the
sideline. That said, we would definitely be
Strategy Static Timing
Model Model trimming our stock investments at this point.
Long Exposure +80% 0%

Short Exposure -30% -30%

Net Exposure +50% -30%


At 1363, market p/e’s are at 17.6x. We continue As we mentioned last month, the number of

to believe that there is limited upside and lots of companies making it through our screen has

downside potential from here. The Fed’s low diminished significantly making the sector

interest rate policy is the primary factor weights appear a little more dramatic than

levitating the market at these levels. usual. For instance, this month no healthcare or
discretionary stocks made it through the screen
Earnings are above trend by about +12% and to the buy list. Part of the reason for this is that
still rising. We expect this to continue for a few healthcare stocks have been the best performing

sector over the last three months—up +18%, Materials companies have continued to perform
even more than energy stocks. This has made well and still offer attractive valuations even as
the stocks in that sector less attractive. commodity prices retreat from higher levels.

Relative to the market as a whole, our screens

are showing that the best places to find value are
in materials, technology, financials, and 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
The steep yield curve should be fostering a good are missing earnings expectations which is
environment for financials, however, the sending share prices south for a time. We view
financials continue to suffer as the worst these misses as temporary and short-sighted.
performing sector-up +5% over the last three More important to us than a company’s ability
months. We still think there are opportunities in meet guidance is its ability to generate free cash
this space. flow. The most short opportunities continue to
exist at the lower capitalization ranges.
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.

Volatility SLV is a more volatile investment anyway and

would recommend extreme caution in the metal.
We are glad to have provided readers with the
The reason we continue to recommend GLD has
table last month of our targeted price targets
to do with the increasing global currency
and weightings to volatility. April was another
imbalances. We believe GLD is a great place to
interesting month that saw volatility begin
be long term and would continue to add to the
above 17 and dip below 15. If you followed the
position. The Asian currencies are anywhere
table below you would have added to volatility,
between -35% and -70% undervalued against
bringing your exposure to 100% of your targeted
the dollar. At some point, that difference will be
allocation. At levels below 15, volatility seems
corrected. In PIMCO’s vernacular, we have a
like a very high probability bet given our current
“two-speed” world economy. The fixed exchange
uncertain environment.
rate system that connects the emerging and
VIX Weighting developed worlds must break at some point. In
<16.6 100% our opinion, until another currency (or
16.6 – 22.6 75% currencies) shows itself to be a viable
22.7 – 28.9 50% replacement for the dollar, gold is the next most

29.0 – 35.0 25% widely accepted currency replacement—over

silver. We are long commodities.
>35.0 0%


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

Some Investment Ideas Teradyne. The company is in a strong industry,

but is sputtering a bit. As it tries to augment
Here are a few names that have shown up revenues, the balance sheet is solid enough and
recently as potential investment ideas on our the price cheap enough that the company should
screens. Some of these may appear in the have time to find its stride. Its p/e is less than
portfolios. Some may not simply because the 7.0 and p/b is less than 1.0. We would take a
names currently in the portfolio haven’t worked chance on the stock at this valuation.
their way yet.
Banco Macro S.A. (BMA) - long
Diversification is an important part of our
investment process. We like to have north of 30 BMA is a financial institution based in

names in the long portfolio and 60 or more in Argentina offering traditional banking products

our short portfolio. We let the ideas that are and services. It has a market cap of $2 billion

working continue to run. Conversely, the ideas and a nice yield of 5.6%. There is some risk in

that are not working become a smaller this stock, but we believe it is priced cheaply

proportion of the portfolio simply by the enough to compensate investors for the risk.

diminishing market cap they exhibit. This also

Innophos Holdings (IPHS) - long
lends to the comfort we have taking chances on
stocks that may have headline or operational IPHS is only a $1 billion company, but it is the
risk from time to time. largest manufacturer of specialty phosphates in
North America for consumer, pharmaceutical,
Don’t forget to do your own homework. We’re
and industrial applications. Mexico provides
not your financial advisor so we do not know
20% of revenues alone. The stock has an
your specific financial situation and what
earnings yield of 15%, p/e of 11x, and a dividend
makes sense for you individually. Don’t take
yield of 2.2%.
anything we talk about as financial advice.

Power-One Inc. (PWER) - long TIM Participacoes S.A. (TSU) - long

We’re keeping with a bit of an international

PWER is a $900 million company that makes
theme with TSU. But this one is larger. At $11
power supplies for various industries. Its OEM
billion, TSU is the third largest wireless provider
customers include the likes of Cisco, Nortel, and
in Brazil. It is the sole player with nationwide

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 LRCX’s
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.

Portfolio Changes Last Month Abbott Laboratories (ABT) – buy

Newmont Mining Corp (NEM) – buy

It was not a big month for trades. In the long
Harris Corp (HRS) – buy
portfolio we bought one stock and replaced it
with another one.

February 2011
LHC Group (LHCG) – buy

There were no trades in the short portfolio. Compania Cervecerias Unidas SA (CCU) – hold Inc (NTES) – hold

Aflac Inc. (AFL) – buy

Microsoft Corp. (MSFT) – buy

Previously Mentioned Ideas

Below are the investment ideas that we have

highlighted in past issues. Additionally, we have
January 2011
updated the current model recommendation for Amedisys (AMED) – hold
each stock. Warnaco Group (WRC) – hold

Alliance Resource Parnters LP (ARLP) – buy

BHP Billiton ADR (BHP) – hold

April 2011
Vale S.A. (VALE) – buy

Rio Tinto Plc (RIO) – buy December 2010

ON Semiconductor (ONNN) – buy Harbin Electric (HRBN) – buy

IBM (IBM) – buy Trina Solar (TSL) – hold

Par Pharmaceuticals (PRX) – buy Best Buy (BBY) – buy

MasterCard (MA) – buy

March 2011
Cliffs Natural Resources (CLF) – hold
CNOOC Limited (CEO) – buy

Credicorp Limited (BAP) – buy


November 2010
Global Payments (GPN) - hold

Research In Motion (RIMM) - buy

Cash America International (CSH) - buy

Telecom Argentina (TEO) - buy

Cephalon (CEPH) - hold

October 2010
Alpha Natural Resources (ANR) - hold

True Religion Apparel (TRLG) - hold

St. Jude Medical (STJ) - hold

General Dynamics (GD) - buy

Kraft Foods (KFT) - buy


Newsletter Portfolio Performance


Newsletter Portfolio Performance


Long Portfolio
Portion Of Current
Symbol Name Price Fund Shares Held Value Rating
NOV National Oilwell Varco Inc $76.69 5.6% 800.00 $61,352.00 Hold
WDC WESTERN DIGITAL $39.80 5.1% 1,400.00 $55,720.00 Hold
DECK 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 Hold
COH COACH INC $59.81 3.8% 690.00 $41,268.90 Hold
INT WORLD FUEL SERVICES $39.58 3.2% 880.00 $34,830.40 Hold
HLF Herbalife, Limited $89.78 3.2% 390.00 $35,014.20 Hold
ESV Ensco PLC $59.57 3.1% 560.00 $33,359.20 Hold
FCX FREEPT-MCMO COPPER & GOLD CL B $55.02 3.1% 620.00 $34,112.40 Hold
NEM Newmont Mining Corp Holding Co $58.61 2.8% 520.00 $30,477.20 Hold
ABT ABBOTT LABORATORIES $52.04 2.7% 560.00 $29,142.40 Hold
MUR MURPHY OIL $77.48 2.6% 360.00 $27,892.80 Hold
AFL AFLAC INC $56.19 2.6% 500.00 $28,095.00 Buy
NTRI NUTRI/SYSTEM INC $15.04 2.5% 1,820.00 $27,372.80 Hold
MIDD MIDDLEBY CORP $89.67 2.5% 300.00 $26,901.00 Hold
MA Mastercard Inc $275.89 2.5% 100.00 $27,589.00 Buy
PCP PRECISION CASTPARTS $154.52 2.4% 170.00 $26,268.40 Hold
ARLP ALLIANCE RESOURCE PARTNERS LP $82.36 2.4% 320.00 $26,355.20 Hold
RIO RIO TINTOPLC ADS $73.21 2.3% 350.00 $25,623.47 Buy
HRS HARRIS CORP $53.13 2.3% 470.00 $24,971.10 Buy
MSFT MICROSOFT CORP $25.92 2.3% 970.00 $25,142.40 Buy
GPN Global Payments Inc $53.24 2.2% 460.00 $24,490.40 Hold
BHP BHP Billiton Ltd $101.24 2.2% 240.00 $24,297.60 Hold
BAP CREDICORP LTD $96.52 2.2% 250.00 $24,130.00 Buy
KCI Kinetic Concepts,Inc. $59.03 2.1% 380.00 $22,431.40 Hold
TPC Tutor Perini Corp $26.66 2.0% 830.00 $22,127.80 Hold
GD GENERAL DYNAMICS $72.82 2.0% 300.00 $21,845.97 Buy
ANR Alpha Natural Resources Inc $58.17 2.0% 370.00 $21,522.90 Hold
BYI Bally Technologies Inc $38.99 1.9% 540.00 $21,054.60 Hold
CEPH CEPHALON INC $77.02 1.9% 270.00 $20,795.40 Hold
FRX FOREST LABORATORIES INC $33.16 1.8% 580.00 $19,232.74 Hold
JCOM 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 Hold
ACN Accenture Plc $57.13 1.7% 320.00 $18,281.60 Hold
WMT WAL-MART STORES $54.98 1.4% 280.00 $15,394.40 Hold
AMED AMEDISYS INC $33.32 1.3% 420.00 $13,994.40 Hold
ALGT Allegiant Travel Company $44.87 1.2% 280.00 $12,563.60 Hold
LHCG LHC Group, LLC $29.62 1.2% 460.00 $13,625.20 Hold
MDT MEDTRONIC INC $41.75 1.1% 290.00 $12,107.50 Hold
ESLT ELBIT SYSTEMS $55.92 1.0% 200.00 $11,184.00 Hold
BBY BEST BUY CO INC $31.22 0.8% 290.00 $9,053.80 Hold

Short Portfolio
Portion Of Current
Symbol Name Price Fund Shares Held Value Rating
WY WEYERHAEUSER CO $23.01 4.1% -3,541.00 ($81,478.41) Short
ARMH ARM HOLDINGS ADS $31.46 3.8% -2,410.00 ($75,818.60) Short
MF 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) Hold
PTIE PAIN THERAPEUTICS $9.51 1.9% -4,020.00 ($38,230.20) Hold
DNDN DENDREON CORP $43.43 1.9% -860.00 ($37,349.80) Short
NATI NATL INSTRUMENTS $30.32 1.9% -1,215.00 ($36,838.80) Hold
PXD PIONEER NATURAL RES $102.23 1.8% -350.00 ($35,780.50) Short
MNTA Momenta Pharmaceuticals Inc $18.86 1.8% -1,850.00 ($34,891.00) Short
REV REVLON INC'A' $17.22 1.7% -2,010.00 ($34,612.20) Short
OCN OCWEN FINANCIAL $11.97 1.7% -2,850.00 ($34,114.50) Short
CPTS CONCEPTUS INC $15.43 1.7% -2,170.00 ($33,483.10) Short
QDEL QUIDEL CORP $13.27 1.7% -2,510.00 ($33,307.70) Short
COG CABOT OIL & GAS 'A' $56.28 1.7% -590.00 ($33,205.20) Short
DXCM DexCom, Incorporated $16.65 1.7% -1,990.00 ($33,133.50) Short
FL Foot Locker Inc $21.52 1.7% -1,530.00 ($32,925.60) Hold
FXEN FX ENERGY INC $8.21 1.7% -4,010.00 ($32,922.10) Hold
MCHP MICROCHIP TECHNOLOGY $41.04 1.6% -790.00 ($32,421.60) Hold
LTD Limited Brands $41.16 1.6% -770.00 ($31,693.12) Hold
EXEL EXELIXIS INC $12.26 1.6% -2,570.00 ($31,508.20) Short
HOT STARWOOD HOTELS&RESWORLDWIDE $59.57 1.6% -520.00 ($30,976.40) Short
EVR Evercore Partners Inc $34.89 1.6% -880.00 ($30,703.20) Short
GDOT Green Dot Corp $43.16 1.5% -710.00 ($30,643.53) Short
RDEA Ardea Biosciences Inc $28.35 1.5% -1,080.00 ($30,618.00) Short
LEN LENNAR CORP $18.99 1.5% -1,550.00 ($29,434.35) Short
TLM TALISMAN ENERGY $24.10 1.5% -1,210.00 ($29,161.00) Short
CMO CAPSTEAD MORTGAGE(NEW) $13.24 1.5% -2,190.00 ($28,995.60) Hold
CDXS Codexis Inc $10.49 1.4% -2,720.00 ($28,532.80) Short
TIF TIFFANY & CO $69.44 1.4% -410.00 ($28,470.40) Hold
FICO Fair Isaac Inc $29.88 1.4% -910.00 ($27,190.80) Short
SRSL SRS LABS $8.15 1.4% -3,330.00 ($27,139.50) Short
FO 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) Short
NOVL NOVELL INC $6.10 1.3% -4,220.00 ($25,737.78) Short
RIGL RIGEL PHARMACEUTICALS $9.11 1.3% -2,800.00 ($25,508.00) Hold
MSCC MICROSEMI CORP $23.60 1.3% -1,080.00 ($25,488.00) Short
EQT EQT Corp $52.62 1.3% -480.00 ($25,257.60) Short
MAN ManpowerGroup $66.25 1.3% -380.00 ($25,175.00) Short
STEI STEWART ENTERPRISES INC CL A $8.11 1.3% -3,080.00 ($24,978.80) Short
KW Kennedy-Wilson Holdings Inc $11.45 1.3% -2,180.00 ($24,961.00) Hold
ACXM ACXIOM CORP $14.56 1.3% -1,710.00 ($24,897.60) Hold
FDX FEDEX CORP $95.67 1.3% -260.00 ($24,874.20) Hold
NSM NATL SEMICONDUCTOR $24.12 1.3% -1,030.00 ($24,843.60) Short
LGF LIONS GATE ENTERTAINMENT $6.34 1.2% -3,860.00 ($24,472.40) Hold
EXP Eagle Materials Inc $29.09 1.2% -830.00 ($24,144.70) Short
GKSR G & K SERVICES CL'A' $33.10 1.2% -710.00 ($23,501.00) Hold
ALE Allete Inc $40.49 1.2% -580.00 ($23,484.20) Hold
BMS BEMIS CO $31.34 1.1% -720.00 ($22,564.80) Hold
PFS Provident Financial $14.52 1.1% -1,510.00 ($21,925.20) Hold
CFR CULLEN/FROST BANKERS $59.24 1.1% -360.00 ($21,326.40) Hold
CADX Cadence Pharmaceuticals, Incorporated $8.48 1.1% -2,510.00 ($21,284.80) Hold
CBSH COMMERCE BANCSHARES $42.56 1.1% -497.00 ($21,152.32) Hold
WTR Aqua America Inc $22.55 1.1% -930.00 ($20,971.50) Hold
HTLD HEARTLAND EXPRESS $17.25 1.0% -1,200.00 ($20,700.00) Hold
NVEC NVE Corporation $58.96 1.0% -350.00 ($20,636.00) Hold
TXI TEXAS INDUS $42.17 1.0% -480.00 ($20,241.60) Hold
MYGN MYRIAD GENETICS $21.44 1.0% -920.00 ($19,724.80) Hold
PC Panasonic Corp $12.29 1.0% -1,590.00 ($19,540.94) Hold
CYN CITY NATIONAL $57.11 0.9% -320.00 ($18,275.20) Hold
AA ALCOA INC $17.00 0.9% -1,060.00 ($18,020.00) Hold
CMA COMERICA INC $37.93 0.9% -470.00 ($17,827.10) Hold

XXIA IXIA $16.34 0.9% -1,090.00 ($17,810.60) Short

LM LEGG MASON INC $37.15 0.9% -460.00 ($17,089.00) Hold
CVC CABLEVISION SYS'A' $35.23 0.9% -480.00 ($16,910.35) Hold
CWT CALIF WATER SVC GRP DELAWARE $37.72 0.7% -350.00 ($13,202.00) Hold
CNW Con-way Inc $38.92 0.6% -330.00 ($12,843.60) Hold
MLM MARTIN MARIETTA MATERIALS $91.19 0.6% -140.00 ($12,766.60) Short
ONB OLD NATL BANCORP(IND) $10.35 0.6% -1,130.00 ($11,695.50) Short
OMX OfficeMax Inc $9.96 0.6% -1,150.00 ($11,454.00) Hold
CGA 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) Hold
PBCT PEOPLE'S BANK $13.70 0.5% -660.00 ($9,038.70) Hold
BXS BANCORPSOUTH $13.55 0.4% -640.00 ($8,672.00) Short
FTR Frontier Communications Corp $8.27 0.4% -1,040.00 ($8,600.80) Hold
BKS BARNES & NOBLE $10.99 0.3% -600.00 ($6,594.00) Hold
HQS HQ Sustainable Maritime Indust $2.78 0.3% -2,290.00 ($6,365.97) Hold