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Biderman’s Market Picks model portfolio rose just over 1% last week while the S&P 500 dropped 2.3%. That 3.3% one-week swing is the best relative performance our model portfolio has had versus the S&P 500 since Biderman’s Market picks began at the end of May. And yes, the model is down 0.2% since then while the S&P 500 is still up by 4.6%. But, that could change quickly if the market keeps falling.
We have been saying that the Bernanke Put finally died when the current version of QE was announced September 14, which is about two months ago. Since then the S&P 500 is down by about 6%, and has never topped the Sept 14 high. And yes while a 6% drop over two months is not that huge, but let us see what happens from here through year-end.
I have been saying that regardless of whether the Democrats and Republicans come up with some sort of budget deal before year end, I cannot imagine that capital gains and dividend taxes will not be going up. Even if some sort of deal is announced, the devil will be in the details, and I am betting that in those details, the result will be higher taxes on at least capital gains and dividends.
Remember after tax income is up about $200 billion annually to $6.6 trillion while US government and Federal Reserve debt this year alone will soar by $1.5 trillion. I would be shocked if taxes did not go up by at least $200 billion next year. If that is what happens, then the overall economy will stop growing courtesy of Uncle Sam. Already, TrimTabs has been reporting that nominal wage and salary growth has been slowing since October. While the government agencies are not picking up that slow down as of yet, they will. In addition companies are not exactly wowing Wall Street with earnings and revenue expectations for the fourth quarter and next year.
Last week our shorts, gold and inflation protected bonds went up in price and all the regular longs went down. The reason our model portfolio was only up 1% was that the decline in Amazon, Apple, Whole Foods and Salesforce.com was significant. Which is why I had reduced by more than half the amount of those longs in the model portfolio.
Assuming that the portfolio longs go down a bit further because of fear of higher taxes, before year-end, I probably will add to the model portfolios holdings of the four longs – Amazon, Apple, Salesforce.com and Whole Foods.
If gold also sells off sharply at some point soon, I will consider adding some more gold to the model portfolio.
Remember, the model portfolio is positioned to not only to make money but also to preserve capital whatever happens in this volatile global economy. And, sometimes, stock prices will not go our way over the short term.
President & CEO, TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)
Biderman’s Market Picks (“BMP”) is a newsletter offered by TrimTabs Investment Research (“TTIR”). TTIR is not an investment adviser. Charles Biderman is the CEO of TTIR and the sole source of trading ideas and portfolio holdings of BMP. He offers his general market opinions as well as some of his own investment ideas and information on his actual personal investments. Mr. Biderman does not intend to, and has no obligation, to disclose his entire portfolio in BMP, or the performance of his portfolio.This arrangement may result in several potential conflicts of interest.TTIR also provides investment research to institutional investors on supply and demand for shares of stock, and data on money flows as well as economic trends. Some of the information in BMP will be available to other TTIR customers before BMP is published each week.
Mr. Biderman is also the CEO and portfolio manager of TrimTabs Asset Management (“TTAM”), a registered investment adviser and the sub-adviser to the TrimTabs Float Shrink ETF (“TTFS”). TTIR and TTAM are therefore under common control, and they share certain employees, but TTAM does not use TTIR data and research.
As the portfolio manager of TTFS Mr. Biderman personally makes portfolio decisions for the 100 portfolio holdings of TTFS, based upon a customized TTAM formula of float reduction, free cash flow generation, and leverage reduction, rather than fundamental analysis of a company’s shares. To mitigate any conflicts of interests, BMP will not include any stocks included in the TTFS portfolio. However, this means that users of BMP will not have the benefit of Mr. Biderman’s views on companies that are included in the TTFS portfolio.
While BMP may include suggestions for investment in specific securities, including TTFS, Mr. Charles Biderman may trade in any position held by the model portfolio in his personal and family accounts at any time. He may make recommendations for the model portfolio after or before purchasing or and selling the same positions from his personal and family accounts. Charles Biderman’s personal accounts differ in size and composition from the model portfolio.
The model portfolio will consist of ETFs, both leveraged and unleveraged, and liquid stocks.
The model portfolio assumes a starting date of May 29, 2012, of $100,000 in cash invested in securities at that day’s closing price. All future transactions are assumed to occur at the closing price. The model does not include deductions for advisory, brokerage, custody or other fees and expenses which typically apply to an actual portfolio. Such fees and expenses will reduce returns, and they will have a compounded negative effect on a portfolio’s performance over time. The performance of the model will be affected by market and economic events in addition to the investment and trading decisions of Charles Biderman. The model’s performance is not indicative of future results.