THE MOST PRECARIOUS BUYING OPPORTUNITY OF 2013 IS HERE
We will begin with the most obvious fact: It is October. We will continue with the next obvious fact: We are in the midst of a governmental shit storm that is turning into a game of who can hold their breath the longest. We all know that eventually somebody will either give up or pass out, leading to some kind of resolution. The question that should be of concern to every investor and for that matter, every American, is the amount of damage that will take place in the markets and economy, in the meantime. I will make it clear that I am extremely bullish for Q4. In fact, to zoom in even further, I am extremely bullish for October. The problem is that I believe we are in a precarious enough position in the markets and news cycle that we are looking at a potentially brutal slip before we see the bounce. I don't necessarily want to be buying into any kind of slip before a base is observed. There is no need to be the first man in at the bottom. In my nearly 20 years of watching bottoms take place, I have not witnessed one that did not give investors the opportunity to get invested once it took place. Everyone will have their chance to get allocated if they remain patient. In the meantime, defense should be at the forefront of one's strategy, as opposed to catching the bottom tick. Over the past couple of weeks in my weekly review, I have been discussing the possibility of downside for the markets. Just this past Sunday, I pointed out the 1660-1670 level as a point from which we can stage a significant rally. We got the first hint today that the markets are also looking at the 1670 level, as the low of the day from which a nice rally took place intraday was 1670.36. What can open Pandora's Box for the bulls is described in the chart of the S&P from today: click chart to enlarge Perhaps all of this analysis rooted in caution will be all for not when we get a resolution this weekend and the market can look forward to earnings. That's the hope. But, unfortunately, I don't know of many investors who have thrived on hope. In fact, it is quite the...
SEPTEMBER PERFORMANCE SUMMARY AND LOOKING AHEAD TO OCTOBER
*This is my monthly letter to investors summarizing the month of September. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary posted to Zenpenny. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com - Largest winning position in September: WMIH +19.61% – Largest losing position in September: HMPR -7.84% – New additions to portfolio: SBCF – New liquidations in portfolio: None – Portfolio exposure as of September 30th: 85% long/15% cash Portfolio Highlights For September: ---- WMIH provided a bulk of the gains in the portfolios during September. The position had the fortunate distinction of being both the largest holdings in the portfolios, as well as the largest gainer for the month of September. Since initiating in July of 2012, the position is now up 150%. During that time, I have kept it a large position for several reasons, apart from the obvious “receiving billions in NOLs at a steep discount” angle. The first reason has to do with the general murkiness surrounding the entire situation. That murkiness is what caused the stock to fall into an abyss of pricing depression that had its shares trading at and below .50 cents for a period of several months. You don't get that type of misguided pricing in shares without confusion as to the structure and potential of the company. There simply hasn't been much thought or attention given to WMIH shares until very recently. The second reason is focused on the confusion regarding the mortgage reinsurance arm of the entity that has been in captive, run-off status for a number of years now. Taking a very simple look at the structure of the company, including the tax shelter in the form of NOLs, it would seem that the solution to their problems already exists in the form of cultivating WMMRC (Washington Mutual Reinsurance) into an entity that exists beyond paying maturing policies. It is, after all, true that reinsurance is getting a lot of attention from some of the most influential financial companies, mostly hedge funds, which have taken large stakes and in some cases formed their own reinsurance entities offshore for the various tax benefits. As the era of cloak and dagger transfer and masking of assets comes to an end, hedge funds are increasingly focusing their attention to domestic reinsurance opportunities. There certainly is a market for the business that WMMRC currently participates in. The third reason has to do with the fact that when...