Another month has passed and with it comes another month of record highs in the stock market. Such is life in the sugar infused, Central Bank money printing world we live in these days. I pretty much watched it all and my existing positions benefited with the exception of a couple of more trades:
Added to short position in S&P 500 via Horizon Betapro Short S&P 500 ETF (HSD)
Market sentiment has decidedly turned bullish. The nervousness of the US budget situation has subsided (for now). There will now be a new Chairman of the Federal Reserve and she appears to be willing to continue the money-printing ways of Ben Bernanke, which is bullish for stocks. So why am I taking the other side of the trade? It’s because this artificial stimulus of ultra low interest rates is not sustainable. At some point, the money printing is going to stop and the concept of risk is going to return to stocks. Some smart people who know more than me think it was supposed to happen in September and of course they were wrong (again). Now they are targeting March 2014. I really have no idea when this game of interest rate musical chairs will end, but it will and instead of timing it, I decided to start slowly building up my existing short position. I’ve taken a bath on it (year to date down 30%) and if I was staying with my approach to manage losses I should have been out of this months ago, but I continued to hold on. Maybe it is emotion that’s keeping me in this position. I would like to think it is basic logic that when so many people are so bullish and exuberant about anything, that it may be wise to take the other side of the trade. So we will press on.
Opened position in EBay (EBAY)
As stocks keeping going up to higher highs, it is really hard to find any stocks out there that are creating tangible value and still selling at a discount. EBay appears to be one of the few out there. Compared to other E-Tailers like Amazon, Expedia, and Priceline, EBay trades at a discount to its peers. The firm continues to generate tangible wealth, generating Returns on Invested Capital in the 25% range versus a Cost of Capital of 10.5 percent. Its debt level is very manageable and balance sheet solid. The stock is hanging around the low $50’s and on a discounted cash flow basis has a value in the high $70’s. EBay is not just about auctions anymore, it is more of a virtual department store that charges retailers to list on their site and because of this, it carries little inventory. Behind it is the PayPal system which continues to gain currency and credibility as a payment settlement source (I just noticed that Best Buy is now accepting payment via PayPal).