Chasing Performance

As I mentioned in my last blog on Friday morning, I stopped over at Good Morning America again to talk about the economy with Chris Cuomo. We talked about Thursday’s selloff and what contributed to it, but we also talked about something that I think you should keep in mind today: WINDOW DRESSING or, as I like to paraphrase it, CHASING PERFORMANCE.

Today is the last day of the second quarter, and, as you can see, it’s been a bloody quarter. Take a look at the Dow vs. the price of crude oil. So far this quarter, the Dow is down 916.38 points, or 7.5% — down for the third straight quarter and down 18.3% over the last three quarters. The worst second quarter since the second quarter of 2002. Year-to-date, it is now down 14.5%. Oil on the other hand made a new record high last week and is up just under 40% on the quarter. Year-to-date, Nymex crude oil is up 46% and up 98% from 52 weeks ago. One other stat worth noting in regards to those who say the price of oil is closely tied to the dollar: it is but, of late, it is much more closely tied to oil. Look at this past month or month to date, Oil is up 10% while the DJIA is down 10.2%. That is the worst month on record since September of 2002 and the worst June month since 1930. Meanwhile the dollar vs. the euro is down 7.55% and the dollar vs. the yen is down 4.75% year to date.

Why give you all of these statistics? Because if you are a mutual fund or hedge fund, you chase performance. Where did you get the best performance this quarter? In oil, if you owned it. If not, you bought one of the oil names or any oil ETF and that is where you made money. Today you will protect some of those marks by keeping the commodity or the names that did well up. It’s called WINDOW DRESSING. You make yourself look good to shareholders.

One other group to note is the agriculture names, which got a nice lift this quarter, in part due to the floods in the midwest. Many of them got beaten up when Monsanto reported a disappointing number last week, not meeting the street’s estimates, but note that two USDA reports will be released today. One is titled the USDA Quarterly Grain Stocks and the other is the USDA Planted Acreage Report. The acreage report is likely to show that the U.S. will harvest 77 million acres, down 1.8 million. Shrinking acreage could push 2009 year-end corn inventories to as low as 300 million bushels, or down 80% from the previous year. This would be the lowest inventory since 1947. Note the U.S. is the world’s largest corn producer, accounting for nearly 40% of the world’s production. Corn futures this year are up nearly 70% and have recorded any all-time high. So, too, have soybean futures. Note names like Potash up 47.1% this quarter and peaked up 54.2%, Monsanto up 15.1%this quarter and peaked up 27.9% and Mosaic up 46.5% and peaked up 59.4%. Any fertilizer-related name this quarter has done well.

Finally this week is short and sweet but very meaningful, given this Thursday’s jobs report. We have had a lot of negative news in the past week or two. All eyes will be on the non-farm payroll number and on the Household Survey. Bernanke and team need a good one going into the long weekend. He’s feeling the pain. Also note the ECB will announce a rate decision Thursday. Trichet has signaled that he may raise rates a quarter of a point to fight inflation. Be on the lookout. That could continue to put downward pressure on the dollar and U.S. economy.