Will Facebook Mark the Market Top?

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The street is chattering today over the prospect of an enormous payday with the imminent IPO for the social media company, Facebook. Price talk is valuing the company as high as $100 billion, making it the largest such floatation in history. Could the mega deal spell the end of the current bull market? Look at it this way. Assuming that Facebook sells only 5% of itself to … [Read more...]

January 31, 2012 – Quote of the Day

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“People are investing with a rear view mirror. Last year, you had people legitimately scared out of the market. Unfortunately, you are losing a generation of investors at a time when they ‘out to be thinking about buying high quality stocks,” said Hersh Cohen of Clearbridge Advisors. … [Read more...]

Is This the Chink in Japan’s Armor?

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“Oh, how I despise the yen, let me count the ways.” I’m sure Shakespeare would have come up with a line of iambic pentameter similar to this if he were a foreign exchange trader. I firmly believe that a short position in the yen should be at the core of any hedged portfolio for the next decade, but so far every time I have dipped my toe in the water, it has been chopped off by … [Read more...]

Thank Goodness I Don’t Live in Sweden!

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I found recently found the chart below showing world tax rates as a percentage of GDP for the past 40 years. Sweden suffers the world's heaviest tax burden at 51%, compared to only 27% in the US. The US has among the world's lowest tax burdens, which has been falling for the last ten years. Listening to TV pundits, you would think we had the world's highest tax rates which … [Read more...]

Fed Says Market Rally is BS

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Well, they didn’t really say that, but they could have, and perhaps should have, and the bond market wholeheartedly agrees with them. That is my takeaway from the Fed minutes released yesterday indicating that the Federal Reserve intends to extend its hyper accommodative policies for at least another 6-9 months to “late 2012.” It also lowered its long term economic growth … [Read more...]

Report From Beverly Hills

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I am writing this letter at a table in the alcove of the Polo Lounge at the legendary Beverly Hills Hotel. They did not disappoint on the movie star front, with more than an ample supply. At the table on my right, John Hamm, who plays the predatory ad man Don Draper in AMC’s Mad Men, is having a friendly chat with Lorne Michaels, the producer of Saturday Night Live. Jamie Lee … [Read more...]

Apple’s Next Stop: $1,000!

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Newspapers, TV, radio, and the Internet all carried the same headline in San Francisco today: “Apple Now World’s Largest Company.” That was the response to the company’s Q4 earnings of $13 billion announced yesterday that drove its market capitalization skyward to $415 billion, surpassing ExxonMobile’s (XOM) once again. What is even more amazing is that its cash position now … [Read more...]

Goodbye Steve Jobs, Hello Dividend?

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Analysts continue to be stunned by the rate at which cash is rolling into Apple (AAPL). At current cash flows, the company’s hoard is expected to grow from $96.7 billion to $130 billion by next June, an increase of nearly $220 million a day! So far, the company has resisted every entreaty to part with some of this dosh, either through a share buyback or a dividend. Now some … [Read more...]

The Benefit of the Doubt Market

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It is already January 24, and the S&P 500 has seen a grand total of two down days so far in 2012. Are we on the eve of one of the great bull markets of all time? Is it off to the races once again? I follow dozens of fundamental and trading research services and the number that are flashing warning lights right now is close to an all-time high. For example, the AAII … [Read more...]

The Resurrection of Peak Oil

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It has been a long wait for 'peak oilers,' whose passionate belief is that the world will run out of oil in coming years, sending prices through the roof. This splinter religion came into being in 1956 when M. King Hubbert produced some simple supply/demand charts showing that US reserves of Texas tea would dry up by 1965-70, forcing a heavy reliance on imports with which we … [Read more...]

Sold Out! Las Vegas January 27, 2012 Strategy Luncheon

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Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Las Vegas at 12:00 noon on Friday, January 27, 2012. A three course lunch will be followed by a PowerPoint presentation and an extended question and answer period. I’ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, … [Read more...]

Watch International Savings Rates for Market Cues

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Often while searching for a piece of data through Google, I stumble across something else which is far more interesting. That is how I found the table below of international savings rates. Why should you care? Because countries with high savings rates tend to have strong economies and great stock markets, since there is plenty of excess cash available to pour into … [Read more...]

The Population Boom

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In their century long coverage of exotic places, cultures, and practices, National Geographic Magazine inadvertently sheds light on broad global trends that deeply affect the rest of us. Plus, the pictures are great. A recent issue celebrated the approach of the world's population to 7 billion, and the implications therein. Long time readers of this letter know that … [Read more...]

Why Water Will Soon Become More Valuable Than Oil

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If you think that the upcoming energy shortage is going to be bad, it will pale in comparison to the next water crisis. So investment in fresh water infrastructure is going to be a great recurring long term investment theme. One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights. Although Earth is often referred to as … [Read more...]

Who Expensive Oil Hurts the Most

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Every time the price of oil spikes, we learn vast amounts of information about the global reach of this indispensable commodity. It's like taking a non-core elective in geology at college. So I was fascinated when I found the chart of relative sector winners and losers below. No surprise that energy does best from sky high crude prices. It is followed by telecommunications … [Read more...]

SOLD OUT! Beverly Hills January 23 Strategy Seminar

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Come join me for the Mad Hedge Fund Trader’s Global Strategy Seminar, which I will be conducting in Beverly Hills at 1:30 pm on Monday, January 23, 2012. A 45 minute PowerPoint asset class review will be followed by an open discussion on the crucial issues facing investors today. Coffee and snacks will be made available. The bar will open at 4:30 when we get into the really … [Read more...]

Buy Flood Insurance With the VIX

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I am one of those cheapskates who buys Christmas ornaments by the bucket load from Costco in January for ten cents on the dollar because my eleven month return on capital comes close to 1,000%. I also like buying flood insurance in the middle of the summer when the forecast here in California is for endless days of sunshine. That is what we are facing now with the volatility … [Read more...]

The Price of Stardom at Davos

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It’s that time of year again, when finance ministers, central bank governors, hedge fund managers, and assorted rock stars hold their annual confab high in the Alps at Davos, Switzerland. When I was a director of one of the largest banks in Switzerland, I found myself a frequent visitor to the Alpine village of Davos. In years gone by, we provided the loans to the Canton of … [Read more...]

Will Gold Coins Suffer the Fate of the $10,000 Bill?

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The conspiracy theorists will love this one. Buried deep in the bowels of the 2,000 page health care bill was a new requirement for gold dealers to file Form 1099's for all retail sales by individuals over $600. Specifically, the measure can be found in section 9006 of the Patient Protection and Affordability Act of 2010. For foreign readers unencumbered by such concerns, … [Read more...]

The Weekly Jobless Claims Blockbuster

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Traders were taken aback this morning when the Department of Labor announced a 50,000 drop in weekly jobless claims to 352,000. The street had been expecting a decline of only 19,000. It was the lowest report in almost three years, and the sharpest weekly decline in seven years. I tell people that, if stranded on a desert island, this is the one weekly report I would want to … [Read more...]

2012 Strategy Luncheon Schedule

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Many of you have asked for this year’s strategy luncheon calendar so you can make advance travel arrangements, so here it is. This is understandable, since the Orlando luncheon saw visitors from Brazil and Australia, the Los Angeles one had subscribers from Alaska thawing out, and at the London event the distinctive accent of Johannesburg was heard. This year I am going into … [Read more...]

Beware the Coming Equity Famine

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The world is about to suffer an acute shortage of equity capital over the next eight years which could total $12.3 trillion. That is the conclusion of the McKinsey Global Institute, an affiliate of McKinsey &Co., a great well of long term economic thinking which I have been drawing from for the last 40 years. The cause of the coming debacle is quite simple. Investable … [Read more...]

Fade the Second Half of January

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Let me tell you about the real January effect. Many pension and retirement funds only reshuffle weightings between different asset classes once a year, mostly in January. That has created a temporary surge of stock buying and bond selling that exhausts itself by the middle of the month. After that, the market sells off. During the second half of January in 2009, the S&P 500 … [Read more...]

Carnage in the Grain Pits

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I have been warning readers away from the agriculture space for the past few months, and on Thursday you found out why. More than 90% of the street was positioned for a bullish report, expecting that the last summer’s blistering drought and ongoing dryness in South American would lead to inevitable shortages. Instead, the US Department of Agriculture dropped a bombshell, … [Read more...]

Demographics as Destiny

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If demographics is destiny, then America’s future looks bleak. I have long been a fan of demographic investing which creates opportunities for traders to execute on what I call “intergenerational arbitrage”.  When the numbers of the middle aged are falling, risk markets plunge. Front run this data by two years, and you have a great predictor of stock market tops and bottoms … [Read more...]

Another Nail in the Euro Coffin

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The only surprise in the downgrade of nine European sovereign borrowers was that it took so long. It is a classic case of locking the barn door after the horses have bolted. The only unknown is how many more downgrades remain. The marketplace is already valuing this paper at CCC levels, with ten year yields violently fluctuating around the 7% handle. So the BBB+ awarded to … [Read more...]

Natural Gas Goes Down in Flames

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I received a scratchy and barely audible call from my buddy out in the Barnet natural gas fields just outside of Fort Worth, Texas the other day. With the price for CH4 decisively breaking through $3/MBTU yesterday, traders were now resigned to seeing a new ten year low in the near future, possibly as low as $2. The men on the rigs were getting restless, fearing layoffs in … [Read more...]

Riding the Rails on the Transcontinental

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Chicago’s Union Station is one of those places that is permanently jammed. Commuters rushing to catch trains run into bottlenecks at every turn. Today, they were fleeing a freezing rain outside that left the city’s skies a leaden overcast. The entire station smelled of wet wool. Only the Great Hall, which was setting up for a celebrated New Year’s party, offered decent running … [Read more...]

Testimonial

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Thank you for a terrific year.  I have been managing assets for 27 years and I find your writings and work truly insightful.  I wish I had met you in 1984 (started at Merrill Lynch and then spent the bulk of my career at Bear Stearns) and let you help me shape my thoughts for all of those years. The business has never been easy and the markets today are certainly more … [Read more...]

Welcome to Nosebleed Territory

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When climbing peaks in the Alps, the High Sierras, or the Himalayas, you know you’re getting close to the top when the air becomes thin, it is difficult to breathe, and your nose suddenly starts to bleed. I remember trying to smoke a cigarette at 20,000 feet on Mount Everest. If you didn’t keep puffing it went out immediately because of the lack of oxygen. I am starting to … [Read more...]

The Muni Bond Myth

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Have I seen this movie before? Three years ago, analysts were predicting default rates as high as 17% for Junk bonds in the wake of the financial meltdown, taking yields on individual issues up to 25%. Liquidity in the market vaporized, and huge volumes of unsold paper overhung the market. To me, this was an engraved invitation to come in and buy the junk bond ETF (JNK) at $18. … [Read more...]

Take a Look at Futures Magazine

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Some people will do anything for a good stock tip. Futures magazine, published a complimentary profile about me in their recent issue. The publication is associated with the highly educational and informative annual Hard Asset Conferences in New York, San Francisco, and soon to be Chicago, where I have been a regular keynote speaker and panelist. For a quickie update on my … [Read more...]

Watch Out for the Jobs Trap

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There is no doubt that the recent jobs data has been absolutely blistering. On January 4, weekly jobless claims plunged by 15,000 to 372,000, well below the 400,000 that is required for a sustainable recovery. The next day, the ADP report delivered a gob smacking 325,000 in job gains for December. Then the big kahuna surprised to the upside, the December non-farm payroll, … [Read more...]

Watch Those Monetary Aggregates!

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Call me a nerd, but instead of spending my Sundays watching the NFC playoffs, I pour over data analyzing the monetary aggregates. This is so I can gain insights into the future performance of assets classes. What I am seeing these days is not just unusual; it’s bizarre. Call it a double reverse, a Hail Mary, and a Statue of Liberty all combined into one. You can clearly see … [Read more...]

January 11, 2012 – Quote of the Day

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“Housing in terms of price has put in a real bottom. I’m not looking for a housing bull market. We are in the second phase of a housing bear market. But the good news is that we can correct the rest of the way back to the long term trend through time, rather than price on a national basis,” said Josh Brown, a real estate analyst. … [Read more...]

An Invitation to a Private Briefing from SOUTHCOM Commander General Douglas Fraser

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After pulling some strings at the Pentagon, I managed to gain access for readers of The Diary of a Mad Hedge Fund Trader to a briefing from General Douglas Fraser. He is a four star Air Force General who is the commander of US Southern Command (SOUTHCOM), one of nine unified Combatant Commands in the Department of Defense. Its area of responsibility encompasses Central … [Read more...]

Tea With Economist David Hale

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Before I left Chicago, I managed to catch up with my old friend, David Hale, for a cup of tea at the city’s prestigious University Club. I have been using David as my de facto global macro economist for decades, and I never miss an opportunity to get his updated views. The challenge is in writing down David’s eye popping, out of consensus ideas fast enough, because he spits … [Read more...]

The Flash Crash Risk is Rising

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Those who lived through the cataclysmic “flash crash” that occurred precisely at 2:45 pm EST on May 6, 2010, have been dreading a replay ever since. Their worst nightmares may soon be realized. That is when the Dow Index (INDU) dropped a gob smacking 650 points in minutes, wiping out nearly $1 trillion in market capitalization. On that day, some ETF’s saw intraday declines … [Read more...]

Those Q4 Earnings Reports Will Not Be So Pretty

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Traders and investors have grown comfortable with a steady stream of corporate earnings reports. 2011 as a whole may come in as high as $15 a share for the S&P 500. But the gravy train may end starting next week. The number of companies reducing guidance and downshifting expectations is at a three year high. Similarly, analyst earnings forecast cuts are at a ten year … [Read more...]

The Euro Breaks Down

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(Note to Newsletter only subscribers: This trade alert went out to paying customers of my Trade Alert Service last Thursday morning.) I am going to start the New Year with a 25% allocation to the double leveraged short ETF (EUO). It’s time to do the hard trade, sell on weakness, and sell the breakdown. The Euro is so weak that it just won’t give new entries a decent entry … [Read more...]

January 9, 2012 – Quote of the Day

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“China is not going to have a hard or soft landing. It is going to keep on flying. There is a tremendous amount of momentum in the Chinese economy. There’s a lot to be done in terms of infrastructure. At the low end there is a lot to be done in housing. And it now has the largest amount of foreign exchange reserves in the world, by far,” said Mark Mobius of the Templeton … [Read more...]

The Heat Turns Up On JP Morgan

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Anne Barnhardt was the CEO of a money manager who was forced to shut down her firm in the wake of the MF Global collapse. She is calling for a boycott of the financial markets and JP Morgan (JPM) specifically. To listen to her blistering attack in full in an interview with by Buddy, Peter Schiff, please click here. I excerpt below: “Thank you for speaking up and calling it … [Read more...]

The Mystery of the Brasher Doubloon

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I’ll never forgot when my friend, Don Kagin, one of the world’s top dealers in rare coins, walked into the gym one day and announced that he made $1 million that morning.  I enquired “How is that, pray tell?” He told me that he was an investor and technical consultant to a venture hoping to discover the long lost USS Central America, which sunk in a storm off the Atlantic … [Read more...]

My 2011 Report Card

If there was ever a year when you wanted a former combat pilot with a current aerobatic license giving you financial advice, it was the one we just completed. After enough loops, spins, barrel rolls, and whip stalls to induce air sickness in the most seasoned of veterans, the major indexes ended almost exactly where they started for the second year in a row. Even the much … [Read more...]

All I Want To Do is Retire

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I have always believed that if you don’t have a sense of humor, then you better get the hell out of this business. Below is a link to a YouTube video entitled “All I Want To Do is Retire” which covers the decline of the brokerage industry over the last 20 years. The video is currently going viral and sent to me by a subscriber. Watch this during your next coffee break. The run … [Read more...]

Rubbing Shoulders With “The 1%” at Incline Village

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If you really want to get a read on how “the 1%” are faring these days, take a ski vacation to the tony hamlet of Incline Village on the pristine shores of Nevada’s Lake Tahoe. Each morning, I trekked to Starbucks, one of the few local sources for the Wall Street Journal and the New York Times. There, trophy wives line up to buy their chai tea lattes, all tall, thin, and … [Read more...]

January 4, 2012 – Quote of the Day

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“America’s colleges and universities churn out lots of liberal arts graduates….By and large, the economy doesn’t need all these generals. We’re not training enough scientists and engineers. The high schools used to churn out enough people with technical skills in the fifties and sixties, but not so today. It’s cheaper just to prepare everyone to go to college and pretend that a … [Read more...]

2012 Annual Asset Class Review

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I am writing this report from a first class cabin on Amtrak’s California Zephyr en route from Chicago to San Francisco. The majestic snow covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sage brush and salt flats of Northern Nevada outside my window, so there is nothing else to do but to write. My apologies to readers in Wells, … [Read more...]