2013 Annual Asset Class Review

Zephyr

I am writing this report from a first class sleeping cabin on Amtrak’s California Zephyr. We are now pulling away from Chicago’s Union Station, leaving its hurried commuters, buskers, panhandlers, and majestic great halls behind. I am headed for Emeryville, California, just across the bay from San Francisco. That gives me only 56 hours to complete this report. I tip my porter, Courtney, a $100 in advance to make sure everything goes well during the long adventure.

The rolling and pitching of the car is causing my fingers to dance all over the keyboard. Spellchecker can catch most of the mistakes, but not all of them.

station

As both broadband and cell phone coverage are unavailable along most of the route, I have to rely on frenzied searches during stops at stations along the way to chase down data finer points.

You know those cool maps in the Verizon stores that show the vast coverage of their cell phone networks? They are complete BS. Who new that 95% of America is off the grid?

After making the rounds with strategists, portfolio managers, and hedge fund traders, I can confirm that 2012 was the most hellacious for careers lasting 30, 40, or 50 years. With the Dow gaining a modest 4.5% in 2012, and S&P 500 up a positively virile 12%, most hedge funds lagged the index by miles, taking in, on average, a meager 5%. I managed to triple that with my Trade Alert Service, hauling in a 14.87% gain.

If you think I spend too much time absorbing conspiracy theories from the Internet, let me give you a list of the challenges I see financial markets facing in the coming year:

The Highlights of 2013

1) Stocks will finish 2013 higher, but there will be hard work along the way.

2) Performance this year will be front end loaded into the first quarter.

3) The Treasury bond market has peaked.

4) The Yen has peaked too.

5) The Euro trades in a range.

6) So do oil and gold.

7) Commodities begin a modest recovery.

8) Residential real estate bounces along the bottom.

windmills

The Thumbnail Portfolio

Equities - An “M” shaped year: run up to 1,600, sell off over the summer, then a year end rally closes us at the highs.
Bonds - Keep putting in a choppy 60 year top, then collapse.
Currencies - Dollar down in the winter, strong in the spring and summer, and strong again in the autumn.
Commodities - A China recovery takes them up, then sideways, then up some more.
Precious Metals - Sideways until the monetary expansion guaranteed by QE7 become obvious, and then up.
Real Estate - Multifamily up, commercial up, single family homes sideways to up small.

farmland

1) The Economy-The Second Lost Decade Continues

I am sticking with a 2% growth forecast for 2013. We are clearly entering the New Year on a growth spurt that could take Q4 up to an annualized 3%-3.5% rate. The end of the presidential election was a major impetus here. One day, billions of dollars were spent convincing us how terrible conditions in the country were, so businessmen and consumers sat on their hands. The next day they were gone, and the end of this uncertainty encouraged them to invest, hire, and spend. All of the data releases since then bear this out. Not even a drenching hurricane Sandy could slow the economy down. So we enter 2013 on a high note.

There is one big positive that we can count on in the New Year. Corporate earnings will probably come in at $105 a share for the S&P 500, a gain of 5% over the previous year. During the last four years we have seen the most dramatic increase in earnings in history, taking them to all-time highs. This is set to continue. Furthermore, this growth will be front end loaded into Q1.

2) Equities (SPX), (QQQQ), (AAPL), (XLF), (BAC), (EEM),(EWZ), (RSX), (PIN), (FXI), (TUR), (EWY), (EWT), (IDX)

With a GDP growing at a feeble 2% in 2013, and corporate earnings topping out at $105 a share, those with a traditional “buy and hold” approach to the stock market will do alright, provided they are willing to sleep through some gut churning volatility. A Costco sized bottle of Jack Daniels might help too.

Earnings multiples will increase a bit as well, from 14X to 15.2X, thanks to a prolonged zero interest rate regime from the Fed and paucity of attractive alternative investments. This is not an outrageous expectation, given the 10-22 earnings multiple range that we have enjoyed during the last 30 years.

This is the “least bad house in a crummy neighborhood that everyone in the world wants to live in” economic theory. John Maynard Keynes, eat your heart out. After all, Ben Bernanke is paying you to buy stock with cheap money, so why not? This is why weak earnings will benefit from a multiplier effect, possibly as high as 2:1. That gets the S&P 500 up to 1,600 by yearend, a gain of about 14% from here.

This does not represent a new view for me. It is simply a continuation of the strategy I outlined in October, 2012

Whereas 2012 saw slowing in both Europe and China, this year, a recovering Middle Kingdom will offset a slowing continent. The kicker is that Europe then starts to recover on its own by year-end, taking global GDP growth to the top end of its recent range.

Cost cutting through layoffs is reaching an end, as there is no one left to fire. That leaves technology as the sole remaining source of margin increases, which will continue its inexorable improvements. Think of more machines and software replacing people.

Deleveraging will remain a dominant factor affecting the economy for another 5-8 years. Much of the hyper growth we witnessed over the past 30 years, possibly half, was borrowed from the future through excessive credit, and it is now time to pay the piper. We are still at the beginning of a second lost decade. Don’t expect a robust GDP while governments, corporations, and individuals are sucking money out of the economy.

You can count on demographics to suck life out of this economy for the rest of the decade. Big spenders, those in the 46-50 age group, don’t return in big numbers until 2022. This lines up nicely with my 2% target.

Forget about employment. The news will always be bad. At this stage of the economic cycle, we should be generating a robust 400,000 jobs a month, not a paltry 150,000. I believe that the US has entered a period of long-term structural unemployment similar to what Germany saw in the 1990’s. Yes, we may grind down to 7%, but no lower than that. Keep close tabs on the weekly jobless claims that come out at 8:30 AM Eastern every Thursday for a good read of the financial markets to head in a ‘RISK ON” or “RISK OFF” direction.

While the “fiscal cliff” resolution generated a nice short-term pop in the market, the longer-term consequences will create a big drag economy. I know there is a lot of double counting going on here. But will someone please explain to me how taking money out of both of our pockets at the same time, through higher taxes and less spending, is cause to go out and celebrate? If you are only starting with an economy that is growing 2% a year, that eventually spells recession, and a bear market. In the end, congress was negotiating over how big of a recession to have next.

This does not represent a new view for me. It is simply a continuation of the strategy I outlined in October, 2012 (click here for “My 2012-2013 Stock Market Forecast”).

Technology will be the top-performing sector in the market in 2012, with Apple (AAPL) taking the lead once again, along with their entire ecosystem. This year, they will be joined by consumer cyclicals, industrials, financials, and autos.

Share prices will deliver anything but a straight line move. I am looking for an “M” type year. We start with a ferocious rally that takes us up to the highs, then suffer a heart stopping summer selloff, followed by an aggressive yearend rally. If you put a gun to my head and forced me to come up with some round numbers, I would say we go up 10%, then down 20%, then up 25% to give us an up 10% year. This is why it will play out this way:

Quarter 1

A ton of good news hits the market, including:

1) Resolution of the fiscal cliff.

2) A major reallocation out of bonds and into stocks.

3) A slow reacceleration of the Chinese recovery.

4) New Year allocation of new cash by institutional investors.

5) Stocks sold to reap lower capital gains taxes in 2012 need to get bought back, especially in technology.

6) A Q4 growth spurt prompted by the end of the US presidential election cycle and Hurricane Sandy reconstruction continue to feed strong data into Q1.

7) Markets are very thin and illiquid, so any of the factors above will give an outsized and disproportional push to the upside.

As investors will be slow to comprehend the impact of all of these events, they will react incrementally, not getting fully invested until March or April. By then, the S&P 500 will be at 1,600, the top of a 14-year range, where it always fails in a 2% growth economy.

SPX

Get Ready to Fail Again

Moneygame Chart

Quarters 2 and 3

The next leg of the European sovereign debt crisis reminds us all to “Sell in May, and go away” for the fifth year in a row. The contagion spreads to Italy and France. This creates a hiccup in China, so the recovery slows there. A steadily improving jobless rate prompts the Fed to start hinting about the end of quantitative easing. A nasty, public slugfest in congress over the March 31 debt ceiling will further give stock owners ulcers. This triggers recession fears and cuts the legs out from under the market. The way is cleared for a 20% swoon down to 1,300.

I will observe all of this with complete indifference from my Alpine chalet in Zermatt, Switzerland (yes, the one with the shabby outhouse, but great broadband), having sold everything before I went on vacation. I wile away my time practicing my German with the goat herders by day, and dancing the polka with the local frauleins at night. I return in August, just in time to buy the market at the absolute bottom.

Crash, we won’t, and this is what my Armageddon friends don’t get. To break to deeper lows, you need sellers, and lots of them. Those were in abundance in 2008, when the bear market caught many completely by surprise, everyone was leveraged to the hilt, and risk controls provided all the security of wet tissue paper. The margin clerks ruled supreme.

This time around it’s different. Prime brokers now require a pound of flesh as collateral, especially in the wake of the MF Global Bankruptcy, and leverage as almost an extinct species. In the meantime, individuals have been decamping from stocks en masse, with equity mutual fund sales over the past four years hitting $500 billion, compared to $1 trillion in bond fund purchases. That will leave hedge funds the only players at an (SPX) of 1,300, who will be loath to run big shorts at 20% dips. You can’t have a crash if there is no one left to sell.

Quarter 4

Bargain prices give us a nice springboard to rally into Q4, for any number of reasons. The Federal Reserve will use any substantial weakness on the market to launch another quantitative easing program, be it QE5, 6, or 7. The European Central Bank can come up with an LTRO at any time. Japan’s new, more aggressive monetary easing and epic public spending should be reaching its stride by then. China seems to always have another $500 billion stimulus budget that they can pull off the shelf at any time. A Treasury bond market singing its swan song by then would be another plus, panicking more money into stocks.

SPX 1-4-13

QQQ

IWM

snowy hills

3) Bonds (TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP), (KMP), (LINE)

Amtrak needs to fill every seat in the dining car, so you never know who you will get paired with. There was the Vietnam vet Phantom jet pilot who now refused to fly because he was treated so badly at airports. A young couple desperate to get out of Omaha could only afford seats as far as Salt Lake City, sitting up all night. I paid for their breakfast. A retired British couple was circumnavigating the entire US in a month on a “See America Pass.” Mennonites returned home by train because their religion forbade airplanes.

Mennonites

Will this be the year that the Treasury bond market finally collapses? The single worst call, by both me, and the hedge fund industry for the past four years was that massive borrowing by the Federal government would cause the Treasury bond market to crash. Not only did Mr. Market repeatedly dope slap us all, it blasted through to new 60 year highs, sending ten year yields to 1.38%, which adjusted for inflation is a real negative yield of -1.2% a year.

Bond investors today will get back 80 cents worth of purchasing power at maturity for every dollar they invest. But institutions and individuals will grudgingly lock in these appalling returns because they believe that the losses in any other asset class will be much greater. The problem is that driving eighty miles per hour while only looking in the rear view mirror can be hazardous to you financial health.

What I underestimated in 2012 was the absolute perniciousness of today’s deflation. The price for everything you want to sell is continuing a relentless fall, including your home and your labor. The cost of the things you need to buy, like food, energy, health care, and education, is rocketing. Globalization is the fat on the fire. I call this “The New Inflation”. This goes a long way in explaining the causes behind a 30-year decline in the middle class standard of living.

The other thing I miscalculated on was how rapid contagion fears spread from Europe. When the world gets into trouble, everyone picks up their marbles and goes home. For the financial markets, that translates into massive buying of the core “flight to safety” assets of the US dollar and Treasury bonds.

While much of the current political debate centers around excessive government borrowing, the markets are telling us the exact opposite. A 1.90%, ten-year yield is proof to me that there is a Treasury bond shortage, and that the government is not borrowing too much money, but not enough. Given the choice between what a politician wants me to believe and the harsh judgment of the marketplace, I will take the latter every time.

So what will 2013 bring us? I think we will start to chip away at the bond market bubble’s granite edifice. I am not looking for a free fall in price and a spike up in rates, just a move to a new higher trading range in yields. The high and low for ten year paper for the past nine months has been 1.40% – 1.90%. We could easily ratchet up to a 1.90% to 2.50% range, but not much higher than that. You might have to wait for your grandchildren to start trading before we see a return of 12% Treasuries last seen in the early eighties.

Reaching for yield will continue to be a popular strategy among many investors. That focuses buying on junk bonds (JNK), (PHB), and (HYG), REITS (HCP), and master limited partnerships (KMP), (LINE). There is also emerging market sovereign debt to consider (PCY). At least there, you have the tailwinds of strong economies, little outstanding debt, appreciating currencies, and higher interest rates than those found at home.

As for municipal bonds (MUB), we are seeing only the opening act of a decade of fiscal woes by local government. Still, there is a good case for sticking with munis. No matter what anyone says, taxes are going up, and when they do, this will increase muni values. So if you hate paying taxes go ahead and buy this exempt paper, but only with the expectation of holding it to maturity. Liquidity could get pretty thin along the way. Be sure to consult with a local financial advisor to max out the state, county, and city tax benefits.

TLT

TBT

4) Foreign Currencies (FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)

Any trader will tell you to never bet against the trend, and the overwhelming direction for the US dollar for the last 220 years has been down. The only question is how far, how fast. Going short the currency of the world’s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long-term growth rate is a no brainer.

This year, the call against the dollar has to be a little more nuanced, defined by the relative aggressiveness of central bankers in each of the major currency blocks. Japan’s Ministry of Finance is now, far and away, the most ambitious government agency, hell bent on crushing the yen to rescue its dying economy. You can thank the newly installed Liberal Democratic Party for this, which swept to victory in the December elections.

The problems in the Land of the Rising Sun are almost too numerous to count: the world’s highest debt to GDP ratio, a horrific demographic problem, flagging export competitiveness against neighboring China and South Korea, and the world’s lowest developed country economic growth rate. The dramatic sell off we saw in the Japanese currency since December is the beginning of what I believe will be a multiyear, and possibly multidecade, move down.

The US comes in second in the global race to weaken currencies, thanks to QE 1, 2, 3, 4, and ultra low interest rates. Bernanke has promised to continue this until 2015, or until our unemployment rates fall below 6.5%, which could be forever. This means the dollar will be strong against the yen, but weaker when measured in Australian, Canadian, or New Zealand dollars.

The Euro is a bit of a quandary. While European Central Bank president, Mario Draghi, has talked a lot about monetary easing, he has actually done very little. Recurring financial crisis on the continent will be offset by the prospects of a year-end recovery in the economy and progress on a new treaty. So we could see a range here for the year of $1.20-$1.37, with little net movement overall. Euro currency traders may have to go to sleep for a while, or move on the more fertile fields, like betting against the yen.

For a sleeper, use the next plunge in emerging markets to buy the Chinese Yuan ETF (CYB) for your back book, but don’t expect more than single digit returns. The Middle Kingdom will move heaven and earth in order to keep its appreciation modest to maintain their crucial export competitiveness.

FXY

FXE

FXA

mountains

5) Commodities (FCX), (VALE), (MOO), (DBA), (MOS), (MON), (AGU), (POT), (PHO), (FIW), (CORN), (WEAT), (SOYB), (JJG)

This is an easy call to make. If the China recovery is real, as the markets believe, then you want to be loading the boat with commodities here. If this is just a temporary post election (the one in Beijing, not the US) “feel good” rally, then you want to unload whatever you have. I believe in the former case.

China is not returning to the double-digit growth rates of the past. Just stabilizing here at a 7% annual rate would be a big win. Then they may crawl back to an 8% growth rate, but not much higher. That’s still four times faster than America’s arthritic 2% growth rate.

The Middle Kingdom is currently changing drivers of its economy, from exports to domestic consumption. This will be a multidecade process, and they have $4 trillion in reserves to finance it. It will still demand prodigious amounts of imported commodities, especially, oil, copper, iron ore, and coal, all of which we sell. The derivative equity plays here are Freeport McMoRan (FCX) and Companhia Vale do Rio Doce (VALE).

The food commodities are a tremendous long term Malthusian play, with corn (CORN), wheat (WEAT), and soybeans (SOYB) coming off the back of great returns in 2012. The harsh reality here is that the world is making people faster than the food to feed them, the global population jumping from 7 billion to 9 billion by 2050. Half of that increase comes in countries unable to feed themselves today, largely in the Middle East. The idea here is to use any substantial weakness this winter to build long positions that will double again if global warming returns in the summer.

These can be played through the ETF’s (MOO) and (DBA), and the stocks Mosaic (MOS), Monsanto (MON), Potash (POT), and Agrium (AGU). The grain ETF (JJG) is another handy play. Though an unconventional commodity play, the impending shortage of water will make the energy crisis look like a cakewalk. You can participate in this most liquid of asset with the ETF’s (PHO) and (FIW).

FCX

corn

6) Energy (DIG), (RIG), (USO), (DUG), (DIG), (UNG), (USO), (OXY), (X)

Our train has moved over to a siding to permit a freight train to pass, as it has priority on the Amtrak system. Three Burlington Northern engines are heaving to pull over 100 black, brand new tank cars, each carrying 30,000 gallons of oil from the fracking fields in North Dakota. Regulatory delays for the construction of the Keystone pipeline prevent the oil from heading south any other way. There is another tank car train right behind it. No wonder Warren Buffett tap dances to work every day, as he owns the road. US Steel (X) also does the two-step, since they provide immense amounts of steel to build these massive cars.
The US energy boom sparked by fracking will be the biggest factor altering the American economic landscape for the next decade. It will flip us from a net energy importer to an exporter within three years, allowing a faster than expected reduction in military spending in the Middle East. Cheaper energy will bestow new found competitiveness on US companies that will enable them to claw back millions of jobs from China in dozens of industries. This will end our structural unemployment faster than demographic realities would otherwise permit.
Add the energies of oil (DIG), Cheniere Energy (LNG), Transocean (RIG), and Occidental Petroleum (OXY). Skip natural gas (UNG), because the discovery of a new 100-year supply from “fracking” and horizontal drilling in shale formations is going to overhang this subsector for a very long time. However, major reforms are required in Washington before use of this molecule goes mainstream.

WTIC

USO

7) Precious Metals (GLD), (DGP), (SLV), (PPTL), (PALL)

The train has added extra engines at Denver, so now we may begin the long laboring climb up the Eastern slope of the Rocky Mountains. On a steep curve, we pass along an antiquated freight train of hopper cars filled with rocks. The porter tells me this train is welded to the tracks to create a windbreak. Once, a gust howled out of the pass so swiftly that it blew a train over on to its side.

In the snow filled canyons we sighted a family of three moose, a huge herd of elk, and another group of wild mustangs. The engineer informed us that a rare bald eagle was flying along the left side of the train. We also saw countless abandoned gold mines and the broken down wooden trestles leading to them, so it is timely here to speak about precious metals.

snow countryside

Gold is not dead; it is just resting. I believe that the monetary expansion arguments to buy gold prompted by QE3 and QE4 are still valid. But because QE3 is entirely focused on the housing market through the Fed purchase of $40 billion a month of mortgage backed securities, the effect on the broader money supply is delayed. Nevertheless, I expect it to start kicking in sometime in 2013, bringing a dramatic increase in the monetary base as calculated by the Reserve Bank of St. Louis. Then a new high for the barbarous relic is in the cards.

JT snow angel

Until then, the pain trade for gold holders is on. After all, who needs a safety umbrella in the middle of a bad news drought? The chip shot here is $1,500 on the downside, once the remaining hedge fund redemptions and other hot money are cleared out. If we have a real recession this year, $1,200 might be doable. Remember, the speculative frenzy is as great as it was in 1979, which saw the beginning of a 75% plunge in the yellow metal.

But the long-term bull case is still there. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad. When I pull a dollar bill out of my wallet, it’s as limp as ever.

If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. The precious metals have to work off a severely overbought condition before we make substantial new highs. Remember, this is the asset class that takes the escalator up and the elevator down, and sometimes the window.

If the institutional world devotes just 5% of their assets to a weighting in gold, and an emerging market central bank bidding war for gold reserves continues, it has to fly to at least $2,300, the inflation adjusted all-time high, or more. This is why emerging market central banks step in as large buyers every time we probe lower prices. For me, that pegs the range for 2013 at $1,500-$1,950 for 2013. ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP).
I would also be using the next bout of weakness to pick up the high beta, more volatile precious metal, silver (SLV), which I think could hit $50 once more. Palladium (PALL) and platinum (PPLT), which have their own auto related long term fundamentals working on their behalf, would also be something to consider on a dip.

gold

silver

JT & conductor

8) Real Estate (XHB)

The majestic snow covered Rocky Mountains are behind me. There is now a paucity of scenery, with the endless ocean of sagebrush and salt flats of Northern Nevada outside my window, so there is nothing else to do but write. My apologies to readers in Wells, Elko, Battle Mountain, and Winnemucca, Nevada; it is a route long traversed by roving banks of Indians, itinerant fur traders, the Pony Express, my immigrant forebears in wagon trains, the transcontinental railroad, the Lincoln Highway, and finally US Interstate 80.

As I am now crossing a desert, it is relevant that I discuss the real estate market. There is no doubt that there is a modest recovery underway. If you live in most of the country, we are talking about small, single digit gains. At least, it has stopped going down. If you live within commuting distance of Apple (AAPL), Google (GOOG), or Facebook (FB) headquarters in California, you are looking at multiple offers, bidding wars, and prices at all time highs.

However, I don’t believe we are in a new bull market for housing, especially, single-family homes. There are only three numbers you need to know in the housing market: there are 80 million baby boomers, 65 million Generation Xer’s who follow them, and 85 million in the generation after that, the Millennials.

The boomers have been desperately trying to unload dwellings to the Gen Xer’s since prices peaked in 2007. But there are not enough of them, and three decades of falling real incomes mean that they only earn a fraction of what their parents made. If they have prospered, banks won’t lend to them. Brokers used to say that their market was all about “location, location, location.” Now it is “overhang, overhang, overhang.”

Now consider the coming changes that will affect this market. The home mortgage deduction is unlikely to survive any real attempt to balance the budget. And why should renters be subsidizing homeowners anyway? Nor is the government likely to spend billions keeping Fannie Mae and Freddie Mac alive, which now account for 95% of home mortgages.

That means the home loan market will be privatized, leading to mortgage rates 200 basis points higher than today. If this sounds extreme, look no further than the jumbo market for proof. It is already bereft of government subsidies, so loans of this size are priced at premiums. This also means that the fixed rate 30-year loan will disappear, as banks seek to offload duration risk to consumers. This happened long ago in the rest of the developed world.

What put in the bottom in this bear market this time was the appearance for the first time of hedge funds and institutional investors as buyers in large numbers. Up to 60% of the recent foreclosure sales in California have been snapped up by this group of specialty investors. These are the new private equity investors of our day. They see cheap housing as nothing more than a yield play, a way to cash in on Ben Bernanke’s munificence, by locking in 15-year money for 2.5%. The downside of their participation here is that they will probably be capping the upside in future real estate bull markets by selling to lock in capital gains.

There is a happy ending to this story. By 2022 the Millennials will start to kick in as the dominant buyers in the market. Some 85 million Millennials will be chasing the homes of only 65 Gen Xer’s, causing housing shortages and rising prices. This will happen in the context of a labor shortfall and rising standards of living. Remember too, that by then, the US will not have built any new houses in large numbers in 15 years. In fact, the 2020’s could bring a repeat of our last golden age, the 1950’s.

The best-case scenario for residential real estate is that it bounces along a bottom or gradually moves up for another decade, unless you live in Cupertino or Mountain View. Only buy a home if your wife is nagging you about living in that cardboard box under the freeway overpass. But expect to put up your first-born child as collateral, and bring in your entire extended family in as cosigners if you want to get a bank loan. Then pray that the price starts to go up in 10 years. Rent; don’t buy. There are better things to do with your money, like buy high yield, single digit PE US stocks during the next summer swim.

sunset

Would You Believe This is a Blue State?

We have pulled into the station at Truckee in the midst of a howling blizzard. My loyal staff have made the 20 mile treck from my beachfront estate at Incline Village to welcome me to California with a couple of hot breakfast burritos and a chilled bottle of Dom Perignon Champaign, which has been resting in a snowbank. I am spared from taking my last meal with Amtrak.

Well, that’s all for now. We’ve just passed the Pacific mothball fleet moored in the Sacramento River Delta and we’re crossing the Benicia Bridge. The pressure drop caused by an 8,000 foot descent from Donner Pass has crushed my water bottle. The Golden Gate and the soaring spire of the Transamerica building are just around the next bend across San Francisco Bay. A storm has just blown through, leaving the air crystal clear and the bay as flat as glass. It is time for me to unplug my Macbook Pro and iPhone 5 and pack up.

We arrive in Emeryville 45 minutes early. With any luck, I can squeeze in a ten mile night hike up Grizzly Peak and still get home in time to watch the season opener for Downton Abbey. I reach the ridge just in time to catch a spectacular pastel sunset over the Pacific Ocean. It is going to be a good year.

I’ll shoot you a trade alert whenever I see a window open on any of the trades above. Good trading in 2013!

XHB

Bridge

JT at work

Crossing the Bridge to Home Sweet Home

Train