Why I’m Covering My Bank Short


I am going to use the weakness in Bank of America shares today to cover my short position through selling my existing position in the (BAC) May, 2012 $7 puts at $0.24 cents or best. There is such minimal volatility in the market these days that when a little bit comes along, you have to grab it with both hands. The poor performance of these puts illustrates well the general … [Read more...]

Is Quantitative Easing Over?


That is certainly the conclusion of the financial markets. When Federal Reserve chairman, Ben Bernanke, failed to mention the magic words in his House Humphrey Hawkins testimony on Wednesday, risk assets were sent into a tailspin. Gold suffered a $100 move plunge in hours, the futures market seeing an almost instantaneous liquidation of $1.3 billion worth of contracts. Silver … [Read more...]

Buy Christmas Ornaments in January With the (VXX)


I am a notorious seeker of great bargains. I buy sun hats in the winter, umbrellas in the summer, and Christmas ornaments in January when Costco sells them for ten cents on the dollar. I even go into the barrio to buy Japanese sake where no one knows what it is, and it is sometimes ordered by accident. I’ll tell you what I like about the (VXX). It is a bet that someday, … [Read more...]

The Looking Glass Market


If you feel like this market has sucked you down a rabbit hole, you have plenty of company. I have never seen such a profusion of contrary cross market indicators. Traders are running up shares prices while companies are cutting earnings forecasts. Economists are raising GDP forecasts as rising energy prices are taking them the opposite direction. Natural gas is crashing as … [Read more...]

It’s All About the Euro


Wednesday will be all about the Euro. That is the day that the European Central Bank announces the result of the next tranche of its quantitative easing program, the LTRO, or Long Term Financial Reorganization policy. This is the program that allows European banks to borrow unlimited funds at 1% with no questions asked. This is very important for all asset prices worldwide, … [Read more...]

Coincident Economic Data Says Market is Topping


This is one of the most bizarre markets I have ever seen. The worse the economic outlook gets, the higher the market goes. But it doesn’t breathe like a normal market, with plenty of corrections along the way giving traders a chance to get in. It has been a straight line up with nary a pullback, trapping many players on the sidelines. But it has been going up so slowly that … [Read more...]

The Mad Hedge Fund Trader’s Long Term Model Portfolio


I am frequently asked to propose a long term portfolio that investors can just buy and forget about. They have no interest in sitting on the edge of their seat waiting for my next trade alert, staying up all night to catch the European opening, or scanning every wire service headline to glean a momentary trading edge. I have put together a model portfolio that achieves … [Read more...]

Will the Fall in Jobless Claims Hit a Wall?


If I were trapped on a desert island and could pick only one economic data release to float ashore in a bottle, it would doubtless be the weekly jobless claims. Released by the Department of Labor every Thursday morning at 8:30 EST, this one number is the most accurate leading indicator of future economic activity among the hundreds out there to choose from. If you don’t … [Read more...]

My Favorite Stock to Short


Troubled Bank of America (BAC) certainly earned its title as the premier Dog of the Dow last year. It managed an appalling 58% decline in 2011, the worst of any of the 30 Index stocks. It only managed to stay above the crucial $5 level by a hair’s breadth, below which many pension funds are barred from owning shares. Since the beginning of this year, it has been the best … [Read more...]

Risk Control for Dummies


Whenever I change my positions, the market makes a major move, or reaches a key level, I look to stress test my portfolio by inflicting various scenarios upon it and analyzing the outcome. This is second nature for most hedge fund managers. If fact, the larger ones will use top of the line mainframes powered by $100 million worth of in-house custom program to produce a real … [Read more...]

Nikkei Shows the Yen Move is Real


The Bank of Japan renewed its membership in the international quantitative easing club last week, announcing that it was substantially expanding its bond repurchases. Specifically, it will increase them from ¥55 trillion to ¥65 trillion, a jump equivalent to $830 billion. To understand how big this is, consider that Japan’s GDP is one third the size of the US. That would be … [Read more...]

The Long View on Emerging Markets


I managed to catch a few comments in the distinct northern accent of Jim O'Neil, the fabled analyst who invented the 'BRIC' term, and who has been kicked upstairs to the chairman's seat at Goldman Sachs International (GS) in London. Jim thinks that it is still the early days for the space, and that these countries have another ten years of high growth ahead of them. As I … [Read more...]

Use Apple Timing to Short Bank of America Stock


There is a method to my madness. It’s all about Apple (AAPL). A disproportionate share of the market volume has been pouring into Apple shares for the past two weeks. The higher it went, the more people wanted to buy. Just in the past week, the company has tacked on a staggering $75 billion in market capitalization. The action in the call options has been absolutely … [Read more...]

Rumblings in Tokyo


I spent ten years of my life tramping in and out of Japan’s Ministry of Finance headquarters in Tokyo’s Kasumigaseki district. It was a dreadful reinforced steel and concrete affair with a dull grey tile siding that was so solidly built that it was one of the few structures in the city to survive WWII. But the building offered spacious prewar dimensions, and I never tired of … [Read more...]

Is This the Chink in Japan’s Armor?


“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...]

Fed Says Market Rally is BS


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...]

The Benefit of the Doubt Market

Alarm Bells Ringing

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...]

Why Water Will Soon Become More Valuable Than Oil


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


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...]

Buy Flood Insurance With the VIX


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 Weekly Jobless Claims Blockbuster


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...]

Fade the Second Half of January


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...]

Demographics as Destiny


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...]

Natural Gas Goes Down in Flames


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...]

Welcome to Nosebleed Territory


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...]

Watch Those Monetary Aggregates!


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...]

The Flash Crash Risk is Rising


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


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...]

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...]

Rubbing Shoulders With “The 1%” at Incline Village


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...]

2012 Annual Asset Class Review


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...]

Where’s the Money?

Corzine testifies about the MF Global bankruptcy during a hearing before the U.S. House Agriculture Committee on Capitol Hill in Washington

That is the question that was asked repeatedly by members of congress to the former senior management of the late MF Global. The response was a few feeble shrugs and I don’t knows. CNBC has been running ridiculous contests like “Where is John Corzine?”, and “What does John Corzine want for Christmas?” The reporting on this by the media has been exaggerated and wildly … [Read more...]

Cross Market Correlations Are Breaking Down


Today was a real head scratcher for long time market observers, including myself. Cross market correlations that have served me so well this year are breaking down, and their predictive power has suddenly gone blind. I blame this on the liquidity drought that has plagued the market since the beginning of the month that has confined markets to frustratingly narrow … [Read more...]

Jobless Claims Give More Fodder to the Bulls


No, the important economic event of the week was not the snail like progress towards solution of the European debt debacle. It was the weekly jobless claims announced on Thursday that plunged 23,000 to 381,000, a six month low. That puts it well below the 400,000 level where the economy is generally thought to be expanding. Yes, you can argue that there are all kinds of … [Read more...]

Market Gives Thumbs Up on European Plan


Having the flu during the holidays is the pits. This weekend, I blew my nose at the Cirque du Soliel so loudly that is perilously distracted some of the high wire acrobats. I coughed and hacked my way through the San Francisco Ballet’s Nutcracker Suite. Even the eggnog is utterly tasteless, no matter how much Myers Rum I pour in it. I am writing this piece with a fever and … [Read more...]

Hedge Funds Circling Over the European Wreckage


Have you ever wanted to spend your summers basking in the sunlight at your mountain top Tuscan villa, surveying the manicured vineyards which produce your own estate bottled wine? Are you drawn by the cachet of claiming George Clooney as a celebrity neighbor on the model strewn shores of Lake Como? How about a luxury apartment that is walking distance from the Vatican? Hedge … [Read more...]

China’s Rate Cut is a Game Changer


For the first time in three years, China (FXI) has cut its prime lending rate by 50 basis points. The timing caught many analysts by surprise, as such move was not expected until the lunar new year in early February. Perhaps recent data showing collapsing exports prompted the Mandarins in Beijing to hurriedly move up the timetable. The Middle Kingdom’s action is one of the … [Read more...]

Austerity Hits Wall Street


This year, your bonus is that you get to keep your job. That is the bad news that will be dished out to many disappointed staff during annual reviews at the major Wall Street firms this year. We all know that volumes have been trading at subterranean levels which have created a real drought of commission incomes. New regulations imposed by Dodd-Frank and the Volker rule mean … [Read more...]

Bear Trap Sprung


The coming bear trap that I warned about last week sprung this morning on the non-subscribing unwary, triggering panic buying by short sellers in all “RISK ON” assets. Oil (USO), gold (GLD), silver (SLV), copper (CU), and foreign currencies all moved in lockstep to the upside. The trigger was news that leaked out over the weekend that the International Monetary Fund would make … [Read more...]

IMF Euro Bail Out Attempt Flops


The International Monetary Fund announced a new facility for members to address a short term liquidity crisis. The measure is aimed at beleaguered Europeans girding themselves for a steady worsening of their sovereign debt crisis in the hope of “breaking the chain of contagion.”  But the measure is more of a squirt gun than a bazooka. Specifically, the IMF has offered 6 … [Read more...]

Watch Out for the Bear Trap


The volatility index (VIX) is just not buying this sell off. Even with the Dow down over 300 today, the (VIX) has only managed a meager 3% gain on the day. With a move in equities of this magnitude, you would expect volatility to rise by 15% or more. If traders and investors really believed that the risk markets were really going to crash to new lows, they would be paying … [Read more...]

“RISK OFF” Strikes Again


You would think that this was going to be a good day. Weekly jobless claims fell to 388,000, a new six month low. New permits for home construction in October were up 10.2%. The October CPI even fell by 0.1%. But the second that Spanish bond yields spiked, it was all over but the crying. The S&P 500 opened weak, and then proceeded to plunged 25 points, decisively … [Read more...]

Why Residential Real Estate Will Not Recover


One of the most frequently asked questions at my recent round of strategy luncheons, seminars, and keynote speaking engagements has been “Is it time to buy a home?” I responded with “No, no, a thousand times no,” and proceeded to rail off the countless reasons. My answer always piques listeners’ interest, as 67% of Americans are still homeowners, and probably more at these … [Read more...]

What’s Up With Gold?


Have you ever held a basketball underwater in a swimming pool and let go? It flies to the upside and pops you in the nose. That is exactly what gold is doing now. After the barbarous relic peaked at $1,922 on August 24, it traded like an absolute pig, giving up 20% in a matter of weeks. I managed to coin it with a couple of quick in and out trades in (GLD) puts, some doubling … [Read more...]

Meet the Teflon Market


Pound away at this market all you want, and it just refuses to go down. In recent weeks we have received a torrent of bad news from Europe, including the fall of governments in Greece and Italy, and the S&P 500 index keeps migrating back to the 1,260 level, as if attracted by some supernatural, magnetic force. It is no coincidence that this is where the closely followed big … [Read more...]

Silver Is Starting to Shine


I received an urgent call from my friend at Fidelitrade (http://fidelitrade.com/) this morning, a leading dealer in 1,000 ounce bars of gold and silver. He had just been cleaned out of the 1,000 ounce silver bars at $34,930 each, and there was nothing in the pipeline. What the hell was going on with silver? I tried to calm him down with my usual measured, rational, global, … [Read more...]

Take a look at Jeffries


I have an unusually sensitive nose. Maybe that is because it is so big. It is particularly attuned to detecting bullpucky in broker research reports. So when an analyst recently downgraded the mid-level broker, Jeffries & Co (JEF), on the back of its European debt exposure, the stench was overwhelming. I went to the website at http://www.jefco.com/ and had a quick look … [Read more...]

What’s up with BYD?


When I first bought shares in the Chinese electric car manufacturer, BYD (BYDDF) (or Build Your Dreams) in 2009 on the heels of Warren Buffet’s 10% investment, it looked like a total home run. The stock soared from $1.50 to $11, given me a paper return of 730%. Undercover, I Totally Blend Last year, the stock started to roll over, retracing all the way back to my cost. I … [Read more...]

Goodbye Steve Jobs, Hello Dividend?


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 $81 billion to $120 billion by next June, an increase of nearly $200 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...]

Report From Australia


SPECIAL AUSTRALIAN ASSET CLASS REVIEW     I am writing this report on the ferry boat from Sydney to Manley, where I will attend a gathering of Australia based hedge fund managers to absorb their collective wisdom. I have deliberately taken the slow boat,  so I have the time to give this report the depth it deserves. The Australian swim suit model sitting … [Read more...]

The Stock Market’s Dream Scenario


I’m sitting here with a mountain of technical analysis reports that are causing my desk to buckle this morning, all shouting “breakout”, “buy”, and “uptrend”. So I’m wondering, “is there a scenario out there where these might actually come to pass?” At this point I thought it might be useful to engage in what Albert Einstein called “thought experiments” and come up with a … [Read more...]

Who’s Doing All That Buying?


Market observers were stunned, amazed, and gob smacked when trading volumes surged with the 300 point move in the Dow last Thursday. Are retail investors at last making a long awaited return to the stock market? Have they broken with tradition and started buying a bottom, instead of a top? Not a chance. Much of the volume spike can be traced to the obscure mathematics of … [Read more...]

Bond Market Crash Sends Macro Millionaire to New All Time High

Picture 4

The abject failure of yesterday’s seven year Treasury bond auction and the crash that ensued has enabled the year-to-date return for my Macro Millionaire trade mentoring program to soar to a new all-time high of 43%. The 30 year bond plunged a staggering six points from the previous day’s high. Yields on ten year government paper have ratcheted up 50 basis points in just a few … [Read more...]

Report From New Zealand

Picture 14

I am writing this report from the Duke of Marlborough Hotel and Pub in remote Russell, off the east coast of New Zealand’s North Island. One known as “The Hell Hole of the Pacific”, in 1835, no less an authority than Charles Darwin claimed this 19th century whaling port was populated with “the refuse of humanity.” It has since been cleaned up, gentrified, and turned into a … [Read more...]

The Bull Market in Mustangs


The Western US has found a new wrinkle in the housing collapse, where homeowners are desperately struggling to cut living costs to meet the next doubling of their adjustable rate mortgage payments on their underwater houses. Raising horses can cost more than children, so Nevadans are turning them loose to join herds of wild mustangs, to dodge the $30,000/year it costs to … [Read more...]

Watch Me on Money Show TV

Screen shot 2011-10-27 at 3.14.22 PM

My friend, Charles Githler, organizer of the hugely successful Money Shows, graciously invited me to appear as a keynote speaker at the recent Las Vegas event. You will never find more talent, useful tools, and new points of view under one roof than any other confab of this kind. And best of all, they are free to attend. After my speech, I made a series of instructional … [Read more...]

Winging My Way Back From China

Screen shot 2011-10-26 at 10.30.13 AM

I am writing TO you from my first class seat on Singapore Airlines, winging my way the 12 hours from Hong Kong to San Francisco. While most airlines jettisoned their first class sections years ago as a cost saving measure, Singapore carried on to maintain its reputation as the best airline in the world. The small section at the front of the bus is populated with a few Chinese … [Read more...]

The New War on Hedge Fund Managers

Screen shot 2011-10-27 at 4.36.55 PM

Yang Yanming was slowly led from his cell by two burly uniformed guards in Beijing’s central prison to a waiting van in the courtyard guards, his hands cuffed behind him and his head bowed. Once in the vehicle, he was strapped to a gurney, hooked up to an IV, and given a highly concentrated injection of sodium pentobarbitol. Minutes later, a technician checked his pulse, and … [Read more...]