Featured Trade:
(HANGING OUT WITH CONGRESSMAN BARNEY FRANK),
(THE MOST FUNCTIONAL WORD IN THE ENGLISH LANGUAGE),
(AN EVENING WITH NOBEL PRIZE WINNER MICHAEL SPENCE)
(EEM),(EWZ), (EWY), (EWT), (EWS),
(EWH),(TF), (IDX), (EWM), (FXI), (EWJ)

iShares MSCI Emerging Markets Index (EEM)
iShares MSCI Brazil Capped Index (EWZ)
iShares MSCI South Korea Capped Index (EWY)
iShares MSCI Taiwan Index (EWT)
iShares MSCI Singapore Index (EWS)
iShares MSCI Hong Kong Index (EWH)
Thai Capital Fund Inc. (TF)
Market Vectors Indonesia Index ETF (IDX)
iShares MSCI Malaysia Index (EWM)
iShares FTSE China 25 Index Fund (FXI)
iShares MSCI Japan Index (EWJ)

Seeking refuge from a band that was blasting my ears out, and fleeing the nubile young bodies that kept bumping up against me and spilling my margaritas, I sought out a safe haven. There, cloistered in the quietest, darkest refuge from the event, far beyond the most distant swimming pool and palm tree, I found former congressman, Barney Frank sitting in a lounge chair.

If this name piques your memory, it is because Barney was a cosponsor of the 2011 Dodd-Frank bill, the most sweeping regulation of the financial industry since the Securities Act of 1933. As chairman of the House Financial Services Committee, he became a familiar figure during the endless hearings for the controversial legislation.

To say that Barney is a man with strong opinions is probably the understatement of the century. If you make a statement he believes is factually incorrect, he will shout you down until he has the last word. I watched him do exactly that when he sat on a discussion panel with republican strategist, Carl Rove. The two went at it like cats and dogs for ten minutes, the rest of the participants sitting there in awe, with their mouths hanging open.

Barney is upset that the US is still spending massively to defend Europe 20 years after the collapse of the Soviet Union, their only real enemy. They can easily afford to pick up the tab themselves. The US has vastly overextended itself with military commitments. We can no longer afford to be the world’s policeman.

Sunni and Shia Muslims have been hating each other for a thousand years. We are not going to change that in a few years of spending a few trillion dollars and thousands of lives. You can’t use the US military for social engineering. Attempting to do so just pisses everyone off and only creates more American enemies.

Banks are now bigger than they were before the financial crisis, largely because the government required them to post more capital. But “too big to fail” has been solved. The new Resolution Authority has the power to wipe out shareholders in the wake of future poor business decisions. That did not exist in 2008. No more bonuses will be paid for large losses.

Corporate tax reform is a big priority, but is far more difficult than people realize. The people you take money away from get much angrier than the beneficiaries of change are made happy. That is a problem in the current big money election environment.

Son of a New Jersey truck stop operator, Barney went on to obtain a degree from the Harvard Law School. He entered politics in 1972 then joined the Massachusetts House of Representatives. He was elected to congress in 1980, representing the western Boston suburbs. He went on to win reelection 12 consecutive times.

Frank first went to Washington about the same time as I joined the White House Press Corps as a correspondent for The Economist magazine. I didn’t know him personally then, but shared with him his frustration in trying to explain economic issues to then president Ronald Reagan.

What I found most fascinating about Barney was his recollections of the Boston political scene during the 1960’s. In the past year, I have read biographies on John Kennedy, Robert Kennedy, Ted Kennedy, and the most interesting, their father, Joe Kennedy. If you ever want to gain insight into one of history’s best natural traders, finest businessmen, and the first chairman of the SEC, read The Founding Father by Richard Whalen. Barney knew all of these men, and listening to his first hand stories about them was a real education.

All of this came at the price of sitting downwind from his cigar smoke for two hours. As a journalist, I long ago learned that if you want to get the real dope, you sometimes have to pay the price.

Well, it’s shit… That’s right, shit!

Shit may just be the most functional word in the English language.

You can smoke shit, buy shit, sell shit, lose shit, find shit, forget shit, and tell others to eat shit.

Some people know their shit, while others can’t tell the difference between shit and Shinola.

There are lucky shits, dumb shits, and crazy shits.

There is bullshit, horse shit, and chicken shit.

You can throw shit, sling shit, catch shit, shoot the shit, or duck when the shit hits the fan.

You can give a shit or serve shit on a shingle.

You can find yourself in deep shit or be happier than a pig in shit.

Some days are colder than shit, some days are hotter than shit, and some days are just plain shitty.

Some music sounds like shit, things can look like shit, and there are times when you feel like shit.

You can have too much shit, not enough shit, the right shit, the wrong shit or a lot of weird shit.

You can carry shit, have a mountain of shit, or find yourself up shit creek without a paddle.

Sometimes your breath smells like shit.

Sometimes everything you touch turns to shit and other times you fall in a bucket of shit and come out smelling like a rose.

When you stop to consider all the facts, it’s the basic building block of the English language.

And remember, once you know your shit, you don’t need to know anything else!!

You could pass this along, if you give a shit; or not do so if you don’t give a shit!

Well, shit, it’s time for me to go.

Just wanted you to know that I do give a shit and hope you had a nice day without a bunch of shit.

But, if you happened to catch a load of shit from some shit-head……….. Well, Shit Happens!!!

HOPE YOUR SHITTY DAYS ARE FEW AND FAR BETWEEN

Michael believes that world GDP will triple over the next 40 years, and that the bulk of that growth will come from emerging markets, which will account for half of all GDP within 5-10 years. China is now moving the needle on the global economy big time.

The great challenge moving forward is that the emerging markets can no longer use proven economic models that worked in the past. Investing in aggressive export sectors that pulled their countries forward worked well for Japan, and then South Korea, Taiwan, Singapore, Malaysia, and Thailand. But China and India are now too big, and the US too small to replicate that feat.

Furthermore, the big BRICS are now pushing up against the theoretical limits to growth. China is now consuming up to 80% of some commodities, and further demand could bring dramatic price increases. While America accomplished its economic miracle with oil at $1 a barrel, today’s emerging markets are going to have to pull it off at $100 a barrel. China is now in the middle income range of $4,000-$8,000 per capita, where a lot of developing countries tend to get stuck.

These countries have also reached their environmental limits, with pollution so severe that it threatens to stifle growth. If you don’t believe him, try taking a summer afternoon stroll in Beijing sometime, and see if you can breathe afterwards. The current environmental mess in China will cost a fortune to clean up.

The answer to is accelerate technological development, eventually bring it up to western standards. Throwing coddled state protected enterprises to the wolves and allowing creative destruction to work its way will also be important. Asia already has a big advantage in that their entire infrastructure is brand new, so they don’t have to ‘obsolete” it first to move forward, as we do.

Exports become less important in this model. In fact, you can see how this works by tracking shoe maker Nike’s production base over the years, where Spence was once a board member. It started in Japan, and then migrated to South Korea, Taiwan, China, and ended up in Vietnam.

The great revelation for Michael in doing his research, the “aha” moment, was to discover that economic growth is not an economic issue, it is a political one. Great leadership is the common ingredient among the most successful countries. Governments that are too big fall into the abyss of central planning. Those that are too small can’t adequately invest in infrastructure to prime the pump for the private sector.

Michael has identified 13 countries currently in the sweet spot, including Brazil (EWZ), South Korea (EWY), Taiwan (EWT), Singapore (EWS), Hong Kong (EWY), Thailand (TF), Indonesia (IDX), Oman, Botswana, Malaysia (EWM), China (FXI), Malta, and surprisingly, Japan (EWJ). Since I believe that emerging markets will lead the next leg up in global equity markets, this gives me a great short list to work from.

You may recall that Michael is the Harvard professor who, along with Joseph Stiglitz, won his prize in 2001 for the dynamics of information flows and market development. A Rhodes Scholar, he is also the former dean of the Stanford business school. Among his recent chores has been assisting the Chinese government to develop their upcoming 12th five year plan for economic development.

SPECIAL TESLA EDITION

Featured Trade:
(ONE THE TESLA MELT UP),
(TSLA), (F), (FIATY), (PEUGY), (SCTY),
(BBRY), (HLF), (NFLX), (FSLR)

Tesla Motors, Inc. (TSLA)
Ford Motor Co. (F)
Fiat S.p.A. (FIATY)
Peugeot S.A. (PEUGY)
SolarCity Corporation (SCTY)
Research In Motion Limited (BBRY)
Herbalife Ltd. (HLF)
Netflix, Inc. (NFLX)
First Solar, Inc. (FSLR)

That is exactly what Ben Bernanke has done with his non stop quantitative easing. A poorly researched hatchet job by the New York Times on the new all electric Tesla Model S-1 produced a flood of countervailing positive reviews extolling the many virtues of the revolutionary vehicle (click here for “My Take on the Tesla Tiff”). The Times could not have delivered a more effective marketing campaign if you paid them millions.

Then the company announced its first profit in history. It sold 4,900 cars, versus an expected 4,500, one of which was to me. Some 70% were of the highest margin, 80 kWh, $80,000, 300-mile range version. This was on the heels of its first ever price increase. The Q1, 2013 net jumped to $11.9 million compared to an $89.9 million loss in the earlier quarter. It boosted its forecast of this year’s total production from 20,000 to 21,000 vehicles.

There is now a one-year waiting list for the least expensive $60,000 model. Cash is pouring in so fast that Tesla announced it would pay back its $465 million Department of Energy loan five years early. It is also talking to Google about adopting its driverless technology.

South African native, Elon Musk, is said to be the model on which the Iron Man character, Tony Stark, is based. His IPO late last year for SolarCity (SCTY) has also delivered a gangbusters performance, up 216%. Next on the calendar is taking Space X public, his heavy lift rocket company with a NASA contract potentially worth $1 billion. Since January, his personal fortune has tripled to $7 billion. This is truly the man with the golden touch.

The onslaught of good news triggered one of the sharpest and most furious short squeezes in stock market history. (TSLA) is now one of the top performing shares in the world this year, up a staggering 194%. Elon did get some outside help. Squeezing the largest short open interest stocks has been one of the most profitable trading strategies of 2013. Tesla is simply following on the heels of Blackberry (BBRY), Herbalife (HLF), and Netflix (NFLX), with similar results.

There is a cautionary tale in the Tesla action. Many of the players on the short side were global warming deniers who believed the whole thing was a leftist hoax. They thought Tesla, and all the other “green” plays, like First Solar (FSLR), were the artificial creations of government subsidy that were all going to zero once the free money was withdrawn.

After I toured the Tesla factory and saw that he car was real, I warned some of these guys they were out of their mind. Whenever one filters investment decisions through a political prism, whatever that prism is, you might as well pile up your money and set fire to it.

At $97 a share, with a market capitalization of $12 billion, Tesla is now one of the world’s largest car companies, beating out Fiat (FIATY), which owns Chrysler and Peugeot (PEUGY). This is for a company that has only made 10,000 cars! Tesla now boasts a price earnings multiple of 70X, compared to 9.6X for Ford Motors (F).

What Tesla should do here is file for a secondary share offering and use the cash raised to retire debt. They can also sue the state of Texas, which has banned sales of the cars. They are trying to force the company to sell through a local, good ol’ boy dealer network. Tesla only sells its cars online, another ground breaking and cost cutting aspect of their business model. So much for deregulation in the Lone Star State. I guess they are trying to keep us hooked on Texas Tea.

Even at the January price of $33, Tesla was expensive when compared to its peers. The investors were clearly taking a longer-term view. The demand for $60,000-$110,000 cars is limited. Next year it broadens out to the Model X, and all electric SUV, which should cost about the same.

Most on Wall Street have completely missed the main point of the whole Tesla story. The real play here is for a low end mass market vehicle, which Tesla will bring out in 4-5 years, using the manufacturing expertise and technology they developed with the earlier Roadster and the S-1.

Keep in mind that electric car battery ranges are doubling about every three years. Look no further than my own garage, where I jumped from an 80 mile range Nissan Leaf to the Tesla S-1 in just two years. I just sold my starter electric car to an ecstatic PhD in biochemistry at UC Berkeley for a bargain $18,500.

That means that by 2018, you will be able to buy a 300-mile range, five passenger Tesla hatchback for about $40,000. This will enable the company to grow into a major worldwide industry presence. That’s when the “Big Three” becomes the “Big Four”. That’s what a $97 share price is screaming at you.

Let me explain what else is in the works. By next year, there will be 20,000 Tesla’s in the San Francisco Bay Area. Our local utility, PG&E (PGE), currently sells us power for electric cars for 5 cents a kWh between midnight and 7:00 AM. By sometime in 2014, if you leave your car plugged in, it will then buy it back from you during the day at 40 cents a kWh!

With the backup supply of 20,000 1,000-pound Tesla lithium ion batteries, (PGE) might be able to take a few natural gas power plants offline (the last coal fired plant in California was closed about 10 years ago). Not only will the power for your car be free, your utility will pay you to drive it! The system is already undergoing beta testing at a utility in Delaware. Welcome to the future!

Last weekend, I drove to the local shopping mall to run some errands. There was a classic car show on, so there was no spare parking. I asked the show organizers if they were accepting late entries, just to get a parking space.

Both the fans and the other exhibitors were drawn to my S-1 like a magnet, mobbing the car and barraging me with questions. Some thought it was a joke, as there was no visible motor. I felt like Marty McFly bringing a car from Back to the Future. I popped out to run my errands. When I returned, I had won first prize and a blue ribbon.

There is one battery problem that I should write about here. Since the end of the ski season, my Toyota Highlander Hybrid has sat neglected in my driveway, accumulating pine needles and bird poop. Since I’m not driving it enough to recharge the conventional lead acid battery, it keeps going dead. The Auto Club has already been out to give me a jump-start three times, and they say next time, they are going to bill me.

I have written at length about Tesla since the inception of this letter five years ago. To read another recent piece with more details on the engineering and the specs, please click here. Expect to hear a lot more.

The Competition

First Prize for a Late Entry

I Could Have Sworn I Left the Engine There Yesterday

In Your Future

Featured Trade:
(JULY 19 FRANKFURT, GERMANY STRATEGY LUNCHEON),
(TESTIMONIAL),
(MY FAVORITE SECRET ECONOMIC INDICATOR),
(RUNNING THE SAN FRANCISCO BAY TO BREAKERS)

I’ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $239.

I’ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.

The lunch will be held at a prestigious private club not far from the Botanical Gardens, the details of which will be emailed to you with your purchase confirmation.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.

I have had some bad trades with you, but the results from the good trades far outnumber them. I do take positions based on your recommendations and have done very well. My portfolio has grown by over $1 million from shorting the yen, since late November, based on your calls. That is with no more than $200,000 invested in yen shorts at any one time. This has been far and away the single best trade of my life!

Thank you very much! May we all have many more of these!! Thanks John,

Rob,
Calgary, Alberta, Canada

The word from race organizers this year was that alcohol was banned, but that nudity was OK. Well, that’s California for you. Of the 15,000 participants, more than a few graciously accepted the tradeoff.

The race started off at the Embarcadero, near the Ferry Building, in unusually cold weather, and goose bumps were in abundance. Once underway, we all warmed up. I moved up early in the crowd, passing a dozen Elvis impersonators, some revolutionary War soldiers in jockey shorts, and a swarm of buzzing honeybees.

I made short work of the many wearing fat suits, body builders in tutus, and at least three dancing harems. Some of the guys were obviously very excited to be there. I thought I actually might get a placing when I was passed by at least ten speeding vaginas running faster than I could possibly catch them. I managed to finish in the top 1,000, just behind Adam and Eve, but well ahead of a group of drunken cavemen.

Then arose the problem of what to do with 15,000 naked people at the beach in 50 degree temperatures. A “C” note scored a taxi back to my starting point (note to the accounting department: don’t even think about denying this expense!). It was amazing how well behaved the crowd was, given the lack of dress.

The funds raised went to a dozen local charities. I ended up with a free T-shirt and a string of pink party beads. Today, I’m sitting here too sore to get out of my chair, Heartbreak Hill having taken its toll. Still, I can’t wait to run in next year’s race, when I hope for a better time and a more provocative costume. Competing dressed as a Mad Hedge Fund Trader, I didn’t turn too many heads, given the competition.

The Tea Party’s California Branch

It Was All Worth It In the End

There is nothing more electric than attending a ceremony like this. The commencement speaker was former Secretary of Labor and my old friend, Robert Reich, whose classes I attended myself. Some 40% of the graduates were Asian, and I spent much of the time explaining symbolism rooted in the Middle Ages to foreign parents; the robes, mantles, hoods, and swatches of ermine. A dozen unintelligible foreign languages babbled in the background.

Unfortunately, the unenviable task of moving him out of his Berkeley hovel fell to me. When I arrived, I was stunned to find nothing less than a war zone. Both sides of every street were piled with mountains of trash, the unwanted flotsam and jetsam of university life cast aside by fleeing students. Computer desks, stained mattresses, broken lava lamps, and an assortment of heavily worn Ikea furniture were there for the taking.

Next year’s sophomores and juniors were foraging en masse, looking for that reusable gem. Diminutive Chinese teenagers were seen pushing massive suitcases on wheels down the sidewalk on their way back to Shanghai, Beijing, and Hong Kong. The university attempted to bring order to the chaos by strategically placing dumpsters on every block, but they were rapidly filled to overflowing.

It was all worth it in the end because of the insight it gave me into one of my favorite, least known leading economic indicators. When I picked up the truck at U-HAUL, the lot was absolutely packed with returned vehicles, and there were more parked on both sides of the streets. The booking agent told me there is a massive influx of people moving into California from the Midwest and the Northwest, with the result being that lots all over the San Francisco Bay Area are filled to capacity.

I love this company, because in addition to providing a great service, they get the first indication of any changes to the migratory habits of Americans. The last time I saw this happen was after the dotcom bust, when thousands of technology savvy, newly unemployed pulled up stakes in the foggy city and moved to Lake Tahoe to work in “the cloud.” Bottom line: California is enjoying a resurgence of hiring and new economic growth.

UC Berkeley is the world’s greatest public university, producing more PhD’s than any school in history, over 100,000, and also the most Nobel Prizes, at 19. By the way, anyone in the financial services industry looking to hire an ambitious young graduate from this fabulous institution of high learning, please send me an email. Robert lives in New York City now and is on the prowl for a job with a hedge fund.

Featured Trade:
(REPORT ON THE SKYBRIDGE ALTERNATIVES CONFERENCE)
(REPORT FROM LAS VEGAS)