No Fed Action Disappoints QE Bulls

Ben-Bernanke_1

It’s always nice when intelligent people agree with you. That was my feeling after the Federal Reserve gave notice today that it was downgrading its forecast of US economic growth for 2012 from 2.6% to 2.15%. That is a major step down from the 3% and higher predictions they were hanging on to earlier. The news came in the written statement that followed the Fed’s somewhat … [Read more...]

Gold is Making a Comeback

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One of my best calls of the year was to plead with readers to avoid gold like the plague, periodically dipping in on the short side only. The barbarous relic has been in a bear market since it peaked at $1,922 an ounce at the end of August last year. Gold shares have fared much worse, with lead stock Barrack Gold (ABX) dropping 36% since then and the gold miners ETF (GDX) … [Read more...]

Greek Conservative Win Sends Shorts Fleeing

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The victory of the centrist pro bailout New Democracy Party in the Sunday Greek elections sparked a furious rally in the overnight Asian markets, much of it driven by hedge fund short covering. The socialist, anti-bailout parties went down in flames. As I write this on Sunday night, the Dow futures are trading up 78 points from the Friday close and the Japanese yen is in … [Read more...]

Be Careful What You Wish For

2000306-Hanging_with_the_best_of_them_Cabo_San_Lucas

The wild whipsaw movements in the markets on Thursday reminded us once again how dependent they have become on monetary stimulus from central banks. As if we needed reminding. Almost simultaneously, officials from the US, Japan and the UK hinted at a coordinated move at this weekend’s G-20 meeting in Cabo San Lucas, Mexico. Let’s hope for the sake of global financial … [Read more...]

The Nationalization of the Bond Market

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I was as stunned as anyone when the yield on the ten year Treasury bond (TLT), (TBT) plummeted to 1.42% two weeks ago. Predictions that long dated government paper would reach subterranean Japanese levels, considered loony as recently as a few months ago, are now donning the mantle of respectability, and even plausibility. Where will this end? With yields at 1.25%, 1%? … [Read more...]

The Next China Boom

Great-Wall-China-4

The call was scratchy and barely audible. I was instructed to not mention any names. I should only use the prearranged code words when talking about political parties. You never know when the phones in China are tapped. I was just about to get a heads up that the People’s Bank of China was going to lower interest rates for the first time in four years. Of course, we knew … [Read more...]

Reach for Yield With Master Limited Partnerships

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The dramatic collapse in the price of oil is creating a rare opportunity to get into some of the highest yielding paper in the financial markets, master limited partnerships (MLP)’s. These are LP’s that are publicly traded on a securities exchanges. These unique and versatile instruments combine the tax benefits of a limited partnership with the liquidity of publicly traded … [Read more...]

Nonfarm Bombshell Sends Markets Scampering

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Say goodbye to 2012. That was the harsh conclusion of the marketplace after the release of the devastating May nonfarm report that forced the Dow to give up its entire year to date performance. The cat was really set among the pigeons this morning when the Department of Labor informed us that only 69,000 jobs were gained in the previous month. The unemployment rate ratcheted … [Read more...]

Are We Probing a Bottom With Housing?

GetImage-1

The March Case Shiller Home Price Index is out, showing that the fall in home prices continues unabated, paring -2.6% on a YOY basis. Detroit delivered the biggest drop, down a shocking -4.4%, followed by Chicago (-2.5%), and Atlanta (-0.9%). But 14 out of 20 markets managed increases in prices. The national index is still declining, but at a slower rate. Given that this … [Read more...]

My Tactical View of the Market

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The abject failure of the equity indexes to breach even the first line of upside resistance does not bode well for the “RISK ON” trade at all. Only a week ago I predicted that the markets would be challenged to top 1,340 in the (SPX) and $78 for the Russell 2000 (IWM). In fact, we made it up only to 1,335 and $77.90 respectively. To see the melt down resume ahead of the … [Read more...]

Time to Buy JP Morgan

jamie

This is far and away the world’s premier banking institution. Estimates of the huge trading losses by the London “whale”, initially pegged at $2 billion, have since skyrocketed to $6 billion. I’ll ignore the Internet rumors that speculate about a $30 billion hickey. As you well know, almost everything on the net is not true, except what you read in my own newsletter. Back in … [Read more...]

What Hot…and Not

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My friend, Tom Dorsey of the technical research boutique Dorsey Wright, inundates me daily with a never ending stream of market sensitive data which has been helping me make some of my more successful market calls. For example, when the S & P 500 hundred broke 1,380 in April, he completely nailed the 1,280 bottom in the current move. So, I thought I’d pass on the asset … [Read more...]

Playing at the Deep End With the Euro

Euro-4

I never wanted to join any club that would have me as a member. That is the little nugget of wisdom comedian Groucho Marx imparted to me during his visit to the UCLA campus 40 years ago. It is also what came to mind when I saw the shocking Commitment of Traders Report for Euro futures that came out last Friday. Short positions in the beleaguered European currency soared to … [Read more...]

My Tactical View of the Market

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The easy money has been made on the short side this year for a whole range of asset classes. While we will probably see lower lows from here, the risk/reward ratio for taking short positions in (SPX), (IWM), (FXE), (FXY), (GLD), (SLV), (USO), and (CU) are less favorable than they were two months ago. Of course, the ultimate arbiter will be the news play and the economic data … [Read more...]

Why My Boeing Trade Crashed and Burned

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This trade was an unmitigated disaster, and hopefully it will be the worst of the year. I’m glad we had one of these because it provides a wonderful opportunity to illustrate everything that can go on with a trade. Every loss is a learning opportunity, and a loss not learned from is an opportunity wasted, and dooms one to repetition. Let me count the ways: 1) I was too … [Read more...]

Facebook Flop Frustrates Ferocious Fans

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This had to be one of the greatest change of life weekends in human history, endured by one Mark Zuckerberg. On Friday, he earned $9.2 billion with the flawed Facebook (FB) flotation. On Saturday, he married a Chinese doctor and longtime girlfriend, Pricilla Chan. Then on Monday, oops honey, I lost $1.2 billion. Talk about a rocky start! Never mind that the precise timing was … [Read more...]

A Conversation With Charles Nenner

Volunteers clear the ice on the route of the intended Elfstedento

  I managed to catch my longtime friend, technical analyst, Charles Nenner, on the fly between London appointments yesterday. The must go to guy for big hedge funds, family offices, sovereign wealth funds, and high net worth individuals, says that the global markets are on the verge of completing round one of a major risk off trade, and there is much more to come. A … [Read more...]

Charts Are Breaking Down All Over

Europeecon0012

They say a picture is worth a 1,000 words, so here are 4,000 words worth. My friends at www.stockcharts.com put together this series of charts establishing beyond any reasonable doubt that the “RISK ON” trade is breaking down across all asset classes. Everything is breaking down, simultaneously and in unison, including the S&P 500 (SPX), Gold (GLD), Silver (SLV), Oil … [Read more...]

Strong Dollar Spells Death for Commodities

titanic_sinking1

Panic is on deck, to use the baseball terminology that my foreign readers are often attempting to decipher. That is the only conclusion one can reach after getting gob smacked by the price action this morning. Copper got spanked for eight cents, oil burned $2, gold shed another $26, and silver puked 70 cents. The tantrum like stock behavior in producing and equipment … [Read more...]

Why is Gold Broken?

goldfinger

Gold bugs are puzzled by the recent collapse in the price of the barbarous relic. Physical demand has been outstripping supplies for some time now and threatens to reach all-time highs. Demand for 100 ounce gold bars by the 1%’ers is as high as it has ever been. Negative real interest rates for almost all Treasury securities also underpin the bull argument for gold. Mine … [Read more...]

Check Out (HDGE) to Limit Downside Exposure

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While scouring the markets looking for great ways to participate in the current slide in the equity indexes, I discovered a real gem. The Advisor Shares Active Bear ETF (HDGE) offers a rifle shot at the true garbage in the market, low dividend companies with deteriorating fundamentals. Run by former Bass Brothers associate Brad Lehmansdorf, it includes such well known losers as … [Read more...]

Euro Crash Warns of More to Come

dtabbey

A few years ago on the Old Square in Brussels, a delicious luncheon of moules marinières paired with an excellent white burgundy with some European Central Bank officials ran far longer than expected. They were attempting to convince me of the long term viability of the Euro, to no avail. That seriously delayed my departure from Belgium to Salisbury in the English … [Read more...]

Greece to Germany: Drop Dead!

carla-bruni

That is what the head of Greece’s opposition party said this morning in the wake of elections where voters resoundingly rejected austerity in any way, shape, or form. Ditto for France, where the Socialists rode a wave of resentment against the incumbent conservative government. Looks like I will have to pack a red scarf and schedule some time for manning the barricades during … [Read more...]

The Bad Economic Data Deluge

thelma3-Copy2

Traders were sucker punched this morning with the release of the April ADP showing that private sector hiring came in at a flaccid 119,000, some 56,000 less than expected. This signals that the Department of Labor weekly jobless claims due out at 5:30 AM EST could be equally grim, and the Friday nonfarm payroll even worse. My sub 100,000 forecast for the latter is looking … [Read more...]

The Hard Numbers Behind Selling in May.

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If I had a nickel for every time that I heard the term “Sell in May and go away” this year, I could retire. Oops, I already am retired! In any case, I thought that I would dig out the hard numbers and see how true this old trading adage is. It turns out that it is far more powerful than I imagined. According to the data in the Stock Trader’s Almanac, $10,000 invested at the … [Read more...]

The Bombshells Headed Our Way

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This certainly promises to be an interesting week for the markets. On Thursday, we get the Department of Labor’s weekly jobless claims at 8:30 AM EST. If we clock a fourth consecutive week over 380,000, or go even higher, then an exact repeat for last year’s summer slowdown will be in play. So will the 25% drop in equity markets that followed. This will be confirmed by an … [Read more...]

Coffee With the Treasury Secretary

tim-geithner

I knew that Treasury Secretary Tim Geithner was early for our meeting at the San Francisco Mark Hopkins Hotel, as the line of silver Secret Service GM Suburbans was illegally occupying some of the most prime parking places on Nob Hill. I’m glad they changed the color. I was getting tired of the perpetual black. Perhaps it’s an unknown leading economic indicator? As the agent … [Read more...]

No More QE3

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That was the judgment of the markets in the wake of the Federal Reserve’s latest economic forecast released today for at least two minutes. The asset classes most dependent on further monetary easing, like gold (GLD), silver (SLV), the Euro (FXE), and the yen (FXY), saw dramatic, sudden selloffs, and then recovered losses almost as fast. Blinked and you missed all the action. … [Read more...]

Why Dr. Copper is Looking Ill

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Traders like to refer to the red metal as Dr. Copper because it is the only one that has a PhD in economics. This year it has been proving its credentials as a great predictor of future economic activity once again. Copper has been leading the downside charge for all risk assets since it peaked on February 10. After looking at the latest trade data for the red metal, it is … [Read more...]

The Next Two Weekly Jobless Figures Are Crucial

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All eyes will be focused on the weekly jobless claims to be released by the Department of Labor at 8:30 AM EST on Thursday. You may recall that investors did not exactly run the last two weekly reports up the flagpole and salute them, which showed sharp increases in unemployment claims. At this point the bulls are being comfortably complacent, blaming the bad numbers on  … [Read more...]

China’s Coming Demographic Nightmare

emperor

Thanks to China's “one child only” policy adopted 30 years ago, and a cultural preference for children who grow up to become family safety nets, there are now 32 million more boys under the age of 20 than girls. Large scale interference with the natural male:female ratio has been tracked with some fascination by demographers for years, and is constantly generating unintended … [Read more...]

Another Alarm Bell

Angry-Grizzly-Bear

I am a numbers guy. Show me the data and I’ll draw my own conclusions, ignoring conflicted brokerage research, the paid talking heads on TV, and all the politically motivated garbage pumped out by industry sponsored fake research institutes. I am also a glass half full kind of guy, willing to make a positive interpretation when all else is equal. After all, over the very long … [Read more...]

Check Out These Interesting Charts

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I ran through a number of charts provided by my friends at Stockcharts.com, and as a person who has been piling on the shorts for the past two weeks I was greatly encouraged. Almost every single one was pregnant with gloomy implications. This is all happening a mere 12 days before the Great Escape in May commences. Virtually every technical indicator I follow is now flashing … [Read more...]

Checking Out the Dorsey Wright Technical Model

dorsey

Bill Good is a friend of mine who runs Bill Good Marketing based in Salt Lake City. His is one of the best firms out there that provides data base support for registered investment advisors and high net worth individuals to operate independently. To see his website, please click here at billgood.com. We were chewing the fat the other day about the long term consequences of … [Read more...]

Is France the Next PIIG?

Gitanes

All eyes are now focused on Spain, where last week’s failed bond auction took yields back over 6% for ten year paper, and the pain is clearly not confined to the plain. But longer term focused analysts are wondering if France is really the next big over ripe piece of fruit to fall in Europe. Is France really a PIIG in sheep’s clothing? The structural economic data are not … [Read more...]

China GDP Data Sends Bulls Fleeing

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The market hung on tenterhooks all last week, waiting for the Chinese Q1 GDP figure. As recently as Thursday, rumors swept the market that the number could be as high as 9%, well above the consensus figure of 8.4%, taking the Dow up a red hot 181 points. When the flash hit in the afternoon Beijing time confirming 8.1% the equity futures flipped into sell mode. By the time the … [Read more...]

Bidding Up the Market

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A few years ago, I went to a charity fund raiser at San Francisco’s priciest jewelry store, Shreve & Co., where the well-heeled men bid for dinner with the local high society beauties, dripping in diamonds and Channel No. 5. Well fueled with champagne, I jumped into a spirited bidding war for one of the Bay Area’s premier hotties. Suffice to say, she has a sports stadium … [Read more...]

Taking profits on Apple

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I am getting a lot of emails about how to come out of the $450-$480 Apple bull call spread, which I advised readers to go into on March 2. Now that we are deep in the money, what is the best way to take a profit? Well, the first thing for me is to say congratulations. My expectation that Apple stock would continue grinding up has paid off handsomely. The entire position … [Read more...]

The QE3 Myth

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The prospect of a runaway printing press at the Federal Reserve has been the overwhelming factor driving risk assets in 2012.  Being the sober, cautious guy that you all know me to be, I did not join the party. I tell people this is because if I lose all my money I am too old to start over again as an entry level trader at Morgan Stanley. There is the additional complication … [Read more...]

Looking for Shorting Opportunities Among the Homebuilders

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As we continue flirting with a final top in equities for the year, I am stepping up my search for the best ways to participate on the downside. At the very top of the list are the homebuilders, one of the top performing sectors since the October, 2011 bottom. The performance of individual names has been absolutely blistering, with Pulte Homes (PHM) clocking a 245% move to the … [Read more...]

Payroll Bombshell Give Market Technicians Heart Attack

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I am sitting here on Easter weekend sifting through pages and pages from the various technical programs I follow warning that the roof is about to cave in on the stock market. Friday’s nonfarm payroll bombshell was dropped right at a key, make or break level for the S&P 500 and the Dow Average. Hold here, and we grind to a marginal new high in weeks. Fail, and it is all … [Read more...]

Cross Asset Class Analysis Warned “RISK OFF” Was Coming

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Last week saw a dramatic deterioration in the economic data that has been the foundation of the Great Bull Market of 2012. First, we read minutes from a Federal Reserve meeting suggesting that QE3 has been put on a back burner. Then the Department of Labor’s Friday nonfarm payroll report poured gasoline on the fire, coming in at 120,000, versus an expected 210,000. Until … [Read more...]

Has Gold Had It?

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With the Federal Reserve signaling yesterday that QE3 is off the table, many traders are now betting that the barbarous relic is about to take a prolonged vacation. Without a dividend or an interest yield in a world desperate for cash flow, the yellow metal suddenly doesn’t have so much to offer. Take away the fear of inflation that our deflationary reality assures, and gold … [Read more...]

If You Sell in May and Go Away, What to do in April?

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That is the conundrum facing traders, investors, and individuals as we enter the new quarter. For some hedge fund managers, Q1, 2012 was clearly the quarter from hell. I have been in the market for four decades, long enough to collect an encyclopedia worth of words of wisdom. One of my favorites has always been “Sell in May and Go” away. On close inspection you’ll find there … [Read more...]

Double Dipping on the Yen

SuperYen

You know how I love second helpings, especially when the sushi bar is involved. I especially like unagi, or cooked eel, which is said to be an oriental aphrodisiac. I am going to take advantage of Japan’s fiscal year end book closing on March 30 to reenter my short position of the Japanese yen. This is the one time a year when Japanese corporations suddenly repatriate yen … [Read more...]

Where to Play From the Short Side

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This time I am going to start with the fundamental argument first, then follow up with the Trade Alert. We are getting perilously close to a substantial pull back in global risk assets. While this has already started in commodities, the ags, oil, copper, and precious metals, we have yet to see the whites of their eyes in equities. I believe at these levels stocks are the … [Read more...]

The Death of the Mutual Fund

turkey

ETF's are much more attractive than mutual fund competitors, with their notoriously bloated expenses and spendthrift marketing costs. You can't miss those glitzy, overproduced, big budget ads on TV for a multitude of mutual fund families. You know, the ones with the senior couple holding hands walking down the beach into the sunset, the raging bulls, etc? You are the sucker who … [Read more...]

Coal’s Hatchet Job on Natural Gas

Psycho_Shower_Scene

After my year in the White House Press Corps, I vowed never to return, and took a really long shower, hoping to scrub every last spec of prejudice, self-interest, and institutionalized dishonesty off of my battered carcass. But sometimes I see some maneuvering that is so unprincipled, crooked, and against the national interest that I am unable to restrain my fingers from the … [Read more...]

The Final Word on the Volatility Index

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The inside story on the collapse of volatility is now out, and as a result, managers are reviewing the harsh lessons learned and tweaking their strategies. It highlights the dangers of buying securities without reading the prospectus and understanding what is under the hood. As investors piled into stocks in February, they also bought downside protection in the form of the … [Read more...]

Buy Toyota Motors as a Cheap Yen Play

toyota2

Looking for beneficiaries of the coming collapse of the Japanese yen (FXY), (YCS), Toyota Motors (TM) has to be at the very top of your list. A cheaper domestic currency brings a lower cost of production, high foreign sales proceeds, and wider profit margins all the way around. I am probably the only person in the country who once worked for Toyota, speaks Japanese, and … [Read more...]

Momentum is Building for the Yen Shorts.

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I’m hearing from my buddies in Japan that while things are already quite bad in that enchanting country, they are about to get a whole lot worse, and that it is time to start scaling into a major short in the yen. Australia and China have already raised interest rates, to be followed by the US, and eventually Europe. With its economy enfeebled, the prospects of Japan raising … [Read more...]

An Evening With “Government Motors”

GM-CEO-Dan-Akerson-1

Long term readers of this letter are well aware of my antipathy towards General Motors (GM). For decades, the company turned a blind ear to customer complaints about shoddy, uncompetitive products, arcane management practices, entitled dealers, and a totally inward looking view of the world that was rapidly globalizing. It was like watching a close friend kill himself through … [Read more...]

Volatility Melt Down Continues

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The market was buzzing today about the continued collapse of volatility and the significance thereof today. Today the chief whipping boy was the double leveraged Velocity Shares 2X Vix ETF (TVIX), which cratered 33% on the day, and down 90% from its October high. This was on a day when the ETF should have gone through the roof, with the Dow down 100 points and a rapidly … [Read more...]

What’s Going on With the VXX?

0 R

Much of Wall Street was scratching their heads yesterday as the iPath S&P 500 Vix Short Term Futures ETN (VXX) plunged to new lifetime lows despite a 69 point decline in the Dow index. It wasn’t supposed to work that way. Falling markets should send investors scrambling to buy downside protection in the form of put options which would automatically send the volatility index … [Read more...]

Time to Pick up Some (TBT)

tbt-18

This is the year of the one way move. That has been the harsh lesson of the marketplace since trading commenced at the New Year. We have seen this in Apple, the S&P 500, the Japanese yen, bank shares, natural gas, the volatility index, and now it looks like the Treasury bond market. Once a move starts, it continues in a straight line. There are no pull backs, … [Read more...]

Is an Apple Short the Trade of the Year?

Apple-Logo-Tattoo-Collection-1

When Apple (AAPL) made its three day, $50 move up last week, it created $55 billion in new market capitalization. That 72 hour addition alone would rank it as the 100th largest company in the world besides Boeing (BA), Union Pacific Railroad (UNP), and Nike (NKE). Trading volume in Apple calls is has smashed all records. The action has been more frenzied than seen in any single … [Read more...]

The New Carry Trade

tuxedo74

Long the domain of hedge funds and large banks, the carry trade has gone mainstream. Individual investors are increasingly resorting to the techniques employed by the masters of the universe to boost trading and investment returns. But they lack the risk control infrastructure and discipline employed by the big boys. As with other innovations of yore, the net result has been … [Read more...]

The Structural Bear Case for Treasury Bonds

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If you want to delve into the case against the long term future of US Treasury bonds in all their darkness, take a look at Foreign Affairs, the establishment bimonthly journal read by academics, intelligence agencies, and politicians alike, which I am sure you all have sitting on your nightstands. In a well-researched and thought out article penned by Roger C. Altman and … [Read more...]

US Headed Towards Energy Independence

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My inbox was clogged with responses to my “Golden Age” for the 2020’s piece yesterday, particularly my forecast that the US was moving towards complete energy independence. This will be the most important change to the global economy for the next 20 years. So I shall go into more depth. The energy research house, Raymond James, put out an estimate this morning that domestic … [Read more...]

When Sterilization is Not a Form of Birth Control

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I received a flurry of inquires the other day when Ben Bernanke mention the word “sterilization” in his recent congressional testimony. And he wasn’t giving advice to the country’s wayward teenaged girls, either. Sterilization refers to a specific style of monetary policy. Sterilized policies seek to manipulate the money markets without changing the overall money supply. The … [Read more...]

Take a Look at Cheniere Energy (LNG)

gas

I am constantly asked if there are any ways investors can take advantage of the collapse of the natural gas market, where at $2.34/MBTU prices are plumbing decade lows. I have recently made good money buying puts on the ETF (UNG), but these are not for the faint of heart. They call this contract the “widow maker” for a good reason. You don’t want to touch the gas producing … [Read more...]

Why I’m Covering My Bank Short

bac-14

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?

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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)

Vienna5551

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

alice

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

10919726-broken-euro--finance-and-politics-in-europe

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

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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

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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?

hitting-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

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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

200day

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

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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

emerging-markets-BRIC-MINT

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

apple_logo_rainbow_6_color

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

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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?

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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...]

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...]

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

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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...]

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 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...]

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...]

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...]

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...]

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...]

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...]

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...]

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

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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...]

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...]

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

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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

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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

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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

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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

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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

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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

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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...]