Featured Trades: (SPX)
S&P 500 Large Cap Index ETF

3) My Equity Scenario for the Rest of 2010. Not a day goes by when I don't fall down on my knees and thank the heavens that I avoided equities for much of this year (click here for 'I'd Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities' in January). Trading in American stocks this week is a sloppy, low volume, conviction free affair as everyone waits for an August non-farm payroll figure they know will be terrible. Good thing I focused on the grains, the Canadian and Australian dollars, emerging market equities and debt, junk bonds, precious metals, rare earths, and a few special situations like BIDU, POT, AGU, and MOS.

That report could be the stick that breaks the 1038 support which has held for 3 ? months and takes us down to my long standing 950 target for the S&P 500 (click here for 'Why There is No Place to Hide in This Sell Off'). Gold's positively virile action today, where it touched $1,250, just shy of an all time high, tells you that September is not going to be a pretty picture.

Historically, stock markets are weak for the six months going into midterm elections. The April 25 top on the SPX neatly fits that time table. In every election since 1950, markets then rallied for six months after the midterms, setting up for a nice year end rally.

The catalyst for the move will be the removal of the elections themselves as an unknown. With the two political parties at contemptible, diametrical, even hateful? extremes, elections these days have a much larger impact on financial markets than they have in the past.

End September will also bring the next round of earnings reports, which should be pretty good. After all, firing people to boost productivity and profitability is the winning business model of 2010. A 950 SPX gives you a PE multiple of 10, the lowest it has been for years. For you technicians out there, 950 also happens to be a key Fibonacci level.

I have often said that markets will do whatever they have to do to screw the most people. Getting as many as possible maximum short in September, then running the markets for the rest of the year, fits the bill nicely.

Thanks Goodness I Avoided Equities This Year

Featured Trades: (SOUTH AFRICA), (EZA)
South Africa iShares ETF

2) On Safari in South Africa. When I first visited South Africa (EZA) as a journalist in 1979, I was stuffed into the trunk of a car and smuggled into Soweto, a fenced off? 'township' , so I could write about the appalling living conditions there. Six ANC bodyguards accompanied my every move, as to venture out alone amidst 100,000 oppressed blacks would have been suicidal. Bringing along my Japanese wife to the land of apartheid didn't exactly go down well with the white locals either, as there was only one hotel in the country that would accommodate us.

The bottom line: everyone hated us. We were lucky to get out alive. Is those days, when long lines of Afrikaners snaked out of coin dealers selling their krugerrands for $900/ounce, everyone was convinced the country would soon blow up in a gigantic, bloody racial war.

It never happened. The Afrikaners made peace with the ANC, an incredible reconciliation process ensued, and by 2010 the country had healed enough to host the World Cup. It's all proof that if you live long enough, you see everything.

Now, South Africa is popping up on the radars of several big hedge funds as one of a handful of frontier emerging markets ready to make the move to prime time. Of course we already know about world class companies like De Beers, Standard Bank, and Sasol, which give it enough muscle in services and industry to stand out from the rest of the Dark Continent.

But did you know about alternative energy and venture capital? Local entrepreneurs report that South Africa is among the best countries to start a new company these days, with top rate universities, a plentiful, well educated professional class, a trained work force, generous government subsidies for key industries, and a healthy local market. Despite its well earned reputation as the premier source for the world's gold and diamonds, 50% of the country's exports were manufactured goods.

This dynamic mix enabled South Africa's GDP to hold up well during the financial crisis. Analysts are expecting a 3.3% growth rate this year and acceleration to 5% or more next year.

But this all misses the really big play in EWZ, whose ticket to prosperity will get punched by selling into fast growing markets? and a rapidly rising standards of living in the rest of Africa. The entire region has enjoyed accelerating GDP growth rates since 2002. This has been partly fueled by soaring commodity prices where Africa has a lock on the market, such as for cobalt and iridium, crucial elements for advanced electronics and cell phones.

There have been a number of new oil discoveries in Nigeria and Sudan. The Chinese are pouring tens of billions of dollars there into gigantic farms in Africa to feed its own hungry masses. Mass distribution of free anti retrovirals and malaria drugs by the likes of billionaire Bill Gates and the US government has also stopped the AIDS epidemic in its tracks.

Mind you, this is not a country without challenges. The unemployment rate is stuck at a daunting 24.5%, crime is rampant, income disparities are vast, and inter racial strife still percolates under the surface. However, when the world's investors flip back to risk accumulation mode, this is a new country you should consider.

Are You a Bull or a Bear?

Featured Trades: (GOLD), (GLD), (GDX)
SPDR Gold Shares ETF
Market Vectors Gold Miners ETF

1) The San Francisco Money Show. I attended the Woodstock of investment conferences last week, the San Francisco Money Show, which offered an entertaining three ring circus of traders, foreign exchange models, options platforms, newsletters, cruises, video broadcasts, and more.

The cavernous Marriott Marquis hotel and convention center South of Market on 4^th Street was absolutely bubbling with new ideas. You couldn't walk five feet without tripping over a great investment theme, and information overload was the problem of the day. There was a plethora of celebrity speakers, including Elaine Garzarelli, John Mauldin, and Think or Swim founder, Tom Sosnoff.

There really is no corner of the financial markets that was not well represented by market makers, analysts, technology providers, and investors-- thousands of them. With the soaring level of US government debt scaring the daylights out of everyone, the precious metals dealers were there in force.

Of course, the hard asset crowd was everywhere, and you could not swing a dead cat without hitting a miner looking for new funding. Never mind that the barbaric relic went up for all the wrong reasons. The dollars they're making are still just as good at the bar. The only thing missing from the show was the long predicted hyper inflation. Want to prospect in the Ivory Coast? No problem.

I was pleasantly surprised by the diversity of major corporate sponsors there to promote their own shares, like Darden Restaurants, Proctor and Gamble, Roche, Sanofi Aventis, Vale, and Nidec, several of which are great investments. A variety of oil service companies were also well represented. A 'green' section offered a look at wind, solar, and geothermal energy providers.

I took the opportunity to talk with companies about everything from the latest drilling costs, long term food prices, and the true cost of geothermal, to the clever play in gold coins (go for those struck at the San Francisco Mint). I was constantly amused every few minutes by attendees who, seeing my nametag, asked to have a photo taken with the one and only Mad Hedge Fund Trader, and to sign their program.

After I make my fortune, there was even a booth extolling the virtues of retiring on the beach in Costa Rica or Belize. It was a great opportunity to chat with the end investors who ultimately drive all these markets. All in all, it was a weekend well invested. For a calendar of future events, go to www.MoneyShow.com.

SPECIAL BOND BUBBLE ISSUE

 

Featured Trades: (TREASURY BONDS), (TIPS), (TBT)
ProShares Ultra Short 20 year +Treasury ETF

1) Don't Buy That Treasury Bond. Another week later, and Treasury bond prices have raced up to even dizzier heights, breaking more records for over valuation. According to the Investment Company Institute, outflows from equity mutual funds over the last two years totaled $232 billion, while inflows into bond funds soared to a staggering $559 billion. Today, 'bond funds' ranked with 'Miss Universe' and 'Lindsey Lohan' among Yahoo's top ten search terms. Companies, like FedEx, are looking to issue corporate bonds maturing in 100 years. No doubt the prospect of 80 million baby boomers bailing on equities so they can become coupon clippers for life is providing some extra juice for this market.

In a Wall Street Journal article last week, the Wharton School's Jeremy Siegel pointed out that ten year inflation protected securities (TIPS) with yields under 1% are selling at a PE multiple equivalent of 100 times, the same valuation that dotcom stocks saw a decade ago (click here). Bonds with four year maturities have negative real yields.

The last time this happened, in 1955, ten year bonds brought in an annual return of only 1.9% for the following decade. The potential capital losses for these securities now loom large. In the meantime, the short Treasury ETF (TBT) trades at $30.60.

Let me run some numbers here. If the yield on the 30 year Treasury bond runs up to last year's low of 3%, the TBT will fall to a new all time low of $27. If I'm right, and we move back up to the 2010 high of 5.05%, the TBT pops back to $51.50. Running a downside risk of 11% to capture a potential gain of 68% sounds like a pretty good risk/reward ratio to me. But it might get better. Don't forget that my long term, multi year target for this ETF is $200.

If the futures players get this right, a move in the December long bond (ZBZ0) on the CBOT from today's high of 134.5 to this year's low of 111.50 multiplies your minimum margin requirement from $3,375 to $23,000, a 6.8 fold return.

But wait, there's more! If you don't feel like making big bets until you figure out what the new normal looks like, try a limited risk position through the TBT options. The March $30 strike calls are trading at $4. A run up by the ETF to this year's high puts these babies at $21 at expiration, a net profit of $17, a gain of 425%.

I'll tell you some key targets to watch for to determine the timing on this: when the yen approaches ?80, the S&P 500 touches 950, the 30 year yield tickles 3%, and the ten year yield slams into 2%, it will all be over but the crying. I'm still keeping my powder dry for taking another shot at this trade, but my trigger finger is getting mighty itchy.

Getting an Itchy Trigger Finger for the TBT

Not as Popular as a Bond Fund?