Note To Subscribers: For anyone who upgrades from the Diary of a Mad Hedge Fund Trader daily newsletter to the Macro Millionaire trading service this month, the first $100 will be donated to the Japanese Red Cross for earthquake relief. I have been in touch with its officials and the money is sorely needed. Thanks for your support. '?John Thomas.

 

1) April 8 Paris Strategy Luncheon. Come join me for lunch for at the Mad Hedge Fund Trader's Global Strategy Update, which I will be conducting in Paris, France on Friday, April 8, 2011. A three course lunch will be followed by a 45 minute PowerPoint presentation and a 45 minute question and answer period.

I'll be giving you my up-to-date view on stocks, bonds, 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 tossed at you to keep your ears ringing for a week. Tickets are available for $289.

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 in the City of Light's central Opera district, 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.

1) I just got off the phone with several frightened, somewhat dazed survivors of the Japanese earthquake who work in the financial markets, and I thought it important to immediately pass on what they said. Some were clearly terrified.

Japan's economic outlook now appears far more dire than I anticipated only a day ago. It looks like GDP growth rate is going to instantly flip from +2% to -3%, a swing of -5%, similar to what we saw after the Kobe earthquake in 1995.? We have just had a 'V' shaped economy dumped in our laps, and we have just embarked on a precipitous down leg. Two very weak quarters will be followed by two strong ones. The initial damage estimate is $60-$120 billion, and that will certainly rise.

Kobe had a larger immediate impact because of its key location as a choke point for the country's rail and road transportation networks and ports. But the Sendai quake has affected a far larger area. Magnifying the impact is the partial melt down at the Fukushima Dai Ichi nuclear power plant, forcing the evacuation of everyone within a 12 mile radius.

Most major companies, including Toyota, Nissan, Honda, and Sony have shut down all domestic production. Management want to tally death tolls, damage to plant and equipment, and conduct emergency safety reviews. In any case, most employees are unable to get to work because of the complete shutdown of the rail system. Tokyo's subway system is closed, stranding 25 million residents there.

Electric power shortages are a huge problem. The country's eight Northern prefectures are now subject to three hour daily black outs and power rationing, including Tokyo. That has closed all manufacturing activity in the most economically vital part of the country.

Panic buying has emptied out every store in the major cities of all food and bottled water. Gas stations were cleaned out of all supplies and reserves, since much of Japan's refining capacity has been closed. There are 20,000 expatriates waiting at Tokyo's Narita airport as foreign companies evacuate staff to nearby financial centers in Hong Kong and Singapore. Airlines are diverting aircraft and laying on extra flights to accommodate the traffic.

The Tokyo Stock Exchange absolutely took it on the nose on Monday morning. Trading lasted exactly four minutes until, with the TOPIX Index down 7%, the circuit breakers kicked in. Most lead blue chips were down 10%, and 175 stocks never opened. Only construction stocks were up. Most of the selling was being done by foreign institutions and hedge funds, locals having vacated this market ages ago. This could be the beginning of a new bear market that will last for many months.

Prime Minister Naoko Kan has asked the Bank of Japan 'to save the country.' The central bank responded promptly with ?15 trillion, or $187 billion worth of credit market purchases. The yen spiked at the opening, as I expected, to ?81.4, as carry trades were unwound en masse. Then the BOJ showed its heavy hand, slapping it back down to ?82.2 where it has sat since. They appear to be taking on all comers at this price, and have the printing presses to fall back on. The situation remains fluid.

My global macro call proved spot on. Oil is down $2, plunging to a two week low below $100/barrel, blindsided by shrinking Japanese demand. Equities were sold worldwide. Uranium miners in Australia took a particular pounding, as the nuclear crisis casts a long shadow over this reviving energy source. Insurers were unloaded in London and Zurich. The S&P 500 opened down 10 points to 1,295 in the futures markets, close to Friday's low.

It looks like we are seeing the first multiple partial nuclear meltdowns in history. But a professor at nearby UC Berkeley tells me this is more of repeat of Three Mile Island, where half the fuel rods melted, than Chernobyl, where they all did. Small amounts of low radiation cesium and iodine have already been released, which should be measurable on American roof tops in about ten days. Neighboring countries are enforcing radiation testing of all food imports from Japan.

The death toll is certain to ratchet up considerably. Seaside villages that have been wiped off the face of the earth don't return phone calls. Japan's maritime self-defense forces are scouring the seas off of Sendai, rescuing a lucky few clinging to floating debris.

Finally, I wish to thank the many who sent me emails of concern, aware of my long family ties to Japan. Everyone is safe as they were fortunately out of the country when the disaster struck, or did not live in the worst affected areas.

Further updates to follow.

Featured Trades: (THE BEAR MARKET IN BONDS TAKES A BREATHER), (TLT), (TBT)

 

2) The Bear Market in Treasury Bonds Takes a Breather. I have been a huge bear on the Treasury bond market, much to the delight of my readers for the past six months, who have made fortunes from this advice. I know that I have said that you must sell every rally for the next ten years. But markets have to breathe, and nothing ever moves in a straight line.

I therefore believe that the bear market in bonds is about to take a brief rest. Ben Bernanke's QE2 has resulted in massive buying of long dated Treasury bonds, and I think he will be sitting on the bid all the way up to the last day of the program on June 30. This will provide some support for bonds for at least three more months.
I also think that all asset classes generally, and equities specifically, will be subject to some profit taking and a 'RISK OFF' trade in coming months.

This could generate a flight to safety bid for government paper. It won't be off to the races for Treasuries. I'm looking for a rally of only a handful of points. That is why I'm not bothering actually going long bonds. Perish the thought. Take a look at the chart below, which shows that a short term 'head and shoulders' bottom may be developing for long term Treasury bonds. This is what the markets are struggling to tell us.

I happen to know that several big hedge funds are taking advantage of these market conditions by selling short near dated puts on 10 and 30 year Treasury bond futures. One of the purposes of this newsletter is to keep you informed about what the big boys are doing. This is what they are doing. We are running a fairly light book these days, so you should have plenty of room to accommodate a trade like this. If you are lacking clearance for level four options trading and are unable to execute a trade like this then just watch and learn.

If you are unable to short the puts outright, you might consider buying the (TLT) on a dip outright, with an eye towards picking up a few points. But keep in mind that this is a higher risk lower return trade, the kind I try to avoid. It also requires a pretty fine ability to trade the market short term, which may be beyond the means of many of you. A long position makes nothing at all if the (TLT) doesn't move, while the short puts trade reaches its maximum point of profitability.

The best case scenario for the short put trade is for the Treasury bond market to hold it together for three more months, and then go to hell in a hand basket after your short puts expire. Then you can merrily skip back over to the short side and reinvest your new profits.

Even Bears Need to Take a Rest

-

-

Always Nice to Know What the Big Boys Are Doing

Featured Trades: (ARE THE EQUITY MARKETS HEADED FOR A FALL?)

1) Are the Equity Markets Headed For a Fall? On this two year anniversary of the great bull market, one has to ask if it is about to die of old age. Take a look at the chart below showing investor sentiment. The last time it was this high was the end of 2007, not exactly a great time to load the boat with equities.

I suspect that if you are not at a top in the market now, the end is not far off. Not only is the bull market two years old, the current leg is rapidly approaching six months. That means that we have not pierced the 50 day moving average in the S&P 500 in any meaningful way since August.

The rumbling that not all is well in River City is getting louder by the day. We are now seeing much more volume on down days than up days in the stock market, a reliable indicator that the smart money is departing for sunnier climes. Commodities look like they are giving up the ghost for the time being, with lead metal copper down by 8.5% in a month. They don't say that the red metal has a PhD in economics for nothing.

Even more concerning is the recent strength in the long bond that could be the beginning of a head and shoulders bottom in that market. Is this the warm up for a flight to safety bid? Is it relieved that PIMCO's Bill Gross has finally completed his gargantuan sales of bonds? Is the European debt crisis about to rear its ugly head once again? Is the dead hand of high oil prices finally being felt by the market? Only time will tell.

I think the only thing that could rescue the global equity markets at this point is to sudden demise of one Colonel Muammar Khadafy. The disappearance of the Libyan dictator would drop oil prices by $20 in a heartbeat, and send equities soaring, at least for a little while. Remember, he is only president for life. Maybe someone should lend him one of those Toyota's with the sticky floor mats?

 

-

-

-

-

Don't Sell This Guy a Life Insurance Policy

'I think you would see a 25% reduction in the standard of living in this country if the dollar were no longer the world's reserve currency,' said real estate mogul, Sam Zell.