Global Trading Dispatch?s Trade Alert Service posted a new all-time high yesterday, clocking a 48% return since inception. That takes the average annualized return up to 30.3%, ranking it among the top five performing hedge funds in the world. Those happy subscribers who bought my service in early May reaped an instant 35% profit following my advice.
I really nailed the top of the market on April 2, piling on hefty short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) within a week. Predicting that the conflagration in Europe would get worse, my heavy short in the Euro (FXE), (EUO) was a total home run. I took in opportunistic profits trading the Japanese yen (FXY), (YCS) and the Treasury bond market (TLT) from the short side. I was then able to lock in these profits by covering all of my shorts with 60 seconds of the May 28 market bottom.
In June I caught almost the entire move up with a portfolio packed with ?RISK ON? trades. I picked up Apple (AAPL) at $530 for a rapid $50 gain. I seized the once in a lifetime opportunity to buy JP Morgan (JPM) at a 40% discount to book value, picking up shares at $31, correctly analyzing that the ?London Whale? problem was confined and solvable. My long position in Walt Disney (DIS) performed like the park?s ?Trip to the Moon? ride. While Hewlett Packard (HPQ) fell a disappointing 5% on me, I was able to add 140 basis points to my performance through time decay on an options position.
My satisfaction in all of this comes from the knowledge that thousands of followers are making money in the markets that never would otherwise. I am protecting them from getting ripped off by the sharks on Wall Street with their conflicted and indifferent research. I am expanding their understanding of not just financial markets, but the world at large. And I am doing this during some of the most difficult trading conditions in history.
Global Trading Dispatch, my highly innovative and successful trade mentoring program, earned a net return for readers of 40.17% in 2011. The service includes my Trade Alert Service, daily newsletter, real time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. To subscribe, please go to my website at www.madhedgefundtrader.com , find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-20 23:03:322012-06-20 23:03:32Trade Alert Service Blasts to New All Time High
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 disappointing decision today. As I expected, there will no QE3. The Fed needs to keep dry powder in case we get another market crash, possibly as early as this summer. Operation ?twist? was renewed for another year, but wasn?t extended to include mortgage backed securities. It was about as conservative of a conclusion one could have expected from the Fed, given the rapidly deteriorating economic data flow that I chronicle daily in these pages.
It brings the August panel of respected central bankers in line with my own 2% expectation, which I have been posting since January. Here?s a good rule of thumb from a four decade long Fed watcher: they are always behind the curve, sometimes way behind, often by a year or more.
The problem for you is that 2% is not my forecast anymore. As of today, I am ratcheting it down to 1.5%. Without a QE3 it is really hard to see where additional growth is going to come from this year. US corporations are producing record profits and sitting on mountains of cash, so they have absolutely no incentive to stick their necks out whatsoever. Additional government spending is hamstrung by an election year and a gridlocked congress.
Virtually the entire international arena is slowing, in some cases dramatically so. China is about to bust through the bottom of its target growth range at 7%, down from 13% a few years ago. Tsunami reconstruction spending in Japan has just about run its course. Europe is clearly in a major recession. Even powerhouse, Germany, is shrinking from 2% growth to 1% because of weakness in its major export markets.
The market implications of this lower growth rate are many. It means that the recent 100 point rally in the S&P 500 was built on so much hot air and false hope. It was never driven by more than a round of furious short covering and profit taking. Let the permabulls enjoy a few more days of summer, possibly taking the index as high as 1,400 by month end.
It also means that another round of pain for the Euro (FXE) (EUO) is not far off. The best case for Treasury bonds (TLT) is that they churn sideways until the next Fed meeting in six weeks. In the worst case, the spike up to challenge the old highs, taking yields up to 1.42% for the ten year once more.
The lows for the year haven?t been put in yet, but they are about to. Before, we had a 4% GDP stock market and a 2% GDP economy. Now we have a 4% GDP stock market and a 1.5% GDP real economy. Watch out below. The only question is whether 1,250 in the (SPX) holds this time, or whether we have to plumb the depths of 1,200 before the penance is paid for our hubris.
Sorry Guys, No QE3 Today
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-20 23:02:452012-06-20 23:02:45No Fed Action Disappoints QE Bulls
?When it comes to reputational risk, the banks can?t really fall off the floor,? said Bart Naylor, a consumer advocate.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/06/DrunkWomenontheFloorpassedout_thumb2.jpg282378DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-20 23:01:552012-06-20 23:01:55June 21, 2012 - Quote of the Day
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
https://www.madhedgefundtrader.com/wp-content/uploads/2011/10/slider-05-trader-alert.jpg316600Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2012-06-20 13:24:342012-06-20 13:24:34Trade Alert - (TLT) June 20, 2012
4:30 PM Sunday- Looks like my Monday is going to start early this week.
One of my Athens readers e-mailed me that New Democracy was a slam dunk to win the election and would form a right of center, pro bailout, pro Euro (FXE) coalition government. Looks like it is going to mean a ?RISK ON? week. US Treasuries nosedive in the overnight market. Looks like we are going to get a shot at selling short the Euro (EUO) one more time.
6:30 PM Sunday-Take kids to see the new DreamWorks animated blockbuster, ?Madagascar 3?, with voiceovers by Ben Stiller, Chris Rock, Jada Pinkett Smith and David Schwimmer. Notice how the kid movies are better than the adult movies these days. There are ample double entendres and innuendos to keep the grownups laughing all the way. I loved the penguins, fowl after my own heart.
9:00 PM-Call from a friend at the People?s Bank of China in Beijing. He wants to know if they have missed the top of the Treasury bond market, and if they should start unloading their $1 trillion worth of holdings. I said don?t worry. I expect the ?RISK OFF? trade to take the ten year yield up to 1.25% on a spike at some point, and then levitate, possibly for years. The world is suffering from a savings glut and a bond shortage. Plus, you will get a double kicker with a strong dollar. But please don?t try and sell ahead of a three day weekend, like you did last time. And thanks for the Peking Duck dinner in Shenzhen last year.
9:30 PM- Hit the rack and try and catch some shuteye before the next call.
2:00 AM-One of my former staff members at Morgan Stanley calls me from a Private Bank in Geneva to tell me that the Spanish bond market was in free fall, with yields piecing 7%. Is it time to buy? I said not yet, not until the fat lady sings, and slammed the phone back on the hook to go to sleep.
Spanish 10 Year Bond Yields
3:00 AM- Call from one of the top New York trading houses. There are rumors that the Oracle (ORCL) would announce blowout earnings in a few hours. Did I want to buy anymore stock? I said no thanks, that I already had 50% of my portfolio in high tech names like Apple (AAPL) and Hewlett Packard (HPQ). Can he please come up with any new top performing industries? People are getting tired of hearing the Apple story for the umpteenth time.
5:00 AM-Woken up by an earthquake that sounds like a truck just hit the house. I turn on the TV and learn that I am directly above the epicenter. It?s the third one since Wednesday. Ah, the joys of living in California next door to the San Andreas Fault.
6:00 AM-My website administrator calls me in a panic. The store is down. A hacker attack prompted PayPal to suspend my account. Since I am one of their largest customers, I call my account rep and get it reopened.
6:15 AM-An old friend from the Swiss National Bank called asking my read on the Fed meeting this week. I said that things weren?t dire enough for a QE3, but he could count on a ?twist? extension to include home mortgage securities. The board was most frustrated my its inability to revive the real estate market with the lowest interest rates in history, and such a move could take 30 years fixed rates loans from 3.75% to 2.75% in weeks. I said I owed him a fondue diner with a bottle of Schnapps for giving me the heads up on the Swiss franc devaluation last year where my followers earned a 400% profit on the puts (FXF). But to collect, he had to take the cog railway up to Zermatt and attend my strategy seminar on July 27.
6:45 AM-I get flooded with 30 emails from Trade Alert Service followers asking if they should take profits on their long Apple calls spreads. I ignore them. Don?t bother me with the small change. I can?t hold everyone?s hand.
7:00 AM- Another call from my website administrator. The website is down. The Greek election brought a traffic spike that is causing the servers to melt. I am burning up the Internet.
7:30 AM- Conference call with support team. We agree to build in new infrastructure to accommodate a tenfold increase in new business. Couldn?t I be wrong a little more often to bring the growth down to a more manageable level? Pass.
8:00 AM- I get a call from a leading hedge fund in London?s Mayfair district. Europe is closing. Should we run the Euro short overnight? You betcha! And go have a pint of bitter for me at the Pig & Whistle next door, will you.
9:00 AM-Call from a large family office in Chicago. Should we use today?s weakness in gold to unwind out more hedges against core longs? Absolutely. Grab the brass ring. The barbaric relic is going to $2,300 before the fat lady sings, and will go higher if the ECB launches another LTRO, which is just a matter of time.
10:00 AM-Better get to work on today?s letter. I?m already behind the eight ball. I?ve gotta lead the gold story, which is starting to emerge from its long hibernation and exhibit some virile stirrings. Platinum (PPLT) looks even better.
12:00 PM-Break for lunch. Isn?t it great the way enchiladas always taste better after they have been reheated for a third day?
1:00PM- Market close with a small loss. Looks like another day of ?RISK OFF? for Tuesday.
1:15 PM-My friend, JR, a senior exec at an oil major, calls from Houston. What the hell was going on with the price of oil (USO)? Three months ago, it was at $109, then he blinked, and it was $80. I told him that the oil companies lost control of the price of Texas tea last year and the high frequency traders were now in the saddle. Better get used to the new frontier. He said thanks, and next time I was in town he would buy me a 24-ounce chicken fried steak at Billy Bob?s that spilled over both sides of the plate. I can?t wait. I?ll let my doctor have the heart attack.
1:20 PM- It?s official. Oracle earns $3.45 billion, or 69 cents a share, for the three months ended in May, compared with $3.2 billion, or 62 cents, a year earlier. The stock pops 5% in the aftermarket. Damn! I bought Hewlett Packard instead.
2:00 PM-Still haven?t started on the letter yet. I have been answering 200 email requests for information about the Trade Alert Service. This always happens whenever I have a hot trade on. The watchers want to become players. A 20.5% May and an 11% June month to date brings them in the droves.
2:30 PM- I unplug the phones and close the curtains to do a one our live show on the recent market volatility as a guest on a local radio station.
4:45 PM- Well, I got the letter done, but I?m too late. The web editor has gone to the DMV to register her new Prius, and the backup has gone to the yoga studio. Ouch! 10% sales tax for new cars in Washington state! They must be as broke as California.
4:30 PM-The traffic stats for the site have gone down. I called the webmaster, but she has gone off to a line dancing lesson in Dallas.
5:00 PM-Ooops. Forgot to take the trash out.? My garbage man, an Afghan immigrant, must wonder what goes on here. Every week, I recycle a giant bin of newspapers, magazines, and assorted broker research, but only throw out a tiny bag of actual trash. Am I green, or what? He notices that my T-shirt reads in Pashto script ?Defense Language Institute. We learn, so you don?t have to.? He says his son was stationed at Fort Hood in Texas and that he hasn?t heard from him in two months. I make a quick call Washington and find out that he has been transferred to Afghanistan as a translator. I tell him not to worry. It?s the other guys who usually die, not ours.
5:30 PM-I put on a 60-pound pack and my heavy climbing boots and head out the back door on a three hour hike to climb Grizzly Peak as I do every evening. Gotta stay boot camp ready. You never know when Uncle San is going to call again. Who cares if I?m 60? During Desert Storm, my flight commander was drafted at 65, and I heard of another guy they took who was 85. Turns out there was no one left in the Navy who knew how to run a coal fired steamship.
9:00 PM-Back to my screens. The Euro has broken $1.27. The Greek stock market is up 25% in days. Where was I last week? Asleep? If you turned off your TV, the centrist win was a no brainer.
10:00 PM-Time to call it a night and break out a bottle of Duckhorn merlot. How many wine clubs do I belong to now? 12? As of now I am committed to buy more wine this year than I can possibly drink or give away. That?s the price of living next door to Napa Valley. I?m shipping a case to my suite on the Queen Mary II so I can give away to fellow diners en route from New York to Southampton in a few weeks. The captain always likes a bottle too.
12:00 AM- Time to do some early Christmas shopping. Bonham?s in London is holding their fine jewelry auction today, and lot no. 62 is a 5 carat diamond solitaire that is a real beat.
12:10 AM-Damn! Outbid by the Chinese again, who are running up the price of luxury goods absolutely everywhere to insane levels. Time to get some sleep. Maybe next time. I?m obviously not working hard enough. I unplug my phones, as it?s the only way I can sleep. It looks like tomorrow is going to be another busy day. Does anybody want my job?
Note to Greece: Please Quit Waking Me Up!
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-19 23:02:512012-06-19 23:02:51A Day in the Life of the Mad Hedge Fund Trader
?Now, you are starting to see people front run hedge fund books. People are front running John Paulson?s book. Everybody can see this. People are starting to line up the ducks and ask which hedge funds are going to have redemptions. Which position should I get in front of? Gold is a big problem in that environment. Guess what? The biggest position in the hedge fund community is in gold,? said a leading hedge fund manager.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/06/horserace.jpg209400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-19 23:01:302012-06-19 23:01:30June 20, 2012 - Quote of the Day
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
https://www.madhedgefundtrader.com/wp-content/uploads/2011/10/slider-05-trader-alert.jpg316600Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2012-06-19 14:23:582012-06-19 14:23:58Trade Alert - (HPQ) June 19, 2012
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) suffering a heart rending 43% haircut.
However, the recent price action suggests that hard times may be over for this hardest of all assets. Despite repeated attempts, the yellow metal has failed to break down below the $1,500 support level that I have been broadcasting as the line in the sand.
It has rallied $100 since the last try a few weeks ago. (GDX) has performed even better, popping 23%. For the last month, the entire precious metals space has traded like it was a call option on global quantitative easing (see yesterday?s piece). Dramatically worsening economic data is increasing the likelihood of further monetary easing generating a nice bid for gold.
Now the calendar is about to ride to the rescue as a close ally. It turns out that in recent years, there has been a major seasonal element to the gold trade, almost as good as the November/May cycle that drives the stock market. Gold typically sees a summer low. Then traders start anticipating the September Indian gold season when the purchase of gifts and dowries become a big price driver. That explains why India, with a population of 1.2 billion, is the world?s largest gold buyer.
Next comes the Christmas jewelry buying season in western countries. That is followed by the gift giving and debt repayments during the Chinese Lunar New Year, during which we see multi month peaks in the yellow metal. That is exactly what we saw this year. The only weakness in this argument is that a slowing Chinese economy could generate less demand this time.
These are heady inflows into such a small space. All of the gold mined in human history, from King Solomon's mines, to the bars still in Swiss bank vaults bearing Nazi eagles (I've seen them) would only fill 2.5 Olympic sized swimming pools. That amounts to 5.3 billion ounces, about $8.6 trillion at today's prices. For you trivia freaks out there, that is a cube with 66 feet on an edge. China is the largest producer (13.1%), followed by Australia (10%) and the US (8.8%).
Peak gold may well be upon us. Production has been falling for a decade, although it reached 94 million ounces last year worth $153 billion at today?s prices. That would rank gold 5th as a Fortune 500 company, just ahead of General Electric (GE). It is also only .38% of global public debt markets worth $40 trillion.
That is not much when you have the entire world bidding for it, governments and individuals alike. Talk about getting a camel through the eye of a needle! We may well see the bull market end only when those two asset classes, government bonds and gold, see outstanding values reach parity, implying a major increase in gold prices from here. That is well above my own personal target of the old inflation adjusted high of $2,300. No wonder buying is spilling out into the other precious metals, silver (SLV), platinum (PPLT), and palladium (PALL).
The thumbnail technical view here is that we have broken the 50 day moving average at $1,610, so we may have a clear shot at the 200 day average at $1,680. There may be an easy $50 here for the nimble, and more if we break that. The current ?RISK ON? mood certainly helps this trade.
When playing in the gold space, I always prefer to buy the futures or the (GLD), the world?s second largest ETF by market cap, either outright or through a longer dated call spread. The dealing costs are far too high for trading physical bars and coins, and can run as high as 30% for a round trip. Having spent 40 years following mining companies, I can tell you that there are just way too many things that can go wrong with them for me to risk capital. They can get nationalized, suffer from incompetent management, hedge out their gold risk, get hit with strikes or floods, or get tarred by poor equity market sentiment. They also must endure the highest inflation rate of any industry, around 15%-20% a year, which hurts the bottom line.
Better just to stick with the sparkly stuff.
It?s Time to Start Dabbling in Gold Again
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-18 23:02:302012-06-18 23:02:30Gold is Making a Comeback
?If past history is all there was to the game, the richest people would be librarians,? said Oracle of Omaha, Warren Buffett.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/06/librarian.jpg385310DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-06-18 23:01:012012-06-18 23:01:01June 19, 2012 - Quote of the Day
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
https://www.madhedgefundtrader.com/wp-content/uploads/2011/12/investing-a-z-stock-market-game-for-students.jpg240320Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2012-06-18 13:39:312012-06-18 13:39:31Trade Alert - Expiration (TLT) June 18, 2012
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