Readers of the Diary of a Mad Hedge Fund Trader down under are welcome to join the online ?Secure the Future? conference which I will be participating in through the miracle of the Internet. My friend, Greg Owen, created this organization to educate investors in the opportunities available in international markets by bringing in industry veterans like myself. I will be making presentations on the current state of and prospects for the global financial markets, to be followed by an extended question and answer session. No doubt I will spend a lot of time expounding on my outlook for Australian stocks, bonds, commodities, precious metals, and real estate. My schedule is below.
Sydney on Saturday, May 12 at 2:00 PM Brisbane on Tuesday, May 15 at 2:00 PM Perth on Thursday, May 17 at 2:00 PM
To register for the event, please click here at www.securethefuture.com.au/greg . In order to register, you will need to input your credit card information. However, you can attend as my guest, so there will be no charge made to your credit card. I look forward to hearing from you in the Q & A.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/secure.jpg7881004DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-10 23:04:242012-05-10 23:04:24Special Note to Australian Readers
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 supply of the yellow metal is just 2,200 tonnes a year. This does not include Russia or China, where production is entirely consumed domestically and never reaches the world market. China alone bought 64 tonnes off the international market in February. Other non G6 central bank buying continues unabated. India?s gold import duties were rescinded, which had been the explanation from the drop from $1,700 after widespread strikes by the country?s jewelers.
But paper selling of gold through ETF?s like the (GLD) has delivered a stiff dose of insecticide to the gold bugs, causing prices to plummet. It is all a broader symptom of the global ?RISK OFF? trade which has gripped assets of every description, smashing any diversification assumptions about gold. Watching the economies of the biggest sovereign gold buyers slow has not exactly thrilled speculators. The tightening of margin requirements by the CFTC two weeks ago, originally intended to damped oil speculation to get gasoline prices down, had the unintended consequence to paring back other commodity and precious metals prices as well.
Hints from Ben Bernanke that QE3 is on hold delivers a sucker punch to gold holders every time. And as we saw on Tuesday, the slightest hint that the International Monetary Fund will sell gold to rescue Europe is good for about a $50 down day.
It looks like gold will hit my downside target of $1,500 fairly quickly. Too bad some dubious price action spooked me out of my puts too soon last week. This would have been the home run of the year if I only held on for two more days. Welcome to show business.
Beyond that, the chart below shows major support at $1,425. To get down to $1,250, you need to see a true double dip recession, which the recent soggy economic data has been hinting at. I am sure we will see my long term inflation adjusted all time high of $2,300 in the years ahead. But you may have to suffer some serious pain along the way to get there.
Goldfinger Stared Me Down Once Again
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/goldfinger.jpg309400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-10 23:03:202012-05-10 23:03:20Why is Gold Broken?
As of this week, Oregon will become the first state to complete a chain of charging stations that will enable electric cars to travel from one end of the state to the other. It completed the last of eight 440 volt fast charging stations that allow travel for the full 310 miles on the beaver state?s Interstate 5, from the Washington to the California border.
A fleet of Tesla Roadsters, Nissan Leafs, Fisker Karmas, and Mitsubishi iMiEVs celebrated the event by traveling in convoy from one end of the state to the other. It is all part of the Electric Highway Project, which has the final goal of building an all-electric corridor from Canada to Mexico.
The development understates how rapidly electric cars are going mainstream. Once the domain of the wealthy who bought Tesla?s $100,000 two seat roadster, prices are now falling to the level of high end luxury cars. Tesla?s own Model S1 Sedan, which carries a 300 mile range, will be available for $58,000. Toyota announced that its electric Rav4 SUV will cost $49,800 and will include a Tesla built drive train. My own 100 mile range Nissan Leaf cost me $38,000, and after a year has delivered me 12,000 miles of pleasant driving with zero fuel and maintenance costs. Also on the drawing board is a Tesla driven Mercedes ?A? class Smart car for even less.
Toyota invested $60 million in founder Elon Musk?s fledgling car company to assure timely deliveries. Elon wisely used the cash to buy the abandoned General Motors Prizm plant in Fremont, California for pennies on the dollar with some generous US government subsidies thrown in, where Model S1 production is underway.
Yesterday, Tesla announced it was moving the delivers up a month to June this year, causing a one day 10% pop in the stock, despite announcing a $98 million quarterly loss the day before. No doubt, the 10,000 on the waiting list for the S1are thrilled. Their $5,000 deposits have provided the company with $50 million in free financing for two years.
When I first bought my Leaf, finding a charging station away from home required some advanced planning and guerrilla tactics. I still feel bad about depriving a parking lot attendant of his coffee maker outlet for three hours while I enjoyed the opera, but he didn?t mind the $20 tip. That was back when there were only 25 charging stations in the entire San Francisco Bay area. Today there are nearly 400, with 20 new ones joining the ranks each week. Soon, every Walgreens, Whole Foods, and Best buy will have one, as will every major hotel in the city. Not a bad deal, given that none of these stations has yet to charge a penny for a single electron.
Tesla is moving ahead to build its own network of 440 volt ?supercharging stations? which can get you an 80% top up in 45 minutes. One is being built at Harris Ranch, half way between San Francisco and Los Angles, with a second in Sacramento, midpoint for a trip to Lake Tahoe. I can foresee a life of plugging in my car, going into Starbucks with an Economist, a Wall Street Journal, and a New York Times, and then zooming away 45 minutes later.
Although the Tesla plug won?t be compatible with my Leaf, the stations will carry adapters for all cars. I won?t need an adapter for my Tesla Model X SUV. I am one of 1,000 on the waiting list for that futuristic, 300 mile range vehicle, which should be parked in my garage in 2 years.
Tesla Model S Sedan
Tesla Model X SUV
My Leaf
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.pngDougD2012-05-10 23:02:162012-05-10 23:02:16Oregon Becomes the First All Electric State
?A rich guy never has to pay for anything?, said Berkshire Hathaway?s Warren Buffett, about his friends? practice of giving him free ties to replace his old, battered ones.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/RichGuyJpg.jpg317397DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-10 23:01:382012-05-10 23:01:38May 11, 2012 - Quote of the Day
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 Goodyear (GT), Green Mountain Coffee (GMCR), and Open Table (OPEN). Think of it as garbage distilled.
The fund addresses many of the shortcomings in other short index ETF?s like (SH) and the 2X (SDS).While they get the direction right in a down market, they also throw out the baby with the bathwater. Sure, you are happy to sell short a lot of stocks with bleak futures. But you are also shorting Apple (AAPL), IBM (IBM), Intel, and Cisco (CSCO), not something you necessarily ever want to do on pain of death.
It has been working like a charm since the April 2 peak in the markets. (HDGE) delivered an awesome +15.2% gain, against a much more modest +6.6% for the 1X ProShares Short S&P 500 fund (SH) and a fall of only -5.8% in the S&P 500 (SPX). (HDGE) is in effect delivering a downside outperformance compared to the (SH) of more than 2:1, which makes a long (HDGE)/short (SH) strategy look kind of interesting. What is particularly impressive is that it does this without leverage, qualifying it for investment in many plain vanilla IRA?s and 401k?s, and posting it on the menu for many individual investment advisors.
Of course, quality comes at a price, as I am always at pains to point out to my own readers. Management fees are a hefty 3.39%, although that comes down to a reasonable 1.5% when manager rebates are factored in. The dealing spreads on these esoteric ETF?s can be quite wide, so it is wise to place a limit day order in the middle market to avoid being taken to the cleaners. If we get a brief short covering rally in the market you might find me in this one with a trade alert. To learn more about this enticing exchange traded fund, please visit their website at http://advisorshares.com/ .
Looking for Some Good Short Plays
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.pngDougD2012-05-09 23:03:072012-05-09 23:03:07Check Out (HDGE) to Limit Downside Exposure
I immediately recognized Robert Mueller as the kind of no nonsense, fellow ex-Marine, Vietnam Vet that he was, the kind of officer who used to rip your guts out for disobeying a direct order, which in my case was frequently.
President Obama thought this was the man you want for your Director of the FBI, which is why Mueller survived as one of the few holdovers from the previous Bush administration. Mueller has been following in the tradition of the legendary G-Man J. Edgar Hoover for 11 years now.
Mueller believes that the Internet is not just a conduit for commerce, but also for crime and terrorism, and the bad guys are checking your doorknobs every day. Information is power, and fiber optic cable is a weapon. Terrorists, in particular, love the new Google Earth application.
Recently, Mueller busted an American-Egyptian phishing ring, arresting 50, which looted 5,000 US accounts. We all must take ownership of the cyber security problem through the vigilant use of antivirus software, firewalls, sophisticated and frequently changed passwords, and constant patches. Tracing a 75-cent accounting discrepancy at UC Berkeley led to the smashing of a German industrial espionage ring that was tapping into university computers.
Teenaged kids, like the Canadian who launched the biggest ?denial of service? attack against E-Trade and E-Bay, are to be feared. Be careful what you post on your Facebook page because it may kill a job prospect years down the road.
The FBI is now embedding agents in police departments in Eastern Europe and China to take the fight global. The last time a visited FBI headquarters in Washington, I was amazed to learn that Chinese anti-hacking specialists kept their own office there.
When I got home, I immediately backed up all my files, reset my passwords, and bought my fourth antivirus program. I also installed bars on my windows and set booby traps on the front lawn for good measure. Maybe Apple products, usually immune to these sorts of problems, are not so bad after all?
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/mueller.jpg354235DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-09 23:02:052012-05-09 23:02:05An Afternoon With FBI Director Robert Mueller
?The policies that we followed since the great crash of 2008 have been pretty darn good. It would be nicer if GDP were galloping at 4% or 5%. But we have had a complete resuscitation of the banking system. We?ve had the economy come back in a very significant way in all cases, except residential construction. Most of our businesses are having record earnings,? said Berkshire Hathaway?s Warren Buffett.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/buffett-1.jpg281400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-09 23:01:452012-05-09 23:01:45May 10, 2012 - Quote of the Day
A few years ago on the Old Square in Brussels, a delicious luncheon of moules marini?res 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 countryside to visit some clients resident at Highclere Castle, which is now the subject of a major TV series. I raced my twin engine Cessna at full power into the sunset, across the English Channel, past the white cliffs of Dover, because my destination airfield had no lights. By the time I arrived it was too dark to land, my alternate airport at Southampton had suddenly closed because of a crash, and I only had 15 minutes of fuel left.
I knew that the pub at the end of the grass runway kept a radio with the tower frequency always tuned in. So circling at 1,500 feet overhead in the pitch black darkness I called in and ordered a full bottle of Ron Rico rum. I told the bartender to pour out 16 shot classes and line then up on the bar. I then broadcast my predicament and said that anyone who would take a rolled up newspaper and dip it in the rum, set it on fire, then line up to light the runway would get a free pint if I landed successfully. I said that if I didn?t get help immediately, I might take out nearby Stonehenge, or perhaps Salisbury Cathedral, in the imminent crash.
Within seconds, I could see the flaming torches dispersing along the field, some in a somewhat drunken fashion. I landed right between the two ragged lines of my improvised landing lights, which lit up the field as clear as day. It was the first time that I landed on a runway that was living, breathing, and even staggering.
As I taxied to my parking space, the starboard engine ran out of fuel and shuddered to a halt. So I just abandoned the plane there to retrieve the next morning. Needless to say, I bought rounds for the house that night until no one was left standing.
Watching the Euro shatter its four month support line this morning at $1.2950, I felt exactly as I did all those years ago in the dark skies over the Wiltshire countryside. The concern was that my put options would run out of fuel before the currency made its big break, forcing me to crash and burn, as I almost did over England. The move sent my short position in the beleaguered currency soaring, and rendered the calls that I sold short only yesterday into dust. It was a good P&L day for the Mad Hedge Fund Trader?s model portfolio.
I am now seriously thinking of becoming a card carrying member of the Greek Communist Party, for it is their young leader, a Mr. Alexis Tsipras, who provided the final straw that broke the camel?s back. Its leaders threatened to challenge the legality of the recent bailout in court. Is Greek rescue package number three now in the cards? The development threatens to undo all of the hard won progress made this year towards resolution of the continent?s sovereign debt crisis. Did anyone expect that asking people to vote for their own austerity and starvation was going to work?
Long term currency watchers had been mystified as to why the Euro had held up so well in the face of such obviously collapsing fundamentals. The markets were rife with rumors of European Central Bank support at $1.30 to prevent a widespread panic that would ignite wholesale Euro dumping. My own theory was that the trade became so obvious and one sided that hedge fund short covering prevented it from falling further. Today, the fundamentals turned so dire that massive selling finally? cleared out? those positions, which is how these things always end.
All I can say is that when it rains, it pours. The profusion of the market developments that I have been predicting all year have suddenly come true in the last few days; the awful April nonfarm payroll, a global synchronized recession that is accelerating to the downside, and the end of the grotesque overpricing of the US stock markets. Also coming home to roost are the contagion effects on all ?RISK ON? assets, including equities (IWM), commodities (CU), oil (USO), the Euro (FXE) (EU), gold (GLD), silver (SLV), and a huge flight to safety bid for the dollar (UUP) and Treasury bonds (TBT).
I thought this summer might be boring. Perhaps I could be wrong. And you wanted me to manage your money? Anyone for a return flight to Brussels to finish that bottle of wine?
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Highclere Castle
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A White Burgundy
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The Brussels Old Square
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A Cessna 340
My Advanced Instrument Landing System
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/dtabbey.jpg240360DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-08 23:03:462012-05-08 23:03:46Euro Crash Warns of More to Come
Yale professor, Robert Shiller, is the kind of imp like, peripatetic college professor you might expect to find in a Disney movie. Highly animated and jumping from one radical idea to the next it is hard to keep up with his stream of consciousness torrent of economic innovations. After a two-hour barrage, I was so intellectually exhausted that all I could do when I returned home was to plop down on the sofa with a Jack on the rocks and watch Fox News.
You know Robert Shiller as the creator of the Case Shiller Real Estate Index, which tracks 20 major residential housing markets around the US. His data was originally the domain of a handful of real estate brokers with a theoretical bent or securitizing investment bankers. But when the real estate collapse began to accelerate in 2007, it suddenly became the data point du jour for every property investor, business news network, and hedge fund manager.
Shiller is a devout non believer of the efficient market theory espoused by Eugene Fama of the University of Chicago. He thinks that financial markets are so emotional that they are beyond rational analysis. The systemic vulnerability of financial markets was a major cause of the 2008 crash and is still not well understood. He argues that people should have a 100 year time horizon when making investments, because that?s how long today?s children will live. Does anyone have the trading call for the Spring of 2112? (no typo!).
He says that teaching finance today is about as popular as being the university Reserve Officer Training Corps (ROTC) instructor during the Vietnam War. People are angry at bankers, as the Occupy Wall Street crowd has so amply shown, which Shiller sees as our own ?Arab Spring?. Since 1990, the top 1% of the wealthy have seen their net worth soar by 60%, while it has fallen for the other 99%.
When Occupiers discovered that their movement could cause governments to fall, it rapidly spilled beyond its Madrid, Spain origins. But the financial industry is not all bad. Witness the miracle in emerging markets which has been made possible through new capital provided by western investment bankers.
Robert titillated me with some highly creative innovations which we may see adopted in coming years. I?ll give you the highlights.
*Options on individual real estate markets, now five years old, will go mainstream and finally become liquid as individuals seek to protect their home equity during economic downturns. This will become a major area of new profits for Wall Street.
*?Continuous mortgages? should be created whereby the debt is never paid off, but is assumed from one owner to the next in exchange for a higher interest rate. If you package many of these together and securitize them, it would be a major step towards clearing out the massive inventory of unsold homes.
*The government already issues plenty of bonds and next should sell equity in itself in one trillionth increments. That puts the value of the government?s share price today at about $15.50. If the economy grows, the share price should go up.
*Tax rates for the wealthy should rise with inequality. The more wealth that is concentrated with the 1%, the higher the maximum tax rate should go. Remember, the maximum rate was 90% at the time of the Roosevelt administration during the Great Depression, nearly triple today?s 35% rate.
*The actual impact of high frequency traders, who he refers to as ?millisecond traders?, is vastly exaggerated.
*Although the new ?crowd funding? bill just signed by president Obama has been described as the ?Boiler Room Full Employment Act?, it will provide a valuable source of venture capital for micro startups. Those earning only $40,000 a year are limited to an $800 bet, with the maximum legal investment set at $10,000.
*Some 14% of the total economic activity of the US involves security. Just having people watching people is an enormous waste of resources.
*For profit nonprofits, called benefit corporations, should proliferate to advance specific social goals. These should work well as they pay little in wages and enjoy community support. They are already legal in eight states.
If you would like to attend one of Shiller?s classes for free and expose yourself to more out of the box economic thinking, you can do so through regular offerings of his online courses. To sign up for Open Yale University, which Time magazine lists as one of the top websites, please click here at http://oyc.yale.edu/economics .
And what about real estate? Robert told me that his data show that there is not the slightest sign of any long term recovery in prices. Real estate brokers insisting that the final bottom has been reached are best to be ignored. Rent, don?t buy.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/shiller1_1.jpg163400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-08 23:02:032012-05-08 23:02:03Dinner With Robert Shiller
?It?s not the end of the world, but it will be one messy process,? said Oracle of Omaha, Warren Buffett, about the European debt crisis.
https://www.madhedgefundtrader.com/wp-content/uploads/2012/05/messy-office-03.jpg285400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2012-05-08 23:01:142012-05-08 23:01:14May 9, 2012 - Quote of the Day
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