2012 Archive - Mad Hedge Fund Trader

The Lost Decade For Bonds is Beginning!

In order to enjoy your coming weekend, I thought you'd like a technical update of your positions, so feast your eyes on the two charts below. They say that a picture is worth a thousand words, so here is 2,000 words worth. If you have been negative on bonds as I have, these charts should enable you to sleep much better.

Virtually every fixed income product is peaking now. Let me draw a simple picture for you laymen out there. That means you should sell every major bond market rally for the next ten years. Whether the final bottom in yields for the ten year Treasury bond is the 1.80% that we have already seen, or 1.60% coming this summer is anyone?s guess. The technical set up is now so dire, that bonds are going to have a really tough time rallying from here. The momentum players will soon smell blood in the water, and they'll be jumping in with both feet at every opportunity. The lost decade for bonds has begun!

Of course, you knew this was coming. It doesn?t help that the budget proposals for both political parties going forward will engineer a dramatic increase in the deficit. The bond market is not laughing. Of course putting in the final top in a 30 year move could be a multiyear process. But it is time to dump that old investment guidline where you own your age in bonds. From here on, the bond/equity ratio should be o% in bonds and 100% in equities, whatever your age.

Is the Lost Decade for Bonds Beginning?

Be Careful ,Your PC is Watching

Diary

Hey! You there, staring at this monitor. This is your PC talking to you. No, not you over there standing in the background. I?m talking to the guy sitting in front of me poking at my keys. Ouch! That one hurt!

So you thought no one was watching, did you? Let me straighten you out. About a month ago you clicked on a certain website, and I installed myself as a cookie on your computer, which is an innocuous little text file that you can?t see. Since then, I have been tracking your every move, recording websites you clicked on, the pages you visited, and the stuff you ordered. I then used this handy little algorithm to build a profile of exactly who you are. I now know you better than your own mother. In fact, I know you better than you know yourself.

For example, I am aware that you make more than $250,000 a year, live in a posh zip code in San Francisco, belong to a fancy country club, and drive a Mercedes. You donate to Republican political causes, send your kids to a prestigious private school, and bill it all to an American Express Platinum Card. Did I leave anything out?

Because I know every detail of your life, down to your inside leg measurement, I am able to harness the power of this machine to more precisely service your every need. That includes directing advertising to you, which you have a high probability of clicking on. The more you click on my ads, the higher prices I can realize for those ads. The ad campaigns you now see are unique to your own personal computer because they are tied to your IP address. My program, called ?behavioral targeting? is the next ?big thing? in online advertising. It?s all part of the brave new world.

I see you have been shopping for a new car. Check out the new Hyundai at http://www.hyundaiusa.com/ , which offers the same quality as your existing ride, at half the price. Your clicks this morning suggest you?re taking your ?significant other? out to dinner tonight. Might I suggest Gary Danko?s on Bay Street at http://www.garydanko.com/site/bio.html ? The rack of lamb is to die for there. Your visits to http://www.travelocity.com/ and http://www.expedia.com/ tell me you?re planning a vacation. I bet you didn?t know you can find incredible deals in Las Vegas at http://www.visitlasvegas.com/vegas/index.jsp . Thinking about buying a condo there? They?ll even pay for the trip if you promise to check one out while you?re there.

Since we?re chatting here mano a mano, I noticed that that last pair of jeans you ordered from http://us.levi.com/home/index.jsp had a 42-inch waist, up from the 40?s in your last order. Better lay off those cheeseburgers. Pretty soon, they?ll be calling you ?tubby? or ?fatso?. Better visit http://www.weightwatchers.com/Index.aspx soon, or the legs on that chair might buckle out from under you.

Worried about privacy? Privacy, shmivacy. There hasn?t been privacy in this country since the first social security number was handed out in 1936. And don?t expect any relief from Congress. I doubt half those dummies even know how to turn on their own PC?s.

Don?t even think about trying to delete me. I?m a ?flash cookie?, an insidious little piece of code that reinstalls every time you try that. Think of me as a toenail fungus. Once you catch me, I?m almost impossible to get rid of.

I hope you don?t mind, but I?ve been passing your personal details around to some of my buddies at other websites. That?s why when you clicked on http://www.nfl.com/ you got deluged with product offers from your local team, the San Francisco 49ers. I?ve got friends at Google, Facebook, MySpace, and pretty much everywhere. Can I help it if I?m a popular guy? I bet the view from those 50 yard seats is great, isn?t it?

I noticed that your spending habits don?t exactly match with the income you reported on your last tax return. Do you think the IRS would like to know about that? I bet you didn?t know the agency offers a 10% reward for turning in tax cheats.

How did you like those triple X DVD?s you bought last week? Whoa! Hot, hot, hot! I hope your employer never finds out about those. It might not go down too well at your next performance review.

I thought it was lovely that you bought your spouse a two carat, yellow, vvs1, round cut diamond ring for $26,000 from http://www.bluenile.com/ for your 30th wedding anniversary. But who is Lolita, the Argentine firecracker, in Miami Beach? Does the old wifey know you sent her a $2,000 pair of diamond stud earrings? What?s it worth to you for me to keep mum on this? Maybe you should take a quick peak at http://www.divorcelawfirms.com/ and see what you?re in for?

Naw, I?m just pulling your leg. This is all just between friends, right? Think of it as a doctor/patient relationship. I?ll tell you what. See that leaderboard ad at the top of the page? Just click on that and we?ll call it even. Oooh that felt good! Click it again. Oh, baby! Not too many times. You?ll trigger my anti click fraud program.

Now you see that wide skyscraper add over on the right? Click on that too. Oh baby! Click it again! And there?s a little button ad at the bottom of the page. No, not that one. A little lower. What was that little cutie?s name in Miami again? Aaaaah.

May 4, 2012 - Quote of the Day

Quote of the Day

Business people will know better than anyone that the pop in spending won?t last,? said John Taylor, an economics professor at Stanford University.

Trade Alert - (PHM) May 3, 2012

Trade Alert

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

Trade Alert - (BA) May 3, 2012

Trade Alert

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

Trade Alert - (IWM) May 3, 2012

Trade Alert

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

The Bad Economic Data Deluge

Newsletter

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 better by the minute.

They were preceded by European Purchasing Managers Index figures showing that the continental economy is falling off a cliff faster than anticipated. Following was the New York April ISM, plunging from 67.4 to 61.2, and March factory orders shrinking from +1.1% to -1.5%. The economic data are clearly moving out of the frying pan and into the fire. If you want to see what the early stages of a recession look like, this is it, up close and ugly.

What amazes me is how the stock market has been able to hold up against this onslaught of deteriorating fundamentals. I have argued all along that hedge funds have been on a buying strike this year, either sitting on the sidelines or dabbling with minimal token positions. That means there are few left to sell at market tops. The subterranean level of market volatility confirms this view.

It is also true that stock indexes are rising more from a lack of sellers than from any big influx of buyers. That is verified by trading volumes that are half of what they were a year ago. And the few buyers that exist are long term in nature, like pension funds. They seem to be willing to look across any valley crated by a downturn in share prices created by the current weakness in the economy. If they are focused on a yearend share price levels that are at, or higher, than current prices, they don?t care if the indexes take a 15% detour downward, or if individual names give back as much as 30%. These guys only reallocate once a year.

That is all well and good if the summer dip is a little dell, vale, or glen that one might appreciate in a Thomas Kincaid painting. If it turns out to be a Grand Canyon, that is another story. Then they will all be puking out at the bottom, as they have done for the last three years.

Is This Your Summer Trading Strategy?

Undercutting Canadian Tar Sands

Diary

Anyone who has any illusions about the Canadian tar sands business should take a look at the picture below. I?m not a fanatic, sandal wearing, organic bean sprout eating environmentalist, but just looking at it tells you that this is an eco-disaster of Biblical proportions.

A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion in capital is headed north. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single miserable barrel of oil.

This gives you the world?s highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch?s brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We?re not just talking about a few sick geese here.

Canada is the largest foreign supplier of oil to the US, accounting for 19% of our total, and half of that is coming from tar sands. The whole industry was built as a hedge against some Third World War, Armageddon type total cut off of all foreign crude supplies that would drive prices to $500/barrel, making all of this hugely profitable someday.

Maybe the owners think they can get away with this because it is in the middle of nowhere. An army of lawyers hitting these projects with a tidal wave of litigation think otherwise. This is the reason why environmentalist opposition to the Keystone pipeline was so acerbic. They view the tar sands as the world?s single largest source of greenhouse gasses. With North Dakota?s production expected to exceed total Canadian tar sands production by next year, and with challenges now arising from the seemingly endless new supply of cheap natural gas, the whole project may become redundant

After looking at this picture and analyzing the numbers, you have to ask if it is really worth it, just so you can drive your Hummer to Wal-Mart. It all makes the future performance of major producer, Suncor Energy (SU), very suspect.

The New California Gold Rush

Diary

On my way back from Lake Tahoe last weekend I saw that every bend of the American river was dotted with hopeful miners, looking to make a windfall fortune. Weekend hobbyists were there panning away from the banks, while the hardcore pros stood in hip waders balancing portable pumps on truck inner tubes, pouring sand into sluice boxes. Welcome to the new California gold rush.

A sharp eyed veteran can take in $2,000 worth of gold dust a day. The new 2012'ers were driven by high prices of gold at $1,650 and the attendant headlines, but also by unemployment, and recent heavy rains that flushed out new quantities of the yellow metal out from the Sierras. They were no doubt inspired by the chance discovery of an 8.7 ounce nugget in May near Bakersfield, worth an impressive $14,300.

Local folklore says that The Sierra's have given up only 20% of their gold, and the remaining 80% is still up there awaiting discovery. Out of work construction workers are taking their heavy equipment up to the mountains and using it to reopen mines that have been abandoned since the 19th century.

The US Bureau of Land Management says that mining permits in the Golden State this year have shot up from 15,606 to 23,974. Unfortunately, the big money here is being made by the sellers of supplies and services to the new miners, much as Levi Strauss and Wells Fargo did in the original 1849 gold rush.

May 3, 2012 - Quote of the Day

Quote of the Day

?Isn?t it funny when you walk into an investment firm, and you see all of the financial advisors watching CNBC? That gives me the same feeling of confidence I would have if I walked into the Mayo Clinic or Sloan Kettering and all of the doctors were watching the TV soap opera General Hospital,? said a bond manager friend.