2012 Archive - Mad Hedge Fund Trader

Another Alarm Bell

I am a numbers guy. Show me the data and I?ll draw my own conclusions, ignoring conflicted brokerage research, the paid talking heads on TV, and all the politically motivated garbage pumped out by industry sponsored fake research institutes. I am also a glass half full kind of guy, willing to make a positive interpretation when all else is equal. After all, over the very long term, everything goes up in value.

Having said all of that, I have to tell you that the economic data flow has recently been rolling over like the Bismarck. In January and February it was uniformly positive. In March, it turned decidedly mixed. Since the beginning of April they have turned overwhelmingly negative. This is what tops in both the economy and the stock market are made of.

I normally don?t bother you with such details, as most readers prefer me to distill my comments down to ?BUY? or ?SELL?. But the deterioration has been so dramatic in recent weeks that I thought you should see what I am looking at. Let me give you this week?s sampling:

April 19? March existing homes sales -2.6%
April 19? Philly Fed down from 12.5 in March to 8.5 in April
April 19? Leading economic indicators down from +0.7% in February to +0.3% in March.
April 19? Weekly jobless claims down 2,000, but held most of last week?s 13,000????? .?????????????? spike upward
April 17? New permits for Single Family homes -3.5% in March
April 17? Housing starts down from 2.8% in February to -5.3% in March
April 16? February business inventories +0.6% because people aren?t buying stuff.
April 16? Empire state down from 22 in March to 6.6 in April
April 16? March Consumer Price Index 0.3%, but most of the increase was for?????? gasoline.

Any one of these data points is relatively unimportant. When they are all moving in the same direction, that is important. And this has been going on for more than a month now. When preparing my last two biweekly strategy webinars I had difficulty finding any positive data points to report. The only plus figure that I have seen recently was the International Monetary Fund?s upgrade of its outlook for the global economy for 2012 from 3.3% to 3.5% which no one pays attention to anyway.

There is a big problem for the stock bulls in all of this. We have a stock market that is priced for perfection, having taken earnings multiples up from 11 to 14 in six months. As a result, we now have a market that is priced for 4% GDP growth in a 2% GDP economy. But guess what? The 2% GDP is coming through. Instead of perfection we are getting mediocrity. Look out below.

I am not a permabear, but I know plenty of people who are. Maybe it is time for me to start paying them more attention, reading their research, answering their e-mails.

Maybe I Should Start Returning His Calls

Who the Electric Car Helps and Hurts

Diary

With gasoline prices staying stubbornly high, the number of hybrid and electric cars manufactured is soaring skyward. Toyota Motors (TM) is far and away the biggest beneficiary as the world?s largest manufacturer of hybrid cars with its Prius family that now extends to five models. Nissan Motors (NSANY) is expected to complete construction of a Tennessee plant that will produce 150,000 all-electric Leafs a year in 2014.

Beyond these obvious beneficiaries it gets a little more complicated. I found this interesting table from the QVM Group that listed the impact that electric cars, which will soon be produced at one million units a year, will have on the supply and demand for raw materials. Here are my comments:

Aluminum (AA): Lighter cars need more aluminum for bodies
Coal (KOL): Greater electricity needs increase demand from this cheapest of sources.
Copper (CU): Big increase in demand for copper wire from electric motors and the grid.
Corn (CORN): Kiss the pork barrel ethanol program goodbye. Demand falls.
Natural Gas (UNG): Some 100% of new power generation facilities are gas fueled.
Lead: Older technology batteries still use lots of lead.
Lithium (SQM): You can?t lose. If electric car demand doesn?t kick in, then fertilizer demand will.
Nickel: The same batteries use nickel
Oil (USO): Some analysts think gasoline demand could drop by 50% by 2020 because of electric cars, mileage improvements in conventional cars, and the discovery of huge new fields in the US with fracking technology.
Platinum (PPLT): Demand falls from fewer catalytic converters, but this will be offset by growing monetary demand for the white metal.
Uranium (NLR) : More power demand means more nukes everywhere.
Zinc: Battery demand again

Who Am I Helping?

April 20, 2012 - Quote of the Day

Quote of the Day

?The biggest tumor that we are now facing for the economy is the shadow inventory of housing. We now have six million units that are delinquent, in default, or foreclosed, and 15 million other units for sale. Demographic demand can only soak up one million units a year. It is the biggest dilemma for homeowners,? said Tom Barrack, CEO of Colony Capital, and a former principal of the Bass Group.

SOLD OUT! Last Chance to Attend the San Francisco April 20 Strategy Luncheon

Lunch

Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in San Francisco on Friday, April 20. An excellent meal will be followed by a wide ranging discussion and a 60 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. Tickets are available for $249.

I?ll be arriving at 11:00 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 private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store at http://madhedgefundradio.com and click on ?luncheons.?

Cheniere Energy (LNG) Gets the Green Light

Diary

There is never any guarantee that a government agency will not do something idiotic. This time it didn?t, thankfully. The Federal Energy Regulatory Commission (FERC) granted the final license needed by Cheniere Energy (LNG) to build the first of two liquifaction plants at Sabine Pass on the Texas Louisiana border on the Gulf of Mexico. These will be the first such plants built in the US in 40 years.

FERC gave to go ahead despite vocal opposition from the Sierra Club, which claimed that fracking caused environmental damage. This, of course, is complete bunk. MIT recently published a study of 50 incidents where gas made it into local water supplies. In every case, it was shown to be the cause of subcontractor incompetence and inexperience, not because of any fundamental flaws with the technology.

The move is a crucial step towards turning the US into a major natural gas (UNG) exporter. The company has already contracted to sell 89% of the plants? planned annual output of 16 million tonnes. Buyers include BG Group of the UK, Gas Natural Fenosa of Spain, Gail of India, and Kogas of South Korea. Initial deliveries are expected to commence at the end of 2015.

The shares jumped to $18, a new high for the year, and reached as high as $19 in premarket trading. You may recall that I recommended this stock to readers back on March 7 when it was trading at $16.10 a share (click here for ?Take a Look at Cheniere Energy (LNG)?). I think it is just a matter of time before the stock surpasses its next hurdle at $20, especially if natural gas continues its collapse under $2/MM BTU.

Ready for Export

Catch Me on Money Show TV

Diary

At the Orlando Money Show in February I recorded three videos, which readers can watch for educational purposes. I cover the coming disaster in Japan, the current state of technology in electric cars, and the long term opportunities in India. They are only about five minutes in duration each. If you want to see how this newsletter has visibly aged me, have a look. At least I am wearing better suits these days. I have included the links below.

One Country at the Tipping Point
http://www.moneyshow.com/video/video.asp?wid=7956&t=3&scode=027351

Going Electric
http://www.moneyshow.com/video/video.asp?wid=7934&t=3&scode=027351

India's The Best Bet
http://www.moneyshow.com/video/video.asp?wid=7955&t=3&scode=027351

Check Out These Interesting Charts

Newsletter

I ran through a number of charts provided by my friends at Stockcharts.com, and as a person who has been piling on the shorts for the past two weeks I was greatly encouraged. Almost every single one was pregnant with gloomy implications. This is all happening a mere 12 days before the Great Escape in May commences. Virtually every technical indicator I follow is now flashing warning signs and ringing alarm bells.

Here is my own personal interpretation. The Russell 2000 (IWM) could potentially be setting up a head own shoulder top targeting $75 on the downside. My short here is one of my biggest positions. The Consumer Discretionary Select SPDR (XLY) is pulling away from the absolute top end of its upward channel and is ripe for a 10% pullback. Ditto for the Technology Select Sector SPDR (XLK), which could give back 15%. The Financials Select Sector SPDR (XLF), one of the hottest areas this year, could actually be setting up a new downtrend. The same is true for the Materials Select Sector SPDR (XLB). And tell me that is not a double top in the Industrials Select Sector SPDR (XLI).

This all suggests that 1,325 for the S&P 500 is a chip shot on the downside, and maybe more. I have a feeling that killings are about to me made on the short side.