Another great trade by you on the (SPY). ?After watching you for almost two full years, I funded $100k with a broker and joined you live. ?This is ridiculous ? you are the BEST trader I know and your style is PERFECT for me, as I don't want to sit in front of the screens all day long. I was also in with you on the (FXY). I am truly thankful for your teachings and admire how good you are.
Jay in Germany
I am constantly asked where to find safe places to park cash by investors understandably unhappy with the risk/reward currently offered by the markets. Any reach for yield now carries substantial principal risk, the kind we saw, oh say, in the summer of 2007.
I have had great luck steering people into the Invesco PowerShares Emerging Market Sovereign Debt ETF (PCY) for the last few years, which is invested primarily in the debt of Asian and Latin American government entities, and sports a generous 4.75% % yield. This beats the daylights out of the one basis point you could earn for cash, the 2.0% yield available on 10 year Treasuries, and still exceeded the 3.84% yield on the iShares Investment Grade Bond ETN (LQD), which buys predominantly single ?BBB?, or better, US corporates.
The big difference here is that (PCY) has a much rosier future of credit upgrades to look forward to than other alternatives. It turns out that many emerging markets have little or no debt, because until recently, investors thought their credit quality was too poor. No doubt a history of defaults in the region going back to 1820 is in the backs of their minds.
You would think that a sovereign debt fund would be the last place to safely park your money in the middle of a debt crisis, but you?d be wrong. (PCY) has minimal holdings in the Land of Sophocles and Plato, and very little in the other European PIIGS. In fact, the crisis has accelerated the differentiation of credit qualities, separating the wheat from the chaff, and sending bonds issues by financially responsible countries to decent premiums, while punishing the bad boys with huge discounts.? It seems this fund has a decent set of managers at the helm.
With US government bond issuance going through the roof, the shoe is now on the other foot. Even my cleaning lady, Cecelia, knows that US Treasury issuance is rocketing to unsustainable levels (she reads my letter to practice her English).
Since my initial recommendation, my total return on (PCY) has been 50%, not bad for an insurance policy. Money has poured into (PCY), the net assets under management increasing nearly tenfold. If we get a sudden sell off in Treasury bonds, a scenario that may have already started, I think it will take the rest of the fixed income universe along with it. I therefore want to take the money and run.
I lived through the Latin American debt crisis of the seventies. You know, the one that almost took Citibank down? Never in my wildest, Jack Daniels fueled dreams did I think that I?d see the day when Brazilian debt ratings might surpass American ones. Who knew I?d be trading in Marilyn Monroe for Carmen Miranda? Given the advanced age of this bond bubble, I?m now thinking of swearing off women altogether.
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
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
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
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
Global Market Comments
March 15, 2013
Fiat Lux
Featured Trade:
(TAKING PROFITS ON STOCKS), (SPY),
(TAKING A BITE OUT OF STEALTH INFLATION),
(TESTIMONIAL)
SPDR S&P 500 (SPY)
With the (SPY) approaching an all time high, there are just a few pennies to go, I am going to take the money and run on my position in the SPDR S&P 500 (SPY) April, 2013 $145-$150 deep in-the-money bull call spread. At $4.97, there is only 3 cents left in potential profit, and I would have to run the position for another month to get it. We have already captured 93% of the potential profit in this position. The risk/reward here is no longer attractive.
The market is now up ten days in a row, the most since 1996, and has gained every day in March. Will it shoot for 11? It looks like it. By freeing up cash here we gain some dry powder to use on any market dips. That is, if they haven?t made selling stocks illegal, which the market apparently thinks they have. It also means you don?t have to rush out and change your underwear every five minutes if one of my predicted black swans comes in for a landing.
There is also the matter of being up 31% so far this year, I have outperformed virtually everyone in the hedge fund industry, except for maybe David Tepper (Thanks for the heads up, David!). With this trade, I have closed out 15 consecutive profitable trades. I have another six moneymakers still on the books, taking my own hot streak up to 21. The only trade I have lost money on during 2013 is with Apple (AAPL).
That means I no longer need to swing for the fences to make my year. Instead, I can settle back into the sort of ultra cautious, scaredy cat, type of trades typical for an investor of my advanced age. That is, unless, we get a 5% dip in the market, in which case, it will be pedal to the metal once again.
When I visited the local Safeway over the weekend, I was snared by some uniformed pre-teens, backed by beaming mothers behind a card table selling Girl Scout cookies. I was a pushover. I walked away with a bag of Thin Mints, Lemon Chalet Creams, Do-Si-Dos, and Tagalongs.
I have to confess a lifetime addiction to Girl Scout cookies. During the early eighties, one of the managing directors at Morgan Stanley's equity trading desk had a daughter in this ubiquitous youth organization. One day, she pitched to all 200 traders on the floor, going from desk to desk with sheets of paper taking orders. I used to buy two of everything she offered, as some clients preferred a few boxes of these delectable treats over lunch at the Four Seasons any day. Other's ordered hundreds. I later heard that the girl was the top performing scout in the greater New York area two years running.
But this year, when I got home and opened the boxes I was shocked. While the price was the same, the number of cookies had shrunk considerably. I knew it was not my waist line the scouts were concerned about. I was seeing the dastardly hand of 'stealth inflation' at work. In this deflationary environment, companies loathe to raise prices. Food companies are especially hard hit, with many commodities like wheat, corn, sugar, soybeans, and coffee up 50%-300% in a year. Any attempt to pass these costs on to consumers is punished severely. So companies cut costs, quantity, and quality, instead, by shrinking the size.
I think you are seeing stealth inflation breaking out everywhere. It is not just in food. Many products seem to be undergoing a miniaturization process while prices remain unchanged. It also extends to services, where a dollar buys you less and less. This is how the consumer prices index is staying in low single digits, despite anecdotal evidence everywhere to the contrary.
Dear Mr. Thomas,
I just wanted to drop you a line and thank you for everything you do for our amazing industry.
I have been working in the business for about 2 years now, I am a partner in a start-up fund, trading forex, and I have learned so much from your website and the little snippets of info that you give.
You have helped me to learn my way through this complicated business and have made learning fun.
Anyway, thank you for sharing your amazing info and I look forward to reading more from you in the future.
All the best.
Mark
Cancun, Mexico
