April 2014

A Day in the Life of the Mad Hedge Fund Trader

Diary Entry for Tuesday, April 1, 2014

Dear Diary,

4:30 PM Monday-the day before- Thought I?d check my Bloomberg to see how the Asian markets were opening. Wow! Japan finally had an up day. It must be fiscal year end window dressing. The VAT tax hike that takes effect tomorrow, from 5% to 8%, certainly has sucked the life out of that market. Nothing like strangling a recovery in the crib.

5:00 PM- Call from one of the top New York hedge funds. They just received a research report predicting that Google was going to $2,000. Should they chase it up here? I said not in your wildest dreams. Google has lead the charge in this market to the upside since September, and will lead the retreat going into the summer. Wait for a bigger dip. Call me old-fashioned, but I?ll buy a PE multiple of 9 versus 30 any day of the week.

Quite honestly, I don?t want to buy any stocks at these lofty altitudes. Shares are looking tired and are in desperate need of a rest. The bull market isn?t over, but needs to catch its breath. It still has to digest last year?s meteoric 30% gain, including dividends.

If you look at how San Francisco and Santa Clara real estate prices are going through the roof, with ferocious bidding wars, it is just a matter of time before technology takes over market leadership once again. I said he owed me a nice dinner at Masa at Time Warner Center on Columbus Circle, and we?ll meet up at my June 17 New York strategy luncheon.

Then he told me the real reason for his call. He knew I grew up near Hollywood, had dated several movie stars, and even appeared in one movie as an extra (Francis Ford Coppola?s Apocalypse Now). Perhaps, I had some insights? His firm had put up the money to make film, American Hustle. Is it worth seeing?

I said absolutely, but only if you want to gain insights in 1970?s fashion and music. I cringed when I remembered that some of those clothes are still hanging in the darkest reaches of my closet. Anyone need a pair of size 36 bellbottoms?

6:30 PM- Take kids to see the new animated film, Frozen. 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. Looks like Disney (DIS) has finally learned how to make movies again. Steve Jobs? widow has to be happy. She is the largest shareholder in the company, inheriting stock Steve got from selling them Pixar in 2006.

9:00 PM- Call from a friend at the People?s Bank of China in Beijing. He wants to know if they missed the top of the Treasury bond market (TLT) last summer, and if they should start unloading their $1 trillion worth of holdings. They have been on a buyer?s strike for the past two years, and have already pared back their position by $100 billion from the peak.

I said take the gift. The 30-year bear market in bonds has already started and this is a rare chance to unload paper close to the highs. Inflation will rear its ugly head once again in the 2020?s, when yields for the ten-year Treasury bond will hit high single digits. That would be a good time to flush out his bigger positions.

Then he asked, did I, by any chance, recommend the film, 12 Years a Slave, which won the Best Picture Oscar this year? It was a huge hit in Beijing, with lines extending for hours. I answered no, only if you want to see people beaten and raped for two hours. Not my idea of a good time. The film, while historically accurate, is a real downer. I was checking my watch towards the end.

However, it will confirm your worst opinions about Americans, which I know you haven?t changed since the Cultural Revolution. Race is still a hot button issue in the US. That?s what the new voting restrictions were all about. This is why this film could only be made by a British firm. (They banned slavery 55 years before we did).

9:30 PM- Hit the rack and try to 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 Euro is getting the stuffing knocked out of it. Is it time to buy?

I told him that I would rather find broken glass in my oatmeal this morning. We are miles (kilometers) away from a resolution of Europe?s woes. At the very least, they need a new treaty to create a ministry of finance to be run by the Germans. Expect that to take at least five years, if ever. Then, you can think about buying.

In the meantime, I wouldn?t touch the European currency with a ten-foot pole. European Central Bank president, Mario Draghi, is delusional if he thinks he can levitate the Euro with just talk. That makes the Euro (FXE) a much better short here than a long.

Then he moved on to the real purpose of his call. He was planning to take his wife out this weekend. Should they go to see The Wolf of Wall Street? Hell no, I said. You don?t want your wife to find out what you really do for a living, do you? Besides, the film drops the ?F? bomb a record 529 times. Definitely not for home consumption.

But certainly go see it alone. I was working on Wall Street when Jordan Belfort and a dozen other firms like them were fleecing customers on a massive scale. We at Morgan Stanley were amazed that they got away with it for so long.

As a foreigner, he will not notice all the Italian working class accents. These poor guys couldn?t have gotten real jobs on Wall Street if their lives depended on it. For some reason, I never got invited to all those broker parties with drugs and hookers. I only heard about it second hand. Am I really that square?

I slammed the phone back on the hook and went back to sleep.

6:00 AM- My website administrator called 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. The Chinese should know better than to hack my site. One call to Beijing and I could have them shot. Go hack the National Security Agency instead. I hear it?s a lot easier.

7:00 AM- Another call from my website administrator. The website is down. My story on ?Why Gold is Dead? (click the link for the article http://madhedgefundradio.com/why-gold-is-dead/ ) brought a traffic spike that is causing the servers to melt. The gold bugs are going crazy over it. I am burning up the internet.

8:00 AM- I get a call from a leading money manager in London?s Mayfair district. Europe is closing. With gold down $100 in a week, is it time to buy?

Not yet, I said. The panic selling has only just started, and margin clerks everywhere were sharpening their knives. Wait for a capitulation to deliver a false breakdown below $1,200 before jumping in. That?s where I expect emerging market central bank participation to kick in.

And go have a pint of bitter for me at the Pig & Whistle next door, will you. Tell the owner, Nigel, to put it on my running tab. He owes me from the last Manchester United win.

He then raved about the terrorism movie, Captain Phillips. What did I think?

I usually don?t like movies where you already know the ending. But it was much better than I expected. Tom Hanks delivers a first class acting job. I said I thought the movie gave the most accurate portrayal of the actual day-to-day operations of Navy Seals on a mission. It certainly has created a new bull market for Somali actors.

10:00 AM- Better get to work on today?s letter. I?m already behind the eight ball. I?ve gotta lead with the Tesla (TSLA) story after that great 60 minutes piece last night. Boy, a lot of people sure look at me when I drive that car. Too bad they are mostly guys. But I can?t understand why my passengers keep getting carsick. I better take another look at Ford (F) too. I heard George Soros has taken a 3% stake in the company. Time to double up? The stock could be breaking out here in the wake of the General Motors (GM) crash.

1:15 PM- My friend, JR, a senior executive 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 $91, then he blinked, and it was $105.

Crude certainly got a boost from the Crimea crisis, but that is now fading. The West lost the last Crimean War (in 1856), so why jump into another one? At the end of the day, nobody cares.

I told him that Israeli intelligence thinks there won?t be a war with Iran until the summer at the earliest, if ever. Until then, Texas tea was going to stay in a rough balance, with rising Chinese demand offset by growing American production, thanks to the new fracking technology. It?s not rocketing to $150, nor is it plunging to $30. That is why oil volatility has collapsed.

The range in oil for the past eight months has been tighter than a gnat?s ass, only $15. If you really must have an energy play on, go sell short some natural gas (UNG). A fading winter will run into burgeoning new supply from fracking, almost certainly causing a price collapse.

You might also buy some solar, like First Solar (FSLR). Three more years of Obama followed by eight with President Hillary means government support for alternative energy stretches as far as the eye can see.

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 (2,500 calories). I can?t wait. I?ll let my doctor have the heart attack.

He then told me why he really called. He knew I was a former combat pilot and was acquainted with all those space people at NASA. His buddies down on the ranch had just seen Gravity, streaming it on Netflix (NFLX). Should he bother?

I loved the film, and thought it was incredibly realistic. Somebody had really done their research. It?s a real engineer?s film, so he would like it. Plus, it?s amazing to see how far digital film technology has gotten. These astronauts are the most trained people in the history of civilization, and I certainly sympathize with a pilot trying to manage a crash. I?ve totaled three planes myself. I was careful not to tell him how it ended.

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 performance on. The watchers want to become players. With my three year return approaching high of 130%, new subscribers are pouring in.

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.

5:00 PM- I put on a 60-pound pack and my heavy climbing boots and head out the back door on a ten-mile snowshoe from the shores of Lake Tahoe to the High Sierra ridgeline. It?s snowing heavy, so I donned an extra wool sweater and filled my canteens with boiling water so it wouldn?t freeze. Gotta stay boot camp ready. You never know when Uncle Sam is going to call again. Who cares if I?m 62?

9:00 PM- Back to my screens. Had to put my feet in the tub because my toes froze again. The Euro has broken $1.37 again. Where was I last week? Asleep? Still, I am going to avoid the Euro. It has recently been so trendless that it has killed more traders than a bad tin of caviar. There are better things to do.

10:00 PM- Time to call it a night and break out a bottle of Duckhorn merlot. Jeese, it seems people only wanted to talk about movies today. Are they really trying to tell me something about the market?

Does anybody want my job?

Trade Alert - (FXY) April 1, 2014

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. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more

April 1, 2014 - MDT - Midday Missive

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

April 1, 2014 - MDT - Medium Term View 4/1/14

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

April 1, 2014 - MDT Pro Tips A.M.

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

April 1, 2014

Diary, Newsletter, Summary

Global Market Comments
April 1, 2014
Fiat Lux

Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON),
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Health Care Select Sector SPDR (XLV)
SPDR S&P Pharmaceuticals ETF (XPH)
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Monsanto Company (MON)
International Business Machines Corporation (IBM)
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Apple Inc. (AAPL)
Cisco Systems, Inc. (CSCO)

Friday April 25 San Francisco Strategy Luncheon

Diary, Lunch, Newsletter

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 25, 2014. An excellent meal will be followed by a wide ranging discussion and an extended 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 $179.

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.

Will SynBio Save or Destroy the World?

Newsletter

Some 40 years ago, when I was a biotechnology student at UCLA, a handful of graduate students speculated about how dangerous our work really was. It only took us an hour to figure out how to synthesize a microbe that had a 99% fatality rate, was immune to antibiotics, and was so simple it could be produced in your home kitchen.

Basically, a bunch of bored students discovered a way to destroy the world.

We voiced our concerns to our professors, who immediately convened a national conference of leaders in the field. Science had outpaced regulation, as it always does. They adopted standards and implemented safeguards to keep this genie from getting out of the bottle.

Four decades later scientists have been successful at preventing a ?doomsday? bug from accidently escaping a lab and wiping out the world?s population.

That is, until now.

In 2010, Dr. Craig Venter created the first completely synthetic life form able to reproduce on its own. Named ?Phi X 174,? the simple virus was produced from a string of DNA composed entirely on a computer. Thus was invented the field of synthetic biology, better known as ?SynBio.?

Venter?s homemade creature was your basic entry level organism. Its DNA was composed of only 1 million base pairs of nucleic acids (adenine, thymine, cytosine, guanine, and uracil), compared to the 3 billion pairs in a human genome. Shortly thereafter, Venter one-upped himself by manufacturing the world?s first synthetic bacteria.

The work was hailed as the beginning of a brave new world that will enable biology to make the same dramatic advances in technology that computer science did in the 20^th century. Dr. Drew Endy of Stanford University says that SynBio already accounts for 2% of US GDP, and is growing at a breakneck 12% per year. He predicts that SynBio will eventually do more for the economy than the Internet and social media combined.

You may recall Craig Venter as the man who first decoded the human genome in 2003. The effort demanded the labor of thousands of scientists and cost $3 billion. We later learned that the DNA that was decoded was Craig?s own. Some five years later, the late Steve Jobs spent $1 million to decode his own genes in a vain attempt to find a cure for pancreatic cancer.

Today, you can get the job done for $1,000 in less than 24 hours. That?s what movie star Angelina Jolie did, who endured a voluntary double mastectomy when she learned her genes guaranteed a future case of terminal breast cancer.

The decoding industry is now moving to low cost China, where giant warehouses have been built to decode the DNA of a substantial part of humanity. That should soon drop the price to $100. It?s all about full automation and economies of scale.

This technology is already spreading far faster than most realize. In 2004, MIT started the International Genetically Engineered Machine Contest where college students competed to construct new life forms. Recently, a high school division was opened, attracting 194 entries from kids in 34 countries. Gee, when I went to wood shop in high school it was a big deal when I finished my table lamp.

This will make possible ?big data? approaches to medical research that will lead to cures of every major human disease, such as cancer, heart disease, diabetes, and more, within our lifetimes. This is why the health care (XLV), biotechnology (XBI), and pharmaceutical (XPH) sectors have been top performers in the stock market for the past two years. It?s not just about Obamacare.

The implications spread far beyond health care. IBM (IBM) is experimenting with using DNA based computer code to replace the present simple, but hugely inefficient, binary system of 0?s and 1?s. ?DNA based computation? is prompting computer scientists to become biochemists and biochemists to evolve into computer scientists to create ?living circuit boards.? Google (GOOG), Apple (AAPL), and Cisco (CSCO) have all taken notice.

We are probably only a couple years away from enterprising hobbyists downloading DNA sequences from the Internet and building new bugs at home with a 3D printer. Simple organisms, like viruses, would need a file size no larger than one needed for a high definition photo taken with your iPhone. They can then download other genes from the net, creating their own customized microbes at will.

This is all great news for investors of every stripe, and will no doubt accelerate America?s economic growth. But it is also causing governments and scientists around the world to wring their hands, seeing the opening of a potential Pandora?s Box. What if other scientists lack Venter?s ethics, who went straight to President Obama for a security clearance before he made his findings public?

If we can?t trust our kids to drink, drive, or vote, then how responsibly will they behave when they get their hands on potential bioterror weapons? How many are familiar with Bio Safety Level 4 (BSL) standards? None, I hope.

In fact, the race is already on to weaponize SynBio. In 2002, scientists at SUNY Stonybrook synthesized a polio virus for the first time. In 2005, another group managed to recreate the notorious H1N1 virus that caused the 1918 Spanish Flu epidemic. Some 50-100 million died in that pandemic within 2 years.

Then in 2011, Ron Fouchier of the Erasmus Medical Center in Holland announced that he had found a way to convert the H5N1 bird flu virus, which in nature is only transmitted from birds to people, into a human to human virus. Of the 565 who have come down with bird flu so far, which originates in China, 59% have died.

It didn?t take long for the Chinese to get involved. They have taken Fouchier?s work several steps further, creating over 127 H5N1 flu varieties, five of which can be transmitted through the air, such as from a sneeze. The attributes of one of these just showed up in the latest natural strain of bird flu, the H7N9.

The World Health Organization (WHO) and the Center for Disease Control (CDC) in Atlanta, Georgia are charged with protecting us from outbreaks like this. But getting the WHO, a giant global bureaucracy, to agree on anything is almost impossible, unless there is already a major outbreak underway. The CDC has seen its budget cut by 25% since 2010, and has lost another 5% due to the US government sequester.

The problem is that the international organizations charged with monitoring all of this are still stuck in the Stone Age. Current regulations revolve around known pathogens, like smallpox and the Ebola virus, that date back to the 1960?s, when the concern was about moving lethal pathogens across borders via test tubes.

That is, oh so 20^th century. Thanks to the Internet, controlling information flow is impossible. Just ask Muammar Gaddafi and Bashar al-Assad. Al Qaida has used messages embedded in online porn to send orders to terrorists.

Getting international cooperation isn?t that easy. Only 35 countries are currently complying with the safety, surveillance, and research standards laid out by the WHO. Indonesia refused to part with H5N1 virus samples spreading there because it did want to make rich the western pharmaceutical companies that would develop a vaccine. African countries say they are too poor to participate, even though they are the most likely victims of future epidemics.

Scientists have proposed a number of safeguards to keep these new superbugs under control. One would be a dedicated sequence of nucleic acid base pairs inserted into the genes that would indentify its origin, much like a bar code at the supermarket. This is already being used by Monsanto (MON) with its genetically modified seeds. Another would be a ?suicide sequence? that would cause the germ to self-destruct if it ever got out of a lab.

One can expect the National Security Agency to get involved, if they haven?t done so already. If they can screen our phone calls for meta data, why not high risk DNA sequences sent by email?

But this assumes that the creators want to be found. The bioweapons labs of some countries are thought to be creating new pathogens so they can stockpile vaccines and antigens in advance of any future conflict.

There are also the real terrorists to consider. When the Mubarak regime in Egypt was overthrown in 2011, demonstrators sacked the country?s public health labs that had been storing H5N1 virus. Egypt has one of the world?s worst bird flu problems, due to the population?s widespread contact with chickens.

It is hoped that the looters were only in search of valuable electronics they could resell, and tossed the problem test tubes. But that is only just a hope.

I have done a lot of research on this area over the decades. I even chased down the infamous Unit 731 of the Japanese Imperial Army that parachuted plagued infected rats into China during WWII, after first experimenting on American POW?s.

The answer to the probability of bio warfare always comes back the same. Countries never use this last resort for fear of it coming back on the own populations. It really is an Armageddon weapon. Only a nut case would want to try it.

Back in 1976 I was one of the fortunate few to see in person the last living cases of smallpox. As I walked through a 15^th century village high in the Himalayas in Nepal, two dozen smiling children leaned out of second story windows to wave at me. The face of every one was covered with bleeding sores. And these were the survivors. Believe me, you don?t want to catch it yourself.

For those who want to learn more about SynBio, or participate in the discussion, please visit the BioBricks Foundation by clicking the link:
http://biobricks.org .

Sure, I know this doesn?t directly relate to what the stock market is going to do today. But if a virus escaped from a rogue lab and killed everyone on the planet, that would be bad for prices, wouldn?t it?

I really hope one of the kids competing in the MIT contest doesn?t suffer from the same sort of mental problems as the boy in Newton, Connecticut did.