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.
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.
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.
?Global Market Comments
March 13, 2014
Fiat Lux
Featured Trade:
(WHY THIS CHART IS UTTERLY MEANINGLESS),
(THE REAL ESTATE MARKET IN 2030)
(TESTIMONIAL)
Much has been made of the rising level of margin debt held by individuals. Cumulative NYSE margin debt, or the amount of money lent to buy stocks on credit, is rapidly approaching $2.3 trillion, an all time high.
Historically, when this figure peaked, and no more money was available for mom and pop to buy shares with broker loans, markets fell.
This has been put forward by talking heads, pretenders, and wanabees as a major reason why the stock market is imminently going to crash. But if you followed their advice until now you would have sat out one of the most impressive bull markets in history, or gone broke shorting against it. Follow their advice, and would have cheated yourself out of a fortune.
For a start, please note that this is a 20-year chart. The numbers have been high and rising for 18 months, and that is a very long term to be wrong about the stock market. Only TV personalities can be wrong this long, and still keep their jobs. Everyone else would have landed in the jobs section on Craig?s List a long time ago.
The harsh reality is that individuals account for such an infinitesimally small share of the market that their margin debt has become an irrelevance. Hedge funds alone account for 60% of the daily trading activity, with high frequency traders taking up a large share of this. Institutional activity, such as the large pension funds, mutual funds, and ETF?s account for most of the rest.
True individuals are somewhere in the single digits in terms of daily trading activity. Focus on their activities alone, and you are characterizing the majority with the input from a tiny minority. You see this in politics all day long. Try it with your investments, and you will lose all your money.
While there is no doubt that leverage in the markets is expanding as they rise, it is found in different areas. Modern leverage is to be found in the derivatives markets, such as in options and futures, credit derivatives, 3X ETF?s, and other esoterica. You also see it in the private deals that hedge fund custodians cut with their largest clients.
Looking at this measure, margin is at a fraction of the 2007 peak. In fact, thanks to the new regulations imposed by Dodd-Frank, many forms of securities credit are now illegal. Bank capital requirements and the prohibition of house trading assured by the Volker Rule come to mind.
Greater risk control adopted by both borrowers and lenders guarantee that far fewer are betting the ranch. Systemic risks are now virtually nil. As you may recall, excessive leverage almost brought the world to an end in 2008.
In fact hedge funds and institutions have far more credit available to them than they are using. If they really wanted to put they pedal to the metal, markets could easily soar by 50%-100% from here before they run out of dough. I think that will eventually happen before the music stops playing. But that could be years off.
If you feel like you have been lead astray by the exaggerated importance of margin debt, don?t worry, you are not alone. One of the many reasons that the Federal Reserve missed the severity of the Great Recession early on was that they thought that margin debt was reasonable, given the larger market capitalization of the financial system.
They were completely unaware that new, highly toxic forms of leverage had been invented since the last bear market and recession that could wipe out every financial institution on the planet. They found out the truth the hard way.
Make sure you don?t. Reliance on antiquated data sets can be hazardous to your wealth. Don?t fall into this backward looking trap.
Yikes! Looks Like Trouble AheadWhile 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.
Global Market Comments
March 12, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON),
(WHY COPPER IS CRASHING),
(CU), (FCX),
(BREAKFAST WITH FED GOVERNOR BOB MCTEER),
Pulling the Ripcord on GM
(BAC), (GS), (GM), (AIG)
First Trust ISE Global Copper Index (CU)
Freeport-McMoRan Copper & Gold Inc. (FCX)
Bank of America Corporation (BAC)
The Goldman Sachs Group, Inc. (GS)
American International Group, Inc. (AIG)
General Motors Company (GM)
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 $179.
I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
When Dr. Copper (CU), the only commodity with a PhD in economics, suddenly collapses from a heart attack, risk takers everywhere have to sit up and take notice.
Since the 2011 top, the red metal has collapsed a shocking 38%. It has given back 10% just in the last two weeks. Will copper take down the rest of the financial markets with it?
I don?t think so.
So called because of its uncanny ability to predict the future of the global economy, copper is warning of dire things to come. The price drop suggests that the great Chinese economic miracle is coming to an end, or is at least facing a substantial slowdown, the government?s 7.5% GDP target for 2014 notwithstanding.
This gloomy view is further confirmed by the weakness in the Shanghai index ($SSEC), which has been trading like grim death all year. Will China permabear, Jim Chanos, finally get his dream come true?
It?s a little more complicated than that. Copper is no longer the metal it once was. Because of the lack of a consumer banking system in the Middle Kingdom, individuals are now hoarding 100 pound copper bars and posting them as collateral for loans.
China is, in effect, on a copper standard. Get any weakness of the kind we have seen this year, and lenders panic, dumping their collateral for cash, crushing spot prices.
The latest plunge has been fueled by rumors of an imminent Chinese banking crisis. The Middle Kingdom?s first corporate bond default in history, by a third tier solar company, further heightened fears. The implicit government guarantee that was believed to back this paper has suddenly gone missing in action.
The high frequency traders are now in the copper futures and spot markets in force, whipping around prices and creating unprecedented volatility. Notice how they seem to be running the movie on fast forward everywhere these days? Because of this, we could now be seeing an overshoot on the downside in copper.
The bottom line here is that copper is suffering from its own unique set of difficulties, which will have a negligible affect on other asset classes.
Watch Dr. Copper closely. At the first sign of any real bottom, you should load up on long dated calls for Freeport McMoRan (FCX), the world?s largest producer, which also has been similarly decimated. The gearing in the company is such that a 10% rise in the price of copper triggers a rapid 20% rise or more in (FCX).
I can wax one here about major structural changes in the Chinese economy that are underway, as the real problem. As the Middle Kingdom shifts from an export driven economy to a domestic demand one, there is less need for the red metal and more need for silicon and brains. But this isn?t something you can trade off of today.
So what is copper really to us? The longer-term charts show a prolonged bottoming process. If $2.90 fails, we could see a revisit to the five-year low at $2.50. That?s your load the boat price. During the global synchronized economic recovery that is underway, you want to view every panic sell off in a single asset class like this as a gift.
Now On Sale
No one can explain the most complex economic and monetary issues in a simpler, more homespun fashion than former governor of the Federal Reserve, Bob McTeer.
He is known for carrying around two yardsticks, one slightly longer than the other, to demonstrate to your average guy the monthly changes in employment.
Bob argues that the Fed is getting a bad rap today. Ben Bernanke?s quantitative easing was neither inflationary, nor caused the collapse of the dollar. This ?money printing effort? is not actually printing any money.
The $1.7 trillion QE1 was designed to buy mortgage backed securities to bring liquidity back to the market place. QE2 enabled the purchase of a further $600 billion in Treasury securities to prevent a double dip recession. On top of this, the Treasury piled the $700 billion TARP to recapitalize the major banks. Then came QE3. All four of these programs were wildly successful.
As a result, the Fed balance sheet has grown from a pre-crash $800 billion to $3.6 trillion. Normally this would be inflationary, but it is not this time, as all of the extra money is being tied up with excess reserves at the banks.
The proof of this is that the money supply, M2, is growing at a very modest rate, barely enough to accommodate the population growth. Without the Fed programs the monetary base would have fallen off a cliff.
The challenge going forward is for the Fed to unwind its balance sheet at the same rate that the banks start paring back excess reserve through more aggressive lending. Too slow, and the Fed risks inflation. Too fast, and it risks falling back into recession.
Although it appears that the dollar is dead in the water in the foreign exchange markets, it is in fact at the same level as it was before the financial crisis. All it has really done is given back its flight to safety bid. The dollar is really a function of our international balance of payments and global interest rate differentials.? Bob feels that the next big move in the greenback is down.
McTeer points out that the Fed has been a huge cash cow for the Treasury, and ultimately, the taxpayer. QE1 and QE2 took in $120 billion in profits over the last three years. The TARP funds paid a 5% preferred dividend and brought in tens of billions of dollars in profits from the banks (GS), (BAC), General Motors (GM), and AIG (AIG).
Bob views Obama?s $900 billion stimulus package as ?an attempt to shoot a hog with a shotgun?. The big problem is that businesses view such programs as temporary and act accordingly. Permanent changes to government policies get you more bang for the buck.
Bob, 73, was probably one of the last people in Texas to use a functioning outhouse. He grew up in rural Ranger, Georgia, the son of a truck stop operator, and his first brush with the real economy was pumping gas and picking cotton.
Somehow, he scored an economics degree from the University of Georgia, and went on to work at the Federal Reserve. He was named president of the Dallas Fed in 1991, and went on to pioneer the analysis of the impact of technology on the macro economy.
Bob is simple, but he is no lightweight. Today, he serves as a chancellor of Texas A&M University, with 100,000 students.
![McTeerRobert[1]](https://madhedgefundradio.com/wp-content/uploads/2013/05/McTeerRobert1.jpg)