?They ring a bell at the bottom, and right now the bell is ringing,? said Robert Reynolds, a manager at Putnam Investment Fund.
Global Market Comments
October 21, 2015
Fiat Lux
Featured Trade:
(EL NINO IS CLOSING IN ON YOUR PORTFOLIO),
(CORN), (SOYB), (DBA), (MOO),
(TEN TIPS FOR SURVIVING A DAY OFF WITH ME)
Teucrium Corn ETF (CORN)
Teucrium Soybean ETF (SOYB)
PowerShares DB Agriculture ETF (DBA)
Market Vectors Agribusiness ETF (MOO)
I came up to my Tahoe lakefront mansion in Nevada this week so I could get in some serious mountain climbing after the markets closed every day.
What did I get? Three days of torrential downpours. The rain was hitting the roof so hard last night that it kept me awake.
Flash floods are wreaking havoc in Los Angeles. Poisonous sea snakes indigenous to Southern Mexico are appearing on California?s golden beaches.
Local fishermen are hooking Mahi Mahi normally found in Hawaiian waters.
And guess what? The first great white shark in 100 years was spotted devouring a seal inside of San Francisco Bay. It looks like I am going to have to reconsider my plans to run the Escape From Alcatraz triathlon this year.
There is absolutely no doubt about it. El Ni?o is arriving with a vengeance. And so is the impact on your trading and investment portfolio.
The potential consequences for your trading and investment portfolio are huge.
The Australian Bureau of Meteorology (click their link http://www.bom.gov.au/climate/enso/) has even gone as far as to predict that this will be a very big El Ni?o year, the kind that occurs only twice a century. The last two major events occurred in 1982-1983 and 1997-1998.
That emergency caused $550 million worth of damage in California alone.
These tumultuous weather events are caused by a differential in Pacific Ocean temperatures off the west coast of South America, in what is called the ?El Ni?o Southern Oscillation Zone.?
A weak event is triggered by temperatures 0.5-0.9 degrees centigrade more than average, a moderate one 1.0-1.4 degrees warmer than average, and a very strong event more than 2 degrees above average. As of October 13, the temperature was 1.4 degrees above average and rising.
The implications of an El Ni?o winter are global in scale.
Australia will almost certainly face a severe drought, destroying much of the grasslands on which the nation?s livestock industry depends.
You can also expect the wheat crop there to fail, as irrigation is rarely used Australia to cut costs.
Southeast Asia will also be dry, damaging rice production in Thailand, the world?s largest exporter. Sugar will also take a hit.
The drought could extend to India, reducing crops for grain, rice, sugar, and cotton. As Indian incomes fall, the gold market could be impacted, as the country is the largest buyer of the precious metal.
El Ni?o also decimates the annual anchovy catch in South America, which competes in the international markets with soybean meal.
El Ni?o?s bring mosquito blooms and the diseases they cause, bringing sudden epidemics for Malaria and Dengue fever. If you?re headed to Latin America this year, be sure to get your shots and take your pills.
It is estimated that the 1998 El Ni?o caused 16% of the planet?s coral reefs to die off.
The opposite effects occur in the Northern hemisphere, with El Ni?o bringing torrential downpours.
I remember the last one all too well.
In 1998, I led a troop of Boy Scout volunteers to fill sand bags to save a levee in California?s Central Valley. We returned two days later, covered from head to toe in mud and exhausted, living on granola bars.
This time around, El Ni?o would be welcomed by the Golden State with open arms, as it would bring to an end a four-year drought, the most severe in history. Everyone here is now subject to strict water rationing and hefty fines for water hogs.
Indeed, when I was recently in Las Vegas, I couldn?t help but notice that the tap water at the Bellagio Hotel had become undrinkable.
The water level in nearby Lake Mead is now so low that it has fallen below the intake pipes for the city. The hotel was unable to resupply bottled water in the shops fast enough.
For the trading universe, this could all finally bring the long bear market in agricultural commodities to an end. Whether there is too little rain, or too much, abnormal weather of any kind brings plummeting crop yields, and higher prices.
So far, the price action in the ags has been very encouraging as El Ni?o continues its relentless march northward.
Affected have been the commodity prices of corn, (CORN), wheat (WEAT), soybeans (SOYB), ag stocks like John Deere (DE), Caterpillar (CAT), Potash (POT), and Monsanto (MON), and many basket ETF?s, such as the PowerShares DB Agriculture Fund (DBA) and the Market Vectors Agribusiness Fund (MOO).
The term ?El Ni?o? translates from Spanish as the ?Christ Child?. It is so named because the event was first discovered in South America just before Christmas about 50 years ago.
They have been occurring throughout human history. The crop failures they brought are thought to be responsible for the collapse of several pre Columbian civilizations. One historian even posits that it was a major cause of the French Revolution in 1789.
El Ni?o?s are also legendary for bringing enormous snowfalls in the High Sierras during the winter. While a student, I was working a part time job at the Mammoth Mountain ski resort in California when a legendary one hit in 1968.
An incredible 35 feet of snow fell in one weekend. Entire buses were buried and lost in the storm. I spent a week helping trapped people dig out from that one.
This is one big catch to all of these prognostications, as there always is. El Ni?o winters have been predicted in the past and not shown up, most recently two years ago. After all, models are just models, not certainties.
Betting on the weather can be hazardous to your wealth.
Besides the trading opportunities, an El Ni?o would make the coming ski season up here at Lake Tahoe look pretty good. I am shopping for new equipment already.
?
Looks Like Rain to
Me
Global Market Comments
October 20, 2015
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE FRIDAY, OCTOBER 23 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON),
(OCTOBER 21 GLOBAL STRATEGY WEBINAR),
(ARE YOU IN THE 1%?),
(SNE), (HMC)
Sony Corporation (SNE)
Honda Motor Co., Ltd. (HMC)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Incline Village, Nevada on Friday, October 23, 2015.
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 $198.
I?ll be arriving at 11:30 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 the premier restaurant in Incline Village, Nevada on the sparkling shores of Lake Tahoe. Those who live there already know what it is. The precise location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets, please?click here.
Global Market Comments
October 19, 2015
Fiat Lux
Featured Trade:
(DINNER WITH BEN BERNANKE)
You would never guess Dr. Ben Bernanke was once one of the most powerful men in the world, indeed in all of human history.
There he sat across the table from me in a popular San Francisco Italian restaurant wearing a poorly made grey suit and a cheap pair of shoes, with rubber soles.
Only the occasional interruption from an autograph seeker belied his true importance.
I managed to snare Ben for a couple of hours on his national book tour promoting his just released "The Courage to Act." Out only days, it was already at the top of the New York Times Best Seller list.
Ben is a different guy now. For a start, you can now call him "Ben" instead of "Governor."
Remember those carefully parsed, measured, and deliberate words he used to use to explain Federal Reserve monetary policy and his future intentions? That guy is long gone.
The new Ben is funny, in a subtle, but wickedly clever manner. He is also instructional, thoughtful, even professorial. At the end of the day, Ben Bernanke is now your favorite faculty member.
Ben's big revelation to me was that there were no potential triggers out there for another 2008-09 type financial crisis.
American banks have been recapitalized to the extent that they now have a stronger safety net with which to weather any future volatility. US banks are bigger than ever.
The big global concern right now is with emerging markets, where trillions of dollars worth of US dollar-denominated debt have been borrowed, collateralized by depreciating local currencies.
Another worry is the perceived "Fed put," which is allowing investors to get complacent with their risk-taking.
Bernanke believes that rising income inequality is the biggest structural problem we face. It means that not all are benefiting from an improving economy, a goal of Fed policy.
This has been unfolding for 40 years, and won't be solved in a day, as several presidential candidates are promising.
As a result, the "Horatio Alger" effect, whereby the poorest can rise to success through brains, hard work, and thrift, is now much less likely to occur than in the past.
Bernanke himself is a perfect example of that phenomenon.
Ben and I spoke at length about the dark days of the crash, and he remembered the emails I used to pepper his staff with proposing fixes or patches on an almost daily basis.
Regulation dating from the 1930s had become outmoded and was woefully out of touch with modern-day finance. It was far too lax in the run-up to the crisis.
For example, insurance giant AIG was monitored by the Office of Thrift Supervision, which was utterly clueless when it came to pricing mathematically complex derivatives.
Bernanke warned President Bush as early as 2005 that real estate prices were getting too high and that a crash was coming.
His predecessor, Alan Greenspan, had cautioned during the 1990s that Fannie Mae and Freddie Mac had a flawed business model that would eventually blow up and take down the financial system with it.
In the end, every major financial institution was tottering on the edge.
Bernanke had the benefit of completing his Ph.D. thesis on the causes and mistakes of the Great Depression, once an arcane area of economic study.
Thanks to the laissez-faire philosophy of the 1920s, the Fed let the money supply collapse, and one-third of all banks went under, some 8,000 in total. This froze the entire credit system.
Eight decades later, Ben, therefore, saw the answer to another looming depression in an inflated money supply, which we saw with QE 1, 2, 3, and 4.
He also helped engineer the $700 billion TARP that bailed out the 20 biggest banks, which he described as "the most successful, but most hated government policy in history."
When it was wound down, the US Treasury made a $15.3 billion profit on the program.
Part of the problem in selling the TARP, and later, President Obama's 2009 $831 billion stimulus budget, was that while the crisis started in New York and Washington, it was slow to reach the hinterlands.
One Republican congressman in Iowa called local car dealers in his district and asked what the big deal was. Ben said, "Just wait," and General Motors filed for bankruptcy months later.
I asked Ben who was his favorite president, as he was appointed by both George W. Bush and Barack Obama. He confirmed that he liked working for the two men, but that Bush was the natural practical joker.
When Chairman of the Council of Economic Advisors, Bernanke was required to give a weekly briefing on the state of the economy. Once he committed the grievous sartorial error of wearing tan socks with his trademark grey suit.
Bush complained, stating that the White House had dress standards to maintain.
Bernanke answered that he thought the Bush administration was one of fiscal responsibility, and that he had bought a four-pack of the controversial socks at the Gap for only $10.
When Ben attended the next meeting a week later, he wore the required grey socks with his grey suit. He couldn't help but notice that everyone else at the meeting was wearing tan socks with their navy suits, including the president.
When Bush met Bernanke to discuss his appointment as Chairman of the Federal Reserve in 2006, he asked if he had any political experience.
Bernanke replied that he had served two terms on the Montgomery County, Maryland Board of Education. Bush said, "that was fine."
Bernanke is an extremely intelligent man. You can almost hear the wheels whirring when he is thinking.
I asked him my "gotcha" question.
Wasn't quantitative easing just a means of bridging the demographic chasm of the 2010s, when 85 million baby boomers are retiring? Isn't it just a way to pull growth forward from the 2020s?
He paused for a moment, and then changed the subject.
Finally, I had to ask if Bernanke ever got a chance to read The Diary of a Mad Hedge Fund Trader while Fed Chairman. He diplomatically responded that the "Fed takes great pains to take in all views."
Touch?
To learn more about Ben Bernanke's amazing, "only in America" rise from obscurity, please click the titles "Who Is Ben Bernanke," and "Why Ben Bernanke Hates Me".
To buy "The Courage to Act" at discount Amazon pricing, please click here.
Global Market Comments
October 16, 2015
Fiat Lux
Featured Trade:
(OCTOBER 21 GLOBAL STRATEGY WEBINAR),
(FRIDAY, OCTOBER 23 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON),
(THE FINAL WORD ON THE TAX ?WASH SALE RULE?),
(TESTIMONIAL)
Global Market Comments
October 15, 2015
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 30 SAN FRANCISCO STRATEGY LUNCHEON)
(MY STOCK MARKET CALL FOR THE REST OF 2015),
(SPY), (VIX), (XIV),
(TESTIMONIAL)
SPDR S&P 500 ETF (SPY)
VOLATILITY S&P 500 (^VIX)
VelocityShares Daily Inverse VIX ST ETN (XIV)
Readers who attend my Global Strategy Luncheons always ask me to be careful when pursuing my many adventures around the world.
After all, they would hate to lose their favorite source of trading and investment advice if I fell to my death in a mountain climbing tragedy, froze to death in an avalanche, or crashed my plane while flying upside down.
So what do I do when I returned from my Portland, Oregon lunch? Deep into a ten-mile night hike on nearby Grizzly Peak, I STEPPED ON A LIVE RATTLESNAKE!
Yikes!
Of course, I danced away as fast as I could, at least to the extent that you can dance with a 50-pound backpack.
When he coiled up and rattled at me, I took off poste haste, but not before taking a picture with my iPhone, held at arms length (see below).
That was one pissed reptile!
The bears who got caught in this month?s ferocious short squeeze may be feeling similarly snake bit.
From feast to famine.
After knocking out a head spinning 40 Trade Alerts in September, we have fallen in to a Trade Alert famine in October.
Bringing in a blockbuster 12% profit last month, we are now posting negative numbers for the month.
Markets have suddenly gone strangely silent.
Is this the calm before the next storm?
That?s a definite maybe.
Got to love that (XIV), the Velocity Shares Daily Inverse VIX Short Term ETN. We have pulled off four round trips in the short volatility fund, all of them profitable.
Volatility had to go down, lest half of Wall Street drop dead from the stress.
Every Volatility Index (VIX) spike from here on is to be sold into with both hands. I think we are going to see the (VIX) trading between $12-$22 for almost all of the next year.
The $30 handles in the (VIX) are to be seen no more.
In addition, we simply ran out of crises.
The global political scene has calmed down. China quit crashing. Oil and commodities may have finally found a bottom.
So investors and traders have stopped being so negative. But they haven?t become positive either. Hence the pause for Q3 earnings to come out as the pitiful excuse to do nothing.
When we get the all clear signal, I expect the S&P 500 to take a run at a new all time high by the end of 2015. After all, that?s only 7% north from here.
With November the largest corporate stock buy back of the year, underperforming managers desperately chasing returns, commodities getting a new lease on life, and interest rates remaining low as far as the eye can see, it couldn?t go any other way.
But just to be sure, I?ll ask former Federal Reserve Chairman Ben Bernanke when I have dinner with him tonight.
No kidding!
A new high will not happen by November 20, hence the logic behind the S&P 500 SPDR?s (SPY) November, 2015 $207-$210 in-the-money vertical bear put spread.
I think the (SPY) 200-day moving average is going to present prodigious upside resistance the first several times around.
And if the market retests the August and September lows one more time, giving us our final fright of the year, so much the better.
Isn?t Halloween coming soon?
The market has just enjoyed a short covering rally for the ages, up 9 out of the last 11 days. It is waaaaay overbought.
Oh, and by the way, I just received an invitation to climb Mt. Whitney next year, at 14,510 feet the highest fountain in the continental United States, in the run up to my 65th birthday.
Damn the rattlesnakes, and don?t forget the Champaign!
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