Now that I see gold closing today at $1,269 today I am reminded of one of the worst calls I have seen in my 50-year trading career.
One of the great asset management blunders of all time has to be the European Community?s decision to sell its gold reserves in the wake of the launch of the Euro in 1998.
The decision led to the fairly rapid sale of 3,800 metric tonnes of the yellow metal at an average price of $280/ounce, reaping about $56 billion, according to the Financial Times.
The ECB almost perfectly picked the bottom of the market.
Today, the stash would be worth $253 billion. On top of this, the Swiss National Bank is poorer by $60 billion, after offloading 1,550 tons of the barbaric relic.
The large scale, indiscriminate selling depressed gold prices in the early part of the last decade, and made the final bottom of a 20-year move down.
It is a classic example of what happens when bureaucrats take over the money management business, ditching the best performing investment on the eve of a long-term bull market.
Where did all that gold go? To hedge funds, gold bugs, and inflationistas of many stripes, despite the fact that long dreaded price hyperinflation never showed.?
The good news for gold bugs is that these reserves are largely drawn down now, and future selling will trail off in the years ahead.
The shrinking supply can only be positive for prices.
https://www.madhedgefundtrader.com/wp-content/uploads/2016/10/Clousseau-e1477017428232.jpg262400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2016-10-21 01:06:142016-10-21 01:06:14The Worst Timed Trade of All Time
?Amazon?s Jeff Bezos IS Dr. Evil. He intends to take over the world. He WILL succeed.? said Michael Pachter, a technology analyst at Wedbush Securities.
https://www.madhedgefundtrader.com/wp-content/uploads/2016/10/Dr.-Evil-e1477016819584.jpg133300DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2016-10-21 01:05:332016-10-21 01:05:33October 21, 2016 - Quote of the Day
Featured Trade: (PLEASE BRING BACK QE!), (DXJ),(HEDJ), (UUP), (SPY), (TLT), ?(FXY), (FXE), (GLD), (USO), (CU), (UNG), (NOTICE TO MILITARY SUBSCRIBERS)
WisdomTree Japan Hedged Equity ETF (DXJ) WisdomTree Europe Hedged Equity ETF (HEDJ) PowerShares DB US Dollar Bullish ETF (UUP) SPDR S&P 500 ETF (SPY) iShares 20+ Year Treasury Bond (TLT) CurrencyShares Japanese Yen ETF (FXY) CurrencyShares Euro ETF (FXE) SPDR Gold Shares (GLD) United States Oil (USO) First Trust ISE Global Copper ETF (CU) United States Natural Gas (UNG)
You wanted clarity in understanding the current state of play in the global financial markets?
Here?s your #$%&*#!! clarity.
But maybe that is the cabin fever talking, as I have been cooped up in my Tahoe lakefront estate for a week, engaging in deep research and grinding out Trade Alerts, devoid of any human contact whatsoever.
Or, maybe it?s the altitude.
I did have one visitor.
A black bear broke into my trash cans last light and spread garbage all over the back yard. He then left his calling card, a giant poop, in my parking space. Is there a subtle message there?
Judging by the size of the turds, I would say he was at least 600 pounds. This is why you never take out the trash at night in the High Sierras.
Ah, the delights of Mother Nature!
We certainly live in a confusing, topsy-turvy, tear your hair out world this year. Good news is bad news, bad news worse, and no news the worst of all.
The biggest under performing week of the year for stocks is then followed by the best. Net net, we are absolutely at minimal movement, and lots of clients complaining about poor returns on their investment.
I tallied the year-on-year performance of every major assets class and this is what I found.
+18.05% - Gold (GLD) +16.65% - Japanese Yen (FXY) +12.68% - Natural Gas (UNG) +10.71%? - Bonds (TLT) +10% - My House +6.59% - Stocks (SPY) +4.76% - Hedged European Stocks (HEDJ) +1.44% -? Copper (CU) 0% - Euro (FXE) 0%? - Oil (USO) -2.69% - US dollar Basket (UUP) -10.20% - Hedged Japanese Stocks (DXJ)
There are some sobering conclusions to be drawn from these numbers.
Gold (GLD) has been the top performing asset of 2016.
It is followed by the Japanese yen (FXY), the currency with the world?s worst long term fundamentals.
Stocks came in at the middle of the pack, and with dividends, post at 8.60%. Not bad.
Quite honestly, you only needed one trade this year to outperform 99% of active managers net of fees, and that was to buy Amazon (AMZN).
My former Morgan Stanley colleague, Jeff Bezos,? has seen the shares of his creation rise an eye popping 197%. Blame it all on artificial intelligence.
If you missed Amazon for valuation reasons, you also could have run the bell with Facebook (FB) (+25%),? Apple (AAPL) (12.5%), or Alphabet (GOOG) (+6.1%).
Subscribers to the Diary of aMad Hedge Fund Trader can?t help but know and love these ticker symbols.
They?ll notice that our long plays were found among the assets classes with the best performance, while our short bets populated the losers.
The problem with that is most financial advisors are not permitted to place client funds in the sort of inverse or leveraged ETFs that most benefit from these kinds of moves (like the Yen (YCS), Euro (EUO), and Oil (DUG)).
That left them reading about the success of others in the newspapers, even when they knew these trends were unfolding (through reading this letter).
How frustrating is that?
What was one of my best investments of 2016?
My San Francisco home, which has the additional benefits in that I get to live in it, have a place to stash all my junk, and claim big tax deductions (depreciated home office space, business use of phone, blah, blah, blah).
Of course, I do have the advantage of living in the middle of one of the greatest technology and IPO booms of all time. Every time one of these ?sharing? companies goes public, the value of my home rises by a few hundred grand.
The real problem here is that investing since the end of the Federal Reserve?s quantitative easing program ended a year ago has become a real uphill battle.
While the government was adding $3.9 trillion in funds to the economy, we traders enjoyed one of the greatest free lunches of all time. It made us all look like freakin? geniuses!
Heaven help us if they ever try to actively unwind some of that debt!
Janet has promised me that she isn?t going to engage in such monetary suicide. So far, natural attrition has taken the Feds bond holdings down to only $3.4 trillion.
The Fed is continuing with Ben Bernanke?s plan to run all of their Treasury bond holdings into expiration, even if it takes a decade to achieve this.
And with deflation accelerating, the need for such a desperate action is remote.
Still, one has to ponder the potential implications.
It all kind of makes my own 20% Trade Alert gain in 2016 look pretty good. If added to the list above, it would be the best performing asset class of all.
But I don?t want to boast too much. That tends to invite bad luck and losses which I would much rather avoid.
Featured Trade: (HAVE WE BECOME A NATION OF COUCH POTATOES?), (NFLX), (M), (AMZN), (THE ?INTRODUCTION TO RISK MANAGEMENT? TRAINING VIDEO IS POSTED), (DECODING THE GREENBACK)
Netflix, Inc. (NFLX) Macy's, Inc. (M) Amazon.com, Inc. (AMZN)
Three sets of data crossed my screen today that blew my mind.
Retail Sales are clearly in a secular long-term decline. Indeed, Macy?s (M) announced only a few months ago that it is closing 100 of its 769 stores, sending its stock soaring.
Restaurant revenues dropped 3.3% YOY.
However, Netflix (NFLX) earnings rocketed, sending the shares up a ballistic 15% in minutes.
Are these numbers revealing a major new trend in our society? Are we soon to have our every need catered to without lifting a finger?
Have We Become a Nation of Couch Potatoes?
After spending weeks preparing a major research piece for a private client on artificial intelligence, I would have to say that the answer is an overwhelming ?Yes!?
Artificial intelligence, or AI, is far more pervasive than you think. Half of all apps now rely on some form of AI, and within five years, all of them will.
Within a decade, AI will cure cancer and most other human maladies, drive our cars, decide our elections, and do our shopping.
As a result, the earnings and share prices of its most active practitioners are rocketing. Look no further than the dominant player, Amazon (AMZN), whose share are now up a staggering 193% since January.
AI has become the leading market theme for 2016.
People my age all remember George Jetson, the space age cartoon character, who only had to work an hour a day because machines did the rest for him.
The modern incarnation of his ultra light workweek will be far darker and more sinister.
Instead of a one-hour day, it is far more likely that one person will keep a full time eight hour a day job, while another seven unfortunates become full time unemployed.
By the way, I am determined to be that one guy with a job. So should you.
Indeed, I am increasingly coming across dire predictions that 30% of all jobs will disappear within ten years.
I?m sure that they will. The real question is whether that 30%, or more, will be replaced by jobs yet to be invented. I bet they will. Evolution and creative destruction are now happening on fast forward.
After all, some 25% of the professions listed on the Department of Labor website did not exist a decade ago.
SEO manager? Concert social media buzz creator? Online affiliate manager? Solar panel installer? Reputation defender?
What does the stock market do in this new dystopian society? It goes through the roof. After all far fewer workers creating a greater output generate much larger earnings that send share prices soaring.
https://www.madhedgefundtrader.com/wp-content/uploads/2016/10/Geoge-Jetson-e1476848451417.jpg301400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2016-10-19 01:08:582016-10-19 01:08:58Have We Become a Nation of Couch Potatoes?
If you want to impress your friends with your vast knowledge of financial matters, then here are the Latin translations of the script on the backside of a US dollar bill.
?ANNUIT COEPTIS? means ?God has favored our undertaking.? ?NOVUS ORDO SECLORUM? translates into ?A new order has begun.?
The Roman numerals at the base of the pyramid are ?1776.? The better known ?E PLURIBUS UNUM? is ?One nation from many people.?
The basic design for the cotton and linen currency with red and blue silk fibers, which has been in circulation since 1957, carries enough symbolism to drive conspiracy theorists to distraction.
An all seeing eye? The darkened Western face of the pyramid? And of course, the number ?13? abounds.
Thank freemason Benjamin Franklin for these cryptic symbols, and watch Nicholas Cage?s historical adventure movie ?National Treasure.?
The balanced scales in the seal are certainly wishful thinking and a bit quaint if they refer to the Federal budget.
Study the buck closely, because there are soon going to be a lot more of them around, thanks to the efforts of former Fed Chairman, Ben Bernanke.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/US-Dollar.jpg333357Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2016-10-19 01:06:032016-10-19 01:06:03Decoding the Greenback
Expect to hear a lot about ignition in the next year.
No, I don?t mean the rebuilt ignition you bought on eBay for the beat up ?68 Cadillac El Dorado up on blocks in your front yard.
Defense contractor Lockheed Martin?s (LMT) famed Skunk Works in California has finally come out of the closet and announced that it has made a major breakthrough in fusion research.
A small functioning reactor could be available in as little as three years.
If true, the news would be dynamite.
I have long been partial to Lockheed as a company, as it employed my mother on an assembly line in Los Angeles to build B-17 bombers during WWII.
When I visited a secret Russian airbase in 1992 to view the wreckage of Gary Powers? U-2 spy plane, the steel Lockheed serial number was unmistakable.
After I asked to take it home as a souvenir, my hosts replied with a very firm ?Nyet!? and hurried me out of the facility, citing it as a ?National Treasure.?
The new fusion technology would deliver ten times more power than conventional nuclear reactors at a fraction of the cost.
Fusion involves the combining of two hydrogen atoms to create one helium atom, releasing immense amounts of power.
To know how much, simply refer to Albert Einstein?s famous equation, E = MC squared.
If successful, the discovery could make available unlimited amounts of carbon free energy at near zero cost, without creating any toxic waste.
The breakthrough relies on using a ?magnetic bottle? to contain the several hundred million degree of heat generated, instead of four foot thick reinforced concrete containment structures.
So far, the stock market is clueless.
Economical fusion power, the type unleashed by thermonuclear hydrogen bombs, has long been the dream of physicists and long term planners everywhere.
The focus of research has until now taken place at the National Ignition Facility next door to me at Lawrence Livermore National Labs in Livermore, California. There, progress has recently suffered several set backs and time delays.
Mention California to most people, and images of love beads, tie died T-shirts, and Birkenstocks come to mind.
But it is also the home of the first atomic bomb, which was originally designed amid the vineyards and cow pastures of this bucolic suburb.
Dr. Robert Oppenheimer of the UC Berkeley School of Mining used to keep the first ever piece of purified plutonium in a file cabinet in his office that, thankfully, was made out of steel.
If it were a wooden cabinet, the US might have lost WWII.
Today, the world?s first cyclotron has been turned into a modern steel sculpture in a traffic roundabout, not a mile from my home.
The thinking at the time was that if someone accidently flipped the wrong switch, it wouldn?t blow up San Francisco, or more importantly, Berkeley.
The $5 billion Livermore project aims 192 lasers at a BB sized piece of frozen hydrogen, using fusion to convert it to helium and unlimited amounts of clean energy.
The heat released by this process reaches 100 million degrees, hotter than the core of the sun, and will be used to fuel conventional steam electric power plants.
The raw material is seawater, and a byproduct is liquid hydrogen, which can be used to fuel cars, trucks, and aircraft. If this all sounds like it is out of Star Trek, you?d be right.
I worked with these guys in the early seventies, back when math was used to make things, and before it was used to game financial markets.? I can tell you, there is not a smarter and more dedicated bunch of people on the planet.
If it works, we will get unlimited amounts of clean energy for low cost in about 20 years. Oil will only be used to make plastics and fertilizer, taking the price down to $10 for domestic production only.
The crude left in the Middle East will become worthless. Lumps of coal will only be found in museums, or in jewelry, its original use. If it doesn?t work, it will melt the adjacent Mt. Diablo and take me with it.
If Lockheed?s fusion success is scalable, it could lift its stock out of the pre-election doldrums from which it, and the rest of the defense sector has been suffering.
Those would include Northrop Grumman (NOC) and Boeing Aircraft (BA).
If you don?t get your newsletter tomorrow, you?ll know what happened.
I watched John Thomas for a year before jumping in, and I should have done it earlier when he phenomenally traded that awful year, 2011, that whipsawed so many investors including myself.
He again outperformed the market in 2012, 2013, 2014, 2015 and so far he has shown amazing skill once more in navigating treacherous markets with deep-in-the-money call and put spreads.
You can not exactly replicate his numbers 100% of the time for many different reasons, some of them strictly technical in nature.
But you will get most of them, or you can use his trade alerts just directionally to help you determine where you should put your money and how to allocate your dollars risk on vs. risk off.
I am up 20% trading with John since October 2015. I also like John's in-depth charts, market insights, and his educational webinars, that have become the cornerstone of my market evaluations.
One should never put all eggs in the same basket, but subscribing to the Mad Hedge Fund Trader is a smart way to enhance the performance of your stock portfolio.
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