Diary Archives

Loading the Boat with Solar City

In recent weeks, I couldn?t help but notice the green and white vans of Solar City (SCTY) visiting my neighbors. My trader?s radar went up, so I thought there might be an opportunity here.

What I found made an intriguing investment opportunity. As a preeminent supplier of solar energy, Solar City is a de facto indirect call option on the price of oil, not a bad bet here at $74 and change.

As a huge consumer of capital, the company is a major beneficiary of the prolonged low interest rate scenario which I envision.

A 30% tax credit on any alternative energy investment is set to expire at the end of 2016. I think this will trigger the mother of all stampedes by consumers to buy solar systems while they can still get the government to pick up one third of the tab.

Solar City has also recently completed several high tech acquisitions which will enable it to lower costs while enhancing output efficiencies.

Did I mention that anything Elon Musk Touches turns to gold?

The stock here also looks attractive. Collapsing oil prices had a leveraged effect on (SCTY) shares, dropping a heart stopping 42% in only three months. Heaven knows investors are starved for cheap stocks these days.

This week, (SCTY) poked its nose above the 50 day moving average. If it hold?s then it is off to the races. My only concern here is the volatility that the Thursday OPEC meeting in Vienna is certain to bring to energy markets.

With my second Tesla (TSLA) about to be delivered, the Model X SUV, it was time for me to review my electricity bill.

My first Tesla, a very early Model S-1 (chassis number 125), boosted my monthly power consumption from 600 kWh to 1,800 kWh per month, about what a small industrial facility might use.

Yet, my bill from PG&E increased from only $350 to $450 a month. This is because they effectively give away power for free from 12:00 AM to 7:00 AM to qualified EV users, charging me only a scant 4.7 cents per kWh.

On my suggestion, Tesla then upgraded their software so vehicles could be programmed to recharge only at these hours. That means it is costing me $4.00 for a full 80 kWh charge that can take me 255 miles, or 1.6 cents a mile. That doesn?t include the enormous savings on maintenance (there is none).

Well then! The IRS currently allows a mileage deduction of 56 cents per mile for business purposes, so that?s an opportunity to exploit right there.

Given that the average US car now gets 25 miles per gallon of gasoline (and that is being generous), that means my equivalent cost for running my S-1 works out to paying a scant 40 cents a gallon.

This compares to the $2.79 at the local service station ($2.57 at Costco), which is at a four year low, or a savings of 86%. That is a little more than I paid for gas when I first started driving a beat up VW Bug at the Santa Anita Race Track parking lot back in 1967.

That sounds like a deal to me.

However, the second Tesla is likely to boost my monthly power consumption from 1,800 kWh to 3,000. When PG&E sees bills that big, they assume someone is operating an illegal marijuana grow house and send the DEA to kick your door down at 5:00 AM on a Monday morning.

So I was on the phone to Solar City the next morning. What I heard was nothing less than amazing.

For a start, they called up a Google Earth mapping program that focused on a picture of my roof from a low earth orbit satellite (Google has invested $280 million in Solar City). Then a second program autofits their existing solar panels to my roof and spit out a mass of numbers.

This complete stranger told me things about my roof that I never knew, like it was 4,000 square feet of flat concrete tiles on 14 planes. Welcome to the 21^st century.

I nervously looked down and made sure my fly was fully zipped up.

He went on to tell me that he could fit a 15 kW DC system on my roof that would generate 106% of my power needs, generating 19,365 kWh a year. That would make me completely self sufficient in electricity, even though I will be charging two hulking Tesla 1,000 pound lithium ion batteries every day.

They will install a ?net? two-way electric meter on my house. When the sun shines, it will run backwards as I can sell power to PG&E at high prices. So many people are doing this now that the traditional afternoon price spike in electricity had virtually disappeared.

At night, when I recharge my cars, I would then buy cheap power from Solar City. No storage devices are required. The PG&E grid is effectively the storage system. That would turn me into a day trader of electricity, selling high by day and buying low by night. I love it!

How did their satellite know I was a hedge fund trader? What else does it know?

Now comes the best part. The cost of the installation and panels was $66,000. Solar City would do it for free. Yes, free, as in gratis, with no money down.

They would lease me the panels for 20 years, with an annual price increase of 6.2%. That would cut my monthly electricity bill from $450 to $200. It does this by eliminating the tier 3, 4, and 5 prices I am currently paying PG&E.

If I sell my house, I can either buy out my contract at the discounted, fully depreciated value, or pass it on to the new owners. It is well known that solar panels significantly increase the value of existing homes.

Installation can be done in a day. But it can only take place on unbreakable concrete tile roofs. Those made of clay tiles, metal, tar and gravel, wood shakes, or slate don?t work for various reasons. You need a FICO score of 680 or better to qualify. There is a 60-day waiting list to get this done.

It didn?t take me long to figure out the game here. By purchasing the panels and leasing them to me, they keep the 30% government subsidy for capital investments in alternative energy, which works out to $19,890 for my house alone. Solar City also gets to depreciate these panels on an accelerated schedule, mostly in the first five years.

This explains why Solar City has grown larger than the next 15 competitors combined. Solar City?s largest customer is the US Army, which has already installed panels on 1 million structures.

There is one cautionary note to add here. The government subsidies that help float the company expire in 2018, making the entire proposition financially less attractive. That is, unless they get renewed. Think President Hillary.

The only things that would save them are dramatically higher conventional energy costs. However, right now energy costs are heading the opposite direction, thanks to fracking and a well-publicized war for market share at OPEC.

As with everything else Elon Musk touches, an investment in Solar City has been wildly successful. Since the company went public at the end of 2012, the shares have risen by an awesome 670%. Needless to say, with no earnings, and no dividend, the $5.5 billion market cap company may appear hopelessly expensive.

Like with Elon?s other company, Tesla, you aren?t betting on the value of the business today, but where it will be in five years, when it has a far larger share of the market.

Given Musk?s track record so far, that is a bet that I am willing to take.

For a detailed training video on how to execute a vertical bull call spread, please click here at http://www.madhedgefundtrader.com/ltt-executetradealerts/.

My Home from Outer Space

It?s Been a Long and Winding Road Driving From this?

To This

There?s a Profit in Here Somewhere

November 26, 2014 - Quote of the Day

Diary, Newsletter, Quote of the Day

?I don?t know who spends more, Democrats or Republicans, but Democrats seem to enjoy it more,? said former Federal Reserve governor, Bob McTeer.

November 25, 2014

Diary, Newsletter, Summary

Global Market Comments
November 25, 2014
Fiat Lux

Featured Trade:
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(SPY), (TLT), (BAC), (FXE), (FXY),
(EUROPEAN STYLE HOMELAND SECURITY),
(TESTIMONIAL)

SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
Bank of America Corporation (BAC)
CurrencyShares Euro ETF (FXE)
CurrencyShares Japanese Yen ETF (FXY)

The Yearend Melt Up Has Started!

Diary, Newsletter, Research

Any doubts that my bullish call on global risk markets would play out as promised were blown away on Friday.

That was when the central banks of China and Europe delivered a surprise, one two punch of monetary stimulus for their own troubled economies. The quantitative easing baton has successful been passed from America?s Federal Reserve to central bankers abroad.

The net net for you and I is that stocks and the dollar will continue to appreciate.

Specifically, China came out of the blue with a 0.4% interest rate cut, thus stimulating the world?s largest emerging market.

Then the European Central Bank?s president, Mario Draghi, said he would take whatever steps necessary to return the continent to a 2% inflation rate, up from today?s 0.40%. Unbelievably, Spanish ten-year bond yield fell below 2% in a heartbeat and German ten year funds pierced 0.80%.

For good measure, the Japanese central bank then chimed in, boosting the country?s money supply growth by 33% as promised earlier. Saying is one thing, but doing it is much better, especially when it carries a radical tinge.

The measures make my 2,100 target for the S&P 500 by the end of December a pretty safe bet. Look for a tedious, prolonged sideways grind, followed by rapid headline driven pop. Easy entry points will be few.

It really is one of those ?Close your eyes and buy? type of markets. I doubt we get pullback of less than 3% in the major indexes this year. Volatility will remain muted. All the black swans of landed.

It gets better.

This kind of market action could continue for another three years. After the ?Great Recession?, we are now witnessing the ?Great Recovery?. That means returning to a 3% or better GDP growth rate and 10% annual corporate earnings increases.

Add in 2% a year in dividend yields, and you get a (SPY) that rises by 10% a year. Look at the 100-year average gain for stocks and it comes in remarkably close to this number. Factor in an earnings multiple increase from the current 16, and they will rise faster.

This is all Goldilocks on steroids. Interest rates, the cost of labor, energy, and commodity price inputs stay low, earnings rise, and everybody else in the world sends their money here because it is the best bet going.

I all works for me, and I hope, you too!

It All Works for Me!

November 24, 2014

Diary, Newsletter, Summary

Global Market Comments
November 24, 2014
Fiat Lux

Featured Trade:
(TRADING THE KENNEDY ASSASSINATION)

November 21, 2014

Diary, Newsletter, Summary

Global Market Comments
November 21, 2014
Fiat Lux

Featured Trade:
(TRADE ALERT DROUGHT EXPLANATION AND MY MARKET TAKE),
(SPY), (BABA), (VIX),
(REPORT FROM AUSTRALIA)

SPDR S&P 500 ETF (SPY)
Alibaba Group Holding Limited (BABA)
VOLATILITY S&P 500 (^VIX)

Trade Alert Drought Explanation and My Market Take

Diary, Newsletter, Research

Those of you who recently purchased the Mad Hedge Fund Trader?s mentoring service may have noticed a sudden drop off in Trade Alerts.

During October, I sent out a record 44 Alerts and Updates. As a result, that month was my best of the year, bringing in a gain of 6.69%. This month, only 5 Trade Alerts have gone out.

What gives?

I assure you, I have not been basking in the sun on a yacht in the Caribbean. Nor have I been catching the end of the ski season on New Zealand?s South Island. I have not even taken off on a hundred mile snowshoe across the High Sierras (that is not scheduled until Thanksgiving week).

No, I?m afraid that I have to tell you that the problem has been the market. I like to focus on sending out Trade Alerts that have an overwhelming chance of success. The fundamentals, the technical?s, the sun, moon, and stars all have to line up perfectly.

When they don?t, I don?t trade. It?s called maintaining discipline. The same is true for my friend, Mad Day Trader, Jim Parker. Sometimes, the best trades are the ones you think about, but never do, because your models say ?Stay away!?

When I ran my big hedge fund during the 1990?s I developed a perfect leading indicator. It was based my own clients? cash flows. When money poured in, it reliably signaled a market top. When it flowed out, it presciently indicated a market bottom.

It made absolutely no difference what my own performance was. If I was up 40% on the year, and the stock market dove 10%, investors wanted their money back?and now! No excuses, no explanations.

When investors wanted to redeem, I bought them out with my own money. Eventually, over the years, I ended up owning the entire hedge fund, which I then sold at a big premium at the market top to a group of foreign investors.

The closing date was January 1, 2000, four months before the beginning of the Great Dotcom crash. People told me I was stupid for four months?then I never heard from them again, except to occasionally see their resumes put in front of me by hopeful headhunters.

I am seeing the same sort of behavior in the newsletter business. Market surges bring in large numbers of new subscribers, who then expect immediate gratification in the form of a ton of Trade Alerts. At market bottoms the PayPal account goes completely dormant.

If I met new subscriber expectations, I would create a perfect money destruction machine, one that mechanically buys tops and sells bottoms. That is a great way to buy a spanking brand new mega yacht for your broker, but not for yourself.

So what should you expect from the Mad Hedge Fund Trader? To get buried in Trade Alerts when conditions are ideal, and sit on your hands when they aren?t.

That is when you?re supposed to be reading those deep, insightful research pieces that I send you every day, and drawing up short lists of things to do when the call to action arises. Chance rewards the prepared.

Keeping you out of a high risk/low return market is a far more valuable service that I can provide than tying you to a low risk/high return one.

Hint: Just because you bought a new subscription to the Global Trading Dispatch doesn?t mean that trading conditions have suddenly become ideal.

If you have to wait for an entire market cycle for the sweet spots to start appearing in large numbers, that is the best way to protect and expand your wealth. Market discipline is the most valuable thing I can teach you.

With all that said, let?s talk about the markets.

This is a particularly tricky place for traders. The lowest risk day of the year to buy stocks was October 15. Since then, the risks have increased daily. We are now at the top of one of the extended runs in market history. Should we throw caution to the wind and buy with reckless abandon?

Hell no!

So maybe we should consider flipping to the short side?

We have just entered the six-month period when stocks are traditionally the strongest. You can add to this big upward influence the end of the year run up.

In fact, I think we will close 2014 at the high of the year. Looking at the way the Volatility Index (VIX) is trading, it could be another three years before we see another full 10% correction.

So I don?t think that selling short any risk asset is a good idea here either.

That leaves us the small weekly 1%-2% mini corrections we have been getting to get involved with on the long side. But since we are running into the annual book closing, you have to use tight stop losses to protect your investment.

The high frequency traders all know this, and will program their algorithms to trigger as many stop losses as possible before reversing markets. That?s how I lost my long vertical call spread in Alibaba (BABA) this year, for a -2.38% hickey.

This is why I wrote in the Trade Alert that short term traders should sell, but long-term investors should hold. I think the stock is going to $140 next year.

Long-term investors have no problem. My fundamental economic call remains unchanged. Analysts and investors alike are underestimating the strength of the US economy.

Almost every data point confirms my convictions. Everyone else is shocked, befuddled, and bemused. Not me.

So, this bull market could continue for three or more years, and all they need to do is take an extended cruise when the markets suffer their periodic corrections.

This is why those owning the deepest discount Vanguard index funds have outperformed both active and hedge fund mangers for the third year running.

Sometimes it pays to be lazy.

Sometimes It Pays to be Lazy

Report from Australia

Diary, Newsletter

The noise was as depressing as it was unmistakable. The front tire on my rental car blew out, leaving me stranded on the side of the road. The problem was that I was in the middle of nowhere in New South Wales, Australia, and it was pouring cats and dogs.

Nothing but eucalyptus trees unfolded across the vast rolling hills. I looked in the trunk. Kookaburras laughed in the foliage. There was a nice new spare, but no jack.

I picked up my iPhone 5s to call for help. There, was the message that sank a thousand ships, and ended a million relationships: ?No Service,? and no bars. Now you really can?t hear me. My traveling companion shuddered. ?They?ll never find our bodies?.

Then, the distant wail of a chain saw beckoned. Aha, I thought, all I need is a good Australian farmer to come to my aid. They?ll help anyone, even a Yank with a strange accent and decidedly foreign clothing.

Dressed for wine tasting in the Hunter Valley, I now found myself charging out across the Australian bush, up to my ankles in red mud. I was uplifted by the probability that there was at least a 95% chance that I was not walking into the home of a serial killer. Scenes from the cult film Deliverance flashed through my mind.

A frenzied, barking Rottweiler ran out to greet me. Fortunately, I passed the smell test. Minutes later I was speaking with what had to be Crocodile Dundee?s long lost half brother, complete with the broad brimmed leather hat, crocodile teeth, and a sleeveless denim jacket. It seems to be an Aussie thing.

Meet Crocodile John Thomas

Not only would he lend me a jack, he insisted on driving me out to my car and changing my tire for me. Do I really look that old and infirm now? He did mention casually, ?I?m glad you made it across that field. We have lost four dogs to snakes there in the past year.? Oops, and double oops.

In the end, we took turns while discussing the current state of the dairy cow market, the price of hay (it?s higher), and the uselessness of the current government in Canberra. I drew on my vast knowledge on these topics from the summer I spend on a cattle ranch in Bassano, Alberta a half century ago.

Thus began my trip to the Antipodes, somewhat inauspiciously. However, the highpoints were to follow shortly.

The wines in the Hunter Valley were to die for. They have become a carbon copy of my own Napa Valley, complete with all the tourist rip offs. Their red Shiraz is world class, and I took names of the US distributors of the best ones. It turns out to be easier to ship military grade arms abroad than a case of wine.

Now, Which One of These Works in Australia?

After winning the battle of Guadalcanal in 1942, my dad, along with the rest of the survivors from the First Marine Division, were dumped in Melbourne for some much needed rest and resupply. They were starving, barefoot, and in rags, but their weapons were in perfect operating condition.

The government housed them in the Melbourne Cricket Ground, and provided WWI surplus Australian Army uniforms, all in wool khaki. Dad told me when he walked down the street, families invited him in for dinner almost every night. Their men were all off fighting in North Africa.

At my Melbourne strategy luncheon 72 years later, I thanked the people of Melbourne for their hospitality on behalf of the Marine Corps and the Thomas family. Today, the MCG still stands, and a small memorial there gives tribute to the actions of these brave men, who saved Australia from invasion by the Japanese.

I never fail to stop by the fabled Sydney Opera House when I breeze through this part of the world, one of the world?s most recognizable architectural icons. Its creation is an epic in its own right. Designed by a young Dane, and union built during a period of revolving governments, planning and construction dragged on for 20 years, seemingly defying the known laws of physics and politics.

It was worth every penny.

Carmen, by Georges Bizet, dragged on, as operas tend to do. Half way through, the Toreador rode in on a horse. From then on, the entire audience wondered if, in front of 3,000 of the Sydney elite, the horse was going to take a dump on the stage. Miraculously, it didn?t.

I soon realized that my French is badly in need of repair. The translators could have used a tune up as well. Eventually I was thinking ?kill her already and get it over with.? In the end, Jos? did the evil deed. On the way out in a drenching rainstorm I saw the horse take the biggest dump I had ever seen, carefully into a trashcan in the parking lot.

During a free day in Brisbane, a former colonial outpost that is evolving into an Asian city, I chartered a Cessna Caravan and flew it up to the Great Barrier Reef. I landed it on Lady Elliot Island, a speck of coral 30 miles out into the azure blue South Pacific, careful to warn my passengers of the hard landing that was coming.

It was another one of those incredible, once in a lifetime, bucket list type trips. There, I spotted electric blue starfish, snapping moray eels, a pod of dolphins, rode the back of a giant sea turtle, and swam with giant manta rays and reef sharks. Strangely, I felt right at home with the sharks, perhaps a byproduct of my day job?

On the way home, I dipped down to a lower altitude to skim the endless pristine beaches of Queensland, scattering the kangaroos and emus (not the European Monetary Unit.)

Piece of Cake, But Fasten Your Seatbelt

Given the large number of new subscribers who joined me during the trip, I will no doubt be making more frequents trips to the Land Down Under. To facilitate this, I have extended live customer support, educational resources, and order execution to take place in the Australian time zones through a tie up with a local broker. For more information please click here.

My event organizers had me on my feet up to 16 hours a day, giving speeches, doing interviews on radio and TV, recording webinars, and attending lunches, dinners, and cocktail receptions. Naturally, there was a lot of drinking. It seems to be another Aussie thing.

I even managed to squeeze in a mud wrestling session with my friend, Harry S. Dent, Jr., where we debated the future of the financial markets in front of an awed crowd (me up, him down). As you probably know, I eat this stuff up.

Thanks for all your support and encouragement, which allows me to live this incredible lifestyle. If you have any more bucket list suggestions to replace the adventure just struck off, please send them in.

John Thomas
The Mad Hedge Fund Trader

November 21, 2014 - Quote of the Day

Diary, Newsletter, Quote of the Day

?The private economy is OK here. It is absorbing these body blows from Washington. Housing and energy could offset the shenanigans coming out of there,? said Stephen Wood, CIO with Russell Investments Group.

November 20, 2014

Diary, Newsletter, Summary

Global Market Comments
November 20, 2014
Fiat Lux

SPECIAL GOLDEN ISSUE

Featured Trade:
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