Global Market Comments
April 16, 2014
Fiat Lux
Featured Trade:
(CHICAGO FRIDAY, MAY 23 GLOBAL STRAGEGY LUNCHEON),
(BUY SOLAR STOCKS ON THE DIP),
(FSLR), (SPWR), (SCTY), (TAN), (USO), (UNG), (XLU),
(THE ONE SAFE PLACE IN REAL ESTATE)
First Solar, Inc. (FSLR)
SunPower Corporation (SPWR)
SolarCity Corporation (SCTY)
Guggenheim Solar (TAN)
United States Oil (USO)
United States Natural Gas (UNG)
Utilities Select Sector SPDR (XLU)
Global Market Comments
April 15, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON),
(HOW LONG WILL THE RUN IN MASTER LIMITED PARTNERSHIPS CONTINUE?),
(LINE), (BWP), (USO), (UNG),
(PILING ON THE SHORTS AGAIN), (SPY)
Linn Energy, LLC (LINE)
Boardwalk Pipeline Partners, LP (BWP)
United States Oil (USO)
United States Natural Gas (UNG)
SPDR S&P 500 (SPY)
Boy, that was one hell of a recommendation I made back in 2012, getting readers to buy Master Limited Partnerships (MLP?s).
The share price for my favorite, Linn Energy (LINN), is unchanged from when I urged readers to pick it up. However, they have taken home nearly 25% in dividend payoffs during the same period. Not a bad return in this zero interest rate world.
The origins of the special tax breaks that led to the creation of these most complex of securities are lost in the sands of time. As I recall, they date back to a period when the US was chronically short of oil, and industry desperately needed the big ticket infrastructure to produce and deliver it.
They worked like a charm. Never underestimate the desire of the American investor to avoid paying taxes.
An MLP is a ?pass through? instrument that allows profits to move directly to end investors, thus bypassing corporate double taxation. That set up generates enormous yields that are particularly attractive to individual investors. Some 114 MLP?s now exist, and most can be bought on public exchanges as easily as stocks or exchange traded funds (ETF?s).
It is an old Wall Street nostrum to feed the geese while they are quacking, and investment bankers have done so in spades (see chart below). The number of initial public offering for MLP?s has soared in recent years, from just two in 1985 to a prolific 21 last year.
New issue volumes have become so prodigious that they are disrupting the dynamics of the secondary market. Investors are now unloading their existing MLP?s to make room for the new ones, setting back prices on existing issues. The same disease is also afflicting biotech stocks, where an overly ambitious new issue calendar triggered dramatic falls in the sector.
Will Wall Street kill the gold goose yet again?
MLP?s have benefited enormously from the fracking and horizontal drilling boom now unfolding across the United States. As a result, US energy demand is at a 30 year high, and so is the demand for energy infrastructure.
As I often tell my guests at my Global Strategy Luncheons, the smart play in natural gas, where supplies are burgeoning, is a volume play, and not a price play. MLP?s achieve exactly that.
To qualify for MLP status, a partnership must generate at least 90 percent of its income from what the Internal Revenue Service deems ?qualifying? sources. For many MLPs, these include all manner of activities related to the production, processing or transportation of oil, natural gas, and coal.
Energy MLPs are defined as owning energy infrastructure in the U.S., including pipelines, natural gas, gasoline, oil, storage, terminals, and processing plants. These are all special tax subsidies put into place when oil companies suffered from extremely low oil prices. Once on the books, they lived on forever.
In practice, MLPs pay their investors through quarterly distributions. Typically, the higher the quarterly distributions paid to LP unit holders, the higher the management fee paid to the general partner. The idea is that the GP has an incentive to try to boost distributions through pursuing income-accretive acquisitions and organic growth projects.
Because MLPs are partnerships, they avoid the corporate income tax, on both a state and federal basis. Instead of getting a form 1099-DIV and the end of the year, you receive a form K-1, which your accountant should know how to handle.
Additionally, the limited partner (investor) may also record a pro-rated share of the MLP?s depreciation on his or her own tax forms to reduce liability. This is the primary benefit of MLPs and gives MLPs relatively cheap funding costs.
The tax implications of MLPs for individual investors are complex. The distributions are taxed at the marginal rate of the partner, unlike dividends from qualified stock corporations. On the other hand, there is no advantage to claiming the pro-rated share of the MLP?s depreciation (see above) when held in a tax-deferred account, like an IRA or 401k. To encourage tax-deferred investors, many MLP?s set up corporation holding companies of LP claims which can issue common equity.
The popularity of MLP?s has caused a huge inflow of capital, which has caused yields to crash, from 25% during the dark days of 2009, to an average of 6.7% today. Still, yield starved investors threw money at MLP?s with both hands last year, an eye popping $11.9 billion, according to figures from the tracking firm, Morningstar.
As yields have plunged, risks have risen. In February, Houston based Boardwalk Pipeline Partners (BWP), out of the blue, dramatically cut its payout to investors. A panic ensued, chopping 62% off the value of the shares in the following weeks. No doubt, increased competition for pipelines from railroads was a factor.
To protect yourself you must go to the website and read the prospectus before sending a check to an MLP. Unfortunately, these are so complex that even degrees in securities and tax law might not be enough to help you. What do you do instead? Pray, as seems to be the strategy of most individual investors.
At the end of the day, oil has a big influence on MLP prices. So the antics of Vladimir Putin in the Ukraine are probably a welcome development for MLP holders, as it has helped boost the price of Texas tea from $91 to $105 since the beginning of 2014.
However, get a real recession, and one will be overdue in a couple of years, and the price of oil will collapse once again, causing MLP?s to revisit those subterranean 2009 lows. Mothballed drilling rigs and rusting pipelines don?t produce lease payments or pay dividends. These are the risks you are being paid to take with a double-digit yield.
The lesson here is ?be nimble, or die".
You Want This One
Not This One
How Long Will the MLP Run Continue?Global Market Comments
April 14, 2014
Fiat Lux
Featured Trade:
(JULY 7 ROME, ITALY STRATEGY LUNCHEON),
(CASHING IN ON MY SHORTS),
(VXX), (VIX), (SPY), (TLT), (FXY), (QQQ),
(TESTIMONIAL),
(WHERE IS THE MARKET BOTTOM?),
(SPY), (QQQ)
iPath S&P 500 VIX ST Futures ETN (VXX)
VOLATILITY S&P 500 (^VIX)
SPDR S&P 500 (SPY)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Japanese Yen Trust (FXY)
PowerShares QQQ (QQQ)
Global Market Comments
April 11, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON)
(MAD HEDGE FUND TRADER BLASTS TO NEW ALL TIME HIGH)
(SPY), (IWM), (VXX), (TLT), (GE),
?(GS), (FXY), (UUP), (GLD), (USO),
(THE RETURN OF PETER THE GREAT), (RSX)
SPDR S&P 500 (SPY)
iShares Russell 2000 (IWM)
iPath S&P 500 VIX ST Futures ETN (VXX)
iShares 20+ Year Treasury Bond (TLT)
General Electric Company (GE)
The Goldman Sachs Group, Inc. (GS)
CurrencyShares Japanese Yen Trust (FXY)
PowerShares DB US Dollar Index Bullish (UUP)
SPDR Gold Shares (GLD)
United States Oil (USO)
Market Vectors Russia ETF (RSX)
The industry beating performance of the Mad Hedge Fund Trader?s Trade Alert Service has maintained its gobsmacking pace from last year, picking up another 14.5% profit so far in 2014.
The Dow Average was down a pitiful 1% during the same period, pegging my outperformance of the index at a stunning 15.50%. April alone is up a blistering 6.89%. The trailing 12-month return is 44.4%.? 2013 closed with a total return for followers of 67.45%.
The three-year return is now an amazing 137%, compared to a far more modest increase for the Dow Average during the same period of only 31%. That brings my averaged annualized return up to 40.8%. Not bad in this zero interest rate world. It?s better than a poke in the eye with a sharp stick.
This has been the profit since my groundbreaking trade mentoring service was launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, a development of which I am immensely proud of.
Not a day goes by without finding grateful emails thanking me for changing their lives. Stories abound of mortgages paid off, college educations financed, and aging parents supported. Quite a few use my award winning mentoring service to finally achieve financial independence and told their bosses to go jump off a bridge.
I won?t pass on the pictures they sent me. To read the plaudits yourself, please go to my testimonials page. They are all real.
The hot streak continues.
I have been bearish on the market for a month now. I have been using every rally to sell the market short. I bought puts and put spreads in the S&P 500 (SPY), the Russell 2000 (IWM). I also built up a major long position in the (VXX), betting on a serious market swoon occurring sometime in May.
In the meantime, I quickly stopped out of long positions I had in Goldman Sachs (GS), General Electric (GE), and a short position in the Japanese yen (FXY).
I covered the case for my ultra bearish posture in detail at my April 9 Global Strategy webinar. There I posted charts showing that best case, the (SPY) is in for an 8% selloff, and worst case, is about to perform a 17% swan dive (click here for the Webinar page). Treasuries (TLT) should rocket, and the dollar (UUP) will take a dive, and gold (GLD) will get a love tap. Even crude oil (USO) is benefiting from a flight to safety bid.
My esteemed colleague, Mad Day Trader Jim Parker, was no small part of this success. Since the market became technically and momentum driven, I have been conferring with him before sending out every Trade Alert. Together, our success rate is 100%.
What would you expect with a combined 85 years of market experience between the two of us? Followers are laughing all the way to the bank.
Don?t forget that Jim clocked an amazing 2013 of a staggering 374%. That is just for an eight-month year! Followers are laughing all the way to the bank.
The coming year promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014.
The Trade Alerts should be coming hot and heavy. Please join me on the gravy train. You will never get a better chance than this to make money for your personal account.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, and 67.45% in 2013.
The service includes my?Trade Alert Service?and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars, order?Global Trading Dispatch PRO?adds Jim Parker?s?Mad Day Trader?service.
To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? or "Mad Hedge Fund Trader PRO" box on the right, and click on the blue ?SUBSCRIBE NOW? button.
The Gunslinger for HireGlobal Market Comments
April 10, 2014
Fiat Lux
Featured Trade:
(LAS VEGAS WEDNESDAY, MAY 14 GLOBAL STRAGEGY LUNCHEON)
(INCLINE VILLAGE STRATEGY LUNCH REVIEW),
(TESTIMONIAL),
(2014 EUROPEAN STRATEGY LUNCHEONS)
There is no better was to start off a strategy luncheon than sending out, not just one, but two Trade Alerts in the morning, and then watching them soar 50% by the time the appetizer was served.
That was the case on April 4, when I picked up short positions in the Russell 2000 and the S&P 500 for my model trading portfolio the morning of my event in sleepy Incline Village, Nevada, minutes before the major market meltdown that ensued. I wish they all started off this well.
I managed to procure the best table in the house, right on the beach of pristine Lake Tahoe. The distant summit of snow covered Mount Talac beckoned. But that is for another day.
The gathering had the flavor of a convening secret society, where the high and the mighty traded jokes, exchanged funny stories, and swapped insights on favorite trading strategies, securities, and research sources.
We discussed how the appearance of a much more Vladimir Putin in Russia is creating a permanently higher level of volatility. But there won?t be another cold war, as the last one drove the old Soviet Union broke. Russia will also have a problem pursuing its grand goals in the face of flat or falling energy prices, its largest cash cow.
We also talked about my friend, Michael Lewis?s new book, ?Flashboys?, with its well-publicized claim that the markets are rigged. The reality is that order execution is cheaper now than at any time in history, and that the amounts of cash taken out by high frequency traders are wildly exaggerated given the vast size of the market, some $23 trillion in market capitalization at last count.
It?s really all about hedge funds complaining about other hedge funds that are smarter and faster. I thought it was all just a ploy to sell books on an otherwise slow news day.
The goal of the lunch was for me to provide the fundamental justification for the spectacular gains I expect in all asset classes by 2030. Only bonds will do poorly. The trick is to get through the next five years, when markets will be sketchy, volatile, and have to discount a recession and another presidential election. I also outlined my planned story ideas for The Diary of a Mad Hedge Fund Trader for the next several weeks.
In exchange, I received first class market intelligence from my guests, who came from a broad range of careers, including oil exploration, system networking, accounting, mining, and hedge fund trading.
I never cease to learn from the attendees, and often harvest great trading ideas from them, which I share with you. This is why I enjoy these lunches so much, and have planned a total of 26 of them around the world in 2014. Virgin America/Virgin Atlantic love me.
While up at Incline Village, I planned my schedule so I could work in a 10 mile hike or snowshoe every afternoon for 14 consecutive days. This I do carrying a 60-pound pack, frequently in the dark.
It is wonderful spending time in the High Sierra?s during the dead of winter in total isolation. After all, no one is mad enough to do this but me, so I always go solo.
One day I was headed back down from the 10,000 foot eastern ridge line and noticed some new tracks. I hadn?t noticed anyone with an exceptionally large dog that day. That meant they could only be mountain lion tracks. Oops!
It turned out that the cat has been stalking me for over a mile during my ascent. I never heard a thing. Just to be sure, I took a picture of the tracks for consultation with an expert (see below).
Sure enough, the next day a National Forest ranger told me that these were indeed mountain lion tracks. He said that what saved me was my backpack, which altered my apparent shape to the hunting feline. These are conservative animals (after all, this is Nevada!), and they won?t attack anything they don?t recognize. They knew the big cat was in the neighborhood because they had recently found several freshly slaughtered deer carcasses nearby.
The lion was long gone, as they home range over the same daily circuit looking for game, which can extend to 50 miles. As long as there were deer around for dinner, I was probably safe. The ranger suggested that I wear a human mask on the back of my head, which is what villagers in India do to fend off tigers. They won?t attack if they think someone is looking at them. All cats must think alike.
As I am spending more time at Lake Tahoe, I am becoming more civic minded. It seems that I originate my best Trade Alerts there, and I am a local celebrity. Maybe it?s the fresh air? The altitude?
That led me to donate a corporate sponsorship to the Diamond Peak Ski Team, the training entity for the town?s 6-16 racers. The team has been the springboard for several national competitors, and may hopefully contribute members to a future US Olympic ski team.
Don?t be surprised if the next time you ride the chair lift there, you find ?MAD HEDGE FUND TRADER? emblazoned on the chair in front of you. Two weeks after the check cleared the bank, two public electric car charging stations magically showed up at prime parking spaces at the resort.
I have the only Tesla in town, and I get delivery of my second in December, the first Model X SUV.
To watch a video of the team?s enchanting annual torchlight parade, where 150 kids ski down the mountain at night, single file with flares, please click the link: http://madhedgefundradio.com/torchlight/. The blue glow sticks are carried by the under eight crowd.
A Secret Society
Oops!
A Torchlight Parade
Silver Medal From the Sochi Olympics
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy luncheons, which I will be conducting throughout Europe during the summer of 2014. A three course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for just over $200.
I?ll be arriving an hour early 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 major hotel in each city, the details of which will be emailed to you with your purchase confirmation. The calendar of my European events is below.
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, click on ?Global Strategy Luncheon? tab, and then the city of your interest.
London, England - June 23
Istanbul, Turkey - June 26
Rome, Italy - July 7
Sardinia, Italy - July 11
Barcelona, Spain - July 18
Zermatt, Switzerland - July 24
Global Market Comments
April 9, 2014
Fiat Lux
Featured Trade:
(JUNE 26 ISTANBUL, TURKEY STRATEGY LUNCHEON),
(BOJ BOMBSHELL HITS YEN SELLERS IN THE SHORTS),
(FXY), (YCS),
(BREAKFAST WITH MOHAMED EL-ERIAN)
CurrencyShares Japanese Yen Trust (FXY)
ProShares UltraShort Yen (YCS)