Global Market Comments
January 31, 2013
Fiat Lux
Featured Trade:
(WHERE?S THE CRASH?)
(TAKING FORD OUT FOR A SPIN), (F),
(CHENIERE ENERGY GETS THE GREEN LIGHT), (LNG), (UNG),
(THE TECHNOLOGY NIGHTMARE COMING TO YOUR CITY)
That was the questions traders were scratching their heads and asking this morning in the wake of this morning?s shocking Q4, 2012 GDP figure.
While most analysis were expecting the government to report a more robust 1%-2% number we got negative -0.1%, the worst since 2009. With growth flipping from a positive 3.1% figure in Q3 many thought that a Dow down 500 points was in the cards. Instead we pared back a modest 44 points. What gives?
Ahhh, the devil is in the details. The main culprit was in defense spending, down a mind numbing 22.2%, the worst since the wind down of the Vietnam War in 1972. I remember it like it was yesterday. In fact, government spending was weak across the board as a quasi shut down in advance of the fiscal cliff brought spending to a grinding halt.
In the end, the fiscal cliff never happened. But the downshift shows you how severe such a slowdown would be, if we ever go over the cliff sometime in the future.
There were other one off factors. Hurricane Sandy put a dent into the economies of the US east coast, especially in the transportation sector. The effects of last summer?s drought, which triggered a serious shrinkage in a broad swath of the agricultural sector, were also felt.
What traders instead decided to focus on were the impressive strength of the private sector. Business investment rocketed 8.4%, while consumer spending jumped by 2.2%. It all confirms my theory that the passage of the presidential election broke the dam for private economy, and got people off their behinds once all the negativity and uncertainty was gone. Businesses suddenly began investing and hiring, while consumers stepped up consuming.
What this data tells us is that there will be a sizable postponement of growth from Q4 into Q1, 2013. The Pentagon will ramp up spending once again in the knowledge their budget is secure, at least for the time being. In the meantime, the private sector continues on fire. Q1 could well turn out to be a monster quarter. This is what the unremitting rise in share prices is shouting at us.
In the end, traders don?t really care what the GDP is. In fact, most can?t even spell it. The focus of the street is on the future, not the past. And the data promises to improve.
This morning we saw private sector job growth of 182,000 from the ADP. If Thursday morning delivers another five year low in jobless claims, the market will be primed for a hot January nonfarm payroll on Friday. It?s become ?a glass is half full, glass three quarters full? kind of market. Is either goes up, or up more.
Not Happening Here, Baby
I have been trying to buy this stock for a month. Not because I like their pedestrian cars (except the new, muscular, retro Mustang), but because it is one of the great turnaround stories in business history.
Today?s earnings announcement gives us that window. It delivered over $3 billion in profits during Q4, 2012. But the market decided to focus instead on the expectation of a loss from European operations of $2 billion in 2013, compared to only $27 million in 2011 and $1.7 billion in 2012. That was enough to drop (F) by 15% from its mid-January high.
Europe has definitely been a nightmare for the entire auto industry. When your economy crashes, your bank goes under, and you lose your job, the last thing you do is run out and buy a new car. Tough union rules prevent carmakers from downsizing to a level appropriate with current demand. Everyone is bleeding on their European operations, not just Ford.
Another problem is the collapsing yen, which is making Japanese vehicles much more cost competitive. Get the beleaguered Japanese currency above ?100 to the dollar and keep it there, and that could erode market share for the American makers.
Dig deeper, and you?ll find there?s more to the story. Half of the European losses come from one time only charges. That is far and away offset by a North American market that is absolutely on fire. Indeed, the total size of the US market could soar from 15 million units last year, to 16 million units this year, up from the 9.5 million nadir we saw in 2009. Ford is successfully cutting costs. The rocketing price of palladium (PALL), a key component of the catalytic converters that go into new cars, is telling you as much.
There is no doubt that Ford CEO, Alan Mulally, is a genius. Ford is also a high yield play, with a dividend of 2.90% off of today?s close, which is set to rise. Yet the shares are trading at a 38% discount to the S&P 500. That sounds like a bargain to me for the only US auto manufacturer to avoid a government bailout.
Think I?ll Take Ford Out for a Spin
I have been pounding the table on the attractions of Cheniere Energy (LNG) since last spring. Yesterday, the stock hit a new all time high of $21.50.
There is never any guarantee that a government agency will not do something idiotic. Last year it didn?t, thankfully. The Federal Energy Regulatory Commission (FERC) granted the final license needed by Cheniere Energy (LNG) to build the first of two liquefaction plants at Sabine Pass on the Texas Louisiana border on the Gulf of Mexico. These will be the first such plants built in the US in 40 years.
FERC gave to go ahead despite vocal opposition from the Sierra Club, which claimed that fracking caused environmental damage. This, of course, is complete bunk. MIT recently published a study of 50 incidents where gas made it into local water supplies. In every case, it was shown to be the cause of subcontractor incompetence and inexperience, not because of any fundamental flaws with the technology.
The move was a crucial step towards turning the US into a major natural gas (UNG) exporter. The company has already contracted to sell 89% of the plants? planned annual output of 16 million tons. Buyers include BG Group of the UK, Gas Natural Fenosa of Spain, Gail of India, and Kogas of South Korea. Initial deliveries are expected to commence at the end of 2015.
You may recall that I recommended this stock to readers back on March 7 when it was trading at $16.10 a share (click here for ?Take a Look at Cheniere Energy (LNG)? at http://madhedgefundradio.com/take-a-look-at-cheniere-energy-lng/). I think it is just a matter of time before the stock surpasses its next hurdle at $30, especially if natural gas continues to stabilize here around $2/MM BTU.
Now, We?re Cooking With Gas
I tell people at my strategy luncheons that living in the San Francisco Bay area is like living in the future. There is an explosion of high tech innovation going on here, and we locals often find ourselves the guinea pigs for the latest hot products. However, sometimes the future is not such a great place to be.
I learned this the other day when I received a parking ticket in the mail. I didn?t recall finding a notice of violation tucked under my windshield wiper in the recent past, so I looked into it. To my chagrin, I learned that the city is now outfitting its busses with video cameras pointing forward and sideways. The digital recordings are then transmitted to parking control officers sitting behind computers for review.? They issue tickets which are mailed to the registered owner of the vehicles.
San Francisco suffers from one of the worst parking nightmares in the country. The streets were never planned, they just sort of happened on their own during the frenzy of the 1849 gold rush. They were built to handle the traffic of horses and carriages, and later cable cars, not the crush of traffic we get today.
Sky-high real estate prices have driven millions into the suburbs across the bridges over which they must commute. So parking has always been in short supply and it is very expensive. When I drive into the city for a Saturday night dinner, sometimes the parking tab is more expensive than the meal.
Newly minted millionaires from tech IPO?s are now buying vintage Victorian homes, and then retrofitting garages underneath them. Every time this is done, it eliminates another parking spot on the street to make room for the driveway. So while the traffic is increasing, the number of parking spots is actually declining.
The city originally installed the cameras to catch offenders driving in bus lanes during rush hour. When they discovered that the cameras also captured the license plates of illegally parked cars they expanded the program. Last year 3,000 such tickets were issued.
The program has been so successful that the cash strapped city will greatly expand it this year. And with a great San Francisco track record to point to, the firm selling the system is planning on going nationwide. Soon it will come to a city near you. Like I said, sometimes the future is not such a great place to be.
Parking in San Francisco Can be Tight
Global Market Comments
January 30, 2013
Fiat Lux
SPECIAL HIGH YIELD FOREIGN STOCK ISSUE
Featured Trade:
(TRADE ALERT SERVICE POSTS FIVE CONSECUTIVE ALL TIME HIGHS).
(SPY), (IWM), (FCX), (AIG), (TLT), (FXY), (YCS),
(REACH FOR YIELD WITH HIGH DIVIDEND FOREIGN STOCKS),
(FTE), (SAN), (BCE), (ECH), (VE), (AWC)
The Trade Alert Service of the Mad Hedge Fund Trader posted a new all time high today, pushing its two-year return up to 72.67%. The Dow average booked a miniscule 13% gain during the same time period. The industry beating record was achieved on the back of a spectacular January, which so far had earned readers a mind blowing 17.62% profit.
Right after the January 2 opening, I shot out Trade Alerts urging readers to take maximum long positions in the S&P 500 (SPY) and the Russell 2000 small cap index (IWM). Later, I piled on longs in copper producer Freeport McMoRan (FCX) and American Insurance Group (AIG). I balanced these out with aggressive short positions in the Treasury bond market (TLT), and the Japanese yen (FXY), (YCS).
After grinding around just short of the previous top for four tedious and painful months, the breakout was certainly welcome news for many. Once I racked up an unprecedented 25 consecutive profitable trades over the summer, things went wobbly. The Fed unleashed an early, surprise, pre election QE3. Then inventors stopped drinking the Apple (AAPL) Kool Aide en masse. The extent of the tax loss selling after the Obama win was also a bit of a shocker. Maybe I should take longer vacations.
Then the ?aha? moment came. I concluded at the end of November that the multiple political crises facing us were nothing more than hot air. This meant the risk markets were poised to launch multi month bull runs to new all time highs, and I positioned myself, and my followers, accordingly. In the end, that is exactly what we got.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service, daily newsletter, real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
Global Market Comments
January 29, 2013
Fiat Lux
Featured Trade:
(BONDS ARE BREAK DOWN ALL OVER),
(TLT), (TBT), (MUB), (LQD), (HCN), (JNK), (AMJ),
(REPORT FROM THE INAUGURATION)
It looks like the Great Bond Reallocation of 2013 is real. The Treasury bond market is getting absolutely hammered this morning, the ten-year yield breaching 2.00%. That smashes the 1.40%-1.90% band, which has imprisoned the bond market for the past year.
The immediate trigger was the release of absolute blowout December durable goods figures this morning. They came in at a red hot 4.6%, versus an expected 2.0%. It is clear that companies are ramping up capital investment and hiring, now that the shackles of the presidential election, the fiscal cliff, and the debt ceiling crisis, have been thrown off. We?ll see the other shoe fall on Friday, when the January nonfarm payroll is released, which collapsing weekly jobless claims are predicting will be surging as well.
Cash flows into equity mutual funds and ETF?s for January have already exceeded $55 billion, and will easily close out the month as the largest in history. Yet, the move has been so fast, going up virtually every day this year, that many investors have been left on the sidelines.
Much of this money is coming from cash accounts that were topped up during the tax loss selling at the end of 2012. But there is no doubt that a major chunk is now coming out of bonds. That is what the market is screaming at us loud and clear today.
I don?t expect an immediate bond market crash here. We?ll more likely see a move up to a new trading band of $1.90%-$2.50%. So there is plenty of time to trim back positions. But the long build up here is so gargantuan, it could take 20-30 years to unwind, as it did last time, from 1948. The message here is that you should be slamming every bond market rally for the rest of 2013.
I am posting yesterday?s yields from a range of high yield instruments so I can look back on my own website in five years and see how insanely low they once were.
(TLT) ? 2.66% iShares Barclays 20+ Year Treasury Bond ETF
(MUB) ? 2.89% iShares S&P National AMT-Free Muni Bond ETF
(LQD)? - 3.83% iShares iBoxx $ Investment Grade Corporate Bond ETF
(HCN) ? 4.70% Health Care REIT, Inc.
(AMJ) ? 5.35% JP Morgan Alerian MLP Index ETN
(JNK) ? 6.78% SPDR Barclays High Yield Bond ETF
I am writing this report from the steps of the Capital Building in Washington DC, scratching my notes on the back of a commemorative program with a golf pencil, absolutely freezing my buns off.
I am wearing all the warm clothes I own, including my Marine Corps olive winter weight double knit wool officer?s trousers. These were the pants that successfully executed the retreat from the Chosun Reservoir in Korea in 1950 in -40 degree temperatures, and I?m still cold. Maybe it?s my thin California blood. Perhaps they?re trying to keep us on ice until 2016.
House minority leader, Nancy Pelosi, kindly made available an Air Force jet to transport the many San Francisco Bay Area guests to the inauguration. We paid for it, so why not? To navigate the iron clad security, we were ordered to claim our seats three hours in advance. Hence, the frozen vigil. You would think a $6 billion election would at least get us more comfortable seats.
The upside is that I am trapped here with the top 300 people who run the country, including cabinet officials, White House staff, the Joint Chiefs, the entire Supreme Court, and senior members of congress. You can bet that everyone here has the highest-level FBI clearance and background checks. No Homeland replay here. It is all fertile ground for finding new trading ideas for my readers, especially now that politics has become such an important part of the investment landscape.
I?m in the cheap seats, about 20 rows back from the podium. I can see many of the individuals who I have interviewed for The Diary of a Mad Hedge Fund Trader over the past five years. Has it been that long? Chairman of the Joint Chief?s, general John Dempsey, in on my left. The family values champion, Newt Gingrich, is chatting animatedly with his third wife, Callista. Treasury Secretary, Tim Geithner, claims a prime seat in the third row. My own Senator, Barbara Boxer, sits far to the left of the president. Holy moly! There sits The Man from Uncle, David McCallum. What?s he doing here?
Spread out below us is a vast crowd of fans, estimated at 800,000. It is a festive, party like mood, with many moving foot to foot to stay warm. A half dozen massive jumbotrons line the Great Mall. It is really quite impressive to see masses of people as far as the eye can see. The last time I saw a crowd this big was in the early 1970?s at Beijing?s Tianamen Square, where a million identically dressed screaming Chinese waved little red books and listened, enthralled, to chairman Mao Zedong speak.
Last night, I attended the Red, White, and Blue Ball for the military, the first of 13 such events the president must attend, as it was the easiest for me to get tickets. Barack and Michelle performed the opening dance. Then they switched partners, the president dancing with a young Navy ensign, while Michelle embarrassingly towered over a decorated Army sergeant.
The great revelation here is that the Commander-in-Chief can?t dance worth beans. That?s the consequence of spending too much time poring over law books, and not enough at the Arthur Murray Dance Studio. (slow-slow-quick-quick!).
The administration took advantage of every opportunity for symbolism. Supreme Court Chief Justice, John Roberts, performed the official swearing in within the amply warmed White House on Sunday. His vote decided in favor of Obamacare, the president?s signature achievement during his first term.
The message of Obama?s second inaugural address couldn?t be clearer: No more Mr. Nice guy. He won the election, was never going to run for office again, and it is going to be all hardball from now on. The politician in the next seat told me that he was going to take several more runs at the wealthy, this time on deductions. The carried interest provision, which lets the rich pay only a maximum 15% rate on their earned income, was toast. It looks like I will have plenty to write about during the coming four years. The few Republicans in attendance wore universally sour expressions.
When the ceremony broke up I shouldered myself to the front of the crowd to find Obama?s sole Supreme Court nominee, Sonia Sotomayor. I managed to get her to agree to meet me for lunch in San Francisco next week. I will write that interview up, if I can tear myself away from furiously writing Trade Alerts for this unrelenting market.
I then nudged my way over to say hello to my old friend, former CIA director, Leon Panetta. I complimented him on his portrayal in the Oscar nominated film, Zero Dark Thirty, when he ran the agency during the Osama bin Laden assassination. Does this presage a future career in Hollywood?
He said no, he was retiring for real to his California walnut farm, where he would deal with a different sort of pest. I sympathized, as I owned 20 acres of chardonnay grapes in the next valley over from his spread, near the tiny agricultural hamlet of Gonzalez. Watch out for those glassy winged sharpshooters! I thanked him for the time he permitted me over the years. He responded that the nation was grateful for my year of assistance and insights. Wow! That accolade alone was worth the trip.
On the way out, I was handed a bag of tchotchke to end all. It brimmed with yet another commemorative program, a framed invitation to the inauguration, a pair of gold-rimmed Champaign flutes, cuff links, a lapel pin, souvenir pens and pencils, and a ?2013 Inauguration? baseball cap.
The flight home was not as glamorous as the one on the way out. The C-130 Hercules out of Andrews Air Force Base was not exactly designed for comfort, with everyone strapped in by five point harnesses. So I meandered up to the cockpit and asked the captain, who was old enough to be a grandchild of mine, if he could give a little flight time to a retired Desert Storm pilot. Without hesitating, he said, ?Yes Sir?, and motioned to the copilot, who handed me his headphones and jumped out of his seat.
I flicked off the autopilot, and put the old bird through some gentle, lazy turns. The avionics were amazing, like something out of Star Trek. If we only had this stuff 20 years ago, I might not be missing a disk out of my back. I then proceeded to fly 100 of my neighbors across the Rockies, to Travis Air Force Base and home.
