Featured Trades: (MACRO MILLIONAIRE TRADING SERVICE UPDATE)
3) Macro Millionaire Hits New High. For the regular readers of the newsletter only, I thought I'd give you an update on my Macro Millionaire trading and mentoring service.
The model portfolio has hit a new high for the year eight out of the last ten trading days, and boasts a 28.04% year to date return. This compares to a more modest return for the S&P 500 of 14% during the same time period. Some 20 out of 22 open and closed trades have been profitable. Overall, the fund would be in the top 1% of all hedge funds.
We are off to the races so far in May, up 1.56%. Our short position in the S&P 500 was up 25% in the first day. Our bet two months ago that bonds would move sideways to up has proved immensely profitable. This summer promises to be a very exciting and profitable one. I am on the verge of pulling the trigger on several more low risk high return trades.
If you would like more information about one of the most successful trading programs of the year, and this year's Internet investment phenomena, please email me directly at madhedgefundtrader@yahoo.com .
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Featured Trades: (PHOENIX STRATEGY LUNCHION REVIEW), (FCX)
1) Phoenix Strategy Luncheon Review. The hotel was not hard to find. Just turn right at the cow skull, left at the tall cactus, and head directly towards the abandoned mine. That took me to the luxury resort that was hosting my April 28 strategy luncheon in Phoenix, Arizona.
At this point I have been through my presentation so many times that I tossed it, handing out the hard copies to the readers. What ensued was a three hour Q&A, much to the edification of all. By the afternoon, there wasn't an asset class we hadn't covered in excruciating detail.
An engineer from one of my favorite companies on the planet, Freeport McMoRan (FCX), informed me that I had a huge fan club there. And yes, the long term outlook for copper is great.
Another in the real estate industry told me that hedge funds were snapping up second mortgages on homes with performing first mortgages, but negative equity, for 3% on the dollar. They then resold them to the homeowners for 6 cents, eager to clean up their credit rating. The credit unions who own those have already marked them down to zero and are happy to be rid of them. A 100% return on capital with minimal risk. Nice!
And then there was the ebullient, almost bubbling, young couple who related that my short gold trade in February paid for a second honeymoon in Florida. I hear these stories every day, but still love it. I touch lives in so many ways, they almost can't be counted.
The price for the greatest distance traveled went to a gentleman from Ohio. Spend your Zimbabwe dollars wisely. They were well earned.
I arose at 5:00 am for a two hour hike in the mountains to inspect the local geology, which I often do in strange cities. It was classic gold mining country, with quartz veins everywhere. But the only turquoise I found was in Chief Dodge's Jewelry Shop. A free afternoon found me on a tour of the home of the legendary prairie school architect, Frank Lloyd Wright, known as Taliesin West, where he spent the last 25 winters of his life.
On the way home, I lost another Swiss army knife to homeland security. I ended up in economy, sitting next to a big fat sweating slob who wolfed down a dreadfully odiferous pastrami sandwich and then fell asleep on my shoulder.
Featured Trades: (A DAY WITH HARRY S. DENT), (STOCKS), (SPX), (QQQ), (EEM), (BONDS), (TLT), (JNK), (TBT), (DOLLAR), (UUP), (FXE), (OIL), (USO), (DIG), (PRECIOUS METALS), (GLD), (SLV), (DENT)
1) A Day With Harry S. Dent. I listen to Harry S. Dent, not because he is an iconoclast, one of the few original thinkers out there, and a complete wild man, although these are all admirable qualities to be found in a global strategist. I listen to him because he has been right.
Go no further than the titles of his books. They include The Great Boom Ahead (1993) (click here for the link),? The Roaring 2000's (1999) (click here for the link),? and The Great Depression Ahead (2008) (click here for the link) .
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His unique blend of demographic research, identification of global consumer spending patterns, and long term cycle analysis, really makes Harry one of a kind. Foreign governments, major hedge funds, financial advisors, and individuals are all just wild about Harry. They have found his advice indispensible when navigating the sticky shoals of international finance.
So when an opportunity arose to spend a day with him sorting through the tea leaves, working through alternative scenarios for the future of disparate asset classes, and testing each other's' theories, I was on the next plane. It was nothing less than a Vulcan mind meld. And the late night Jack Daniels and 15 year old Macallan made sure we were both on a different planet.
Harry argues passionately that we are witnessing the end of the third great bubble in debt, hot on the heels of earlier forays into madness in technology stocks and real estate. Add public and private debt from all sources, and it totals $130 trillion, the greatest accumulation of IOU's in history. The Federal Reserve is now manipulating all markets, and the exercise is certain to end in tears. The only way out from this will be to suffer an economic and financial crisis worse than we have seen to date.
The triggering factor will be the continued collapse of the residential real estate market. Continued shrinking home equity means that there will be ever fewer buyers in this market. That makes a laughing stock of current bank valuations, which have yet to be marked to market, and still obscure massive losses from the last crash. Have you enjoyed Uncle Ben's wealth effect through rising stock prices? The movie run in reverse makes Freddie Kruger look like a cream puff, and the outcome will be ugly.
A key part of Harry's work revolves around generational spending patterns. Americans see spending peak when they reach the ages of 46-50, and bleed off from there. He blends this perspective in with historical data on demographics and some traditional Eliot Wave Analysis to produce one of the most refined long term views in the marketplace.
The big problem is that we have 90 million baby boomers followed by only 70 million 'echo boomers'. Falling family sizes from the1940's onward are going to come back to haunt us. Adjust for the falling earnings of the next generation, and their net consumer spending could drop by half. As I am fond of telling those who attend my strategy lunches, don't plan on selling your house to your kids, especially if they are still living in the basement.
Stocks.? (SPX), (QQQ), (EEM). Stock markets on crack are about to join Lindsey Lohan and Charlie Sheen in rehab. Harry didn't bat an eyelash when he looked me straight in the eye and told me that the Dow was going to 3,300 by 2014. The only unknown is weather the crash starts now, or whether liquidity manufactured by the Federal Reserve can keep the party going for another six months. Put a gun to Harry's head, and he'll tell you that the peak isn't coming until August. But the smart money is getting out, with the put/call ratio, great leading indicator, rocketing to 1.9 in February.
There will be no place to hide, as this will be a global event, and that reallocation towards more defensive sectors will be a waste of time. The Australian stock market will vaporize from 6,000 to 1,000, while Hong Kong will get pared back from 24,000 to 8,000. China is the greatest bubble and could take the biggest hit. The rising middle class will not take their first ever big recession lightly, and coming political turmoil is a given. Canada, with a great resource base behind it, a new government, and rising interest rates, will hold up better than most.
Bonds. While hard times for equities are ahead, bonds are about to enjoy the second coming. The traditional flight to safety bid is about to come back with a vengeance. The wholesale destruction of vast quantities of debt through default is having the unintended consequence that it is creating a bond shortage. Here we are, over two years into this recovery and the ten year Treasury bond is yielding 3.26%? Conditions for bonds are about to dramatically improve, and a 2% yield for this paper is potentially on the menu.
The Dollar. (FEX), (UUP) Just as we are going to see a return of the Treasury bond, the dollar will enjoy a renaissance as well. Harry argues that the collapse of the plethora of asset bubbles we now see will bring a multiyear bull market for the greenback that could take us up 40% from here. That could take the Euro (FXE) down to its foundation level around $0.90. Debt defaults not only create bond shortages, they foster dollar shortages as well.
Oil. (USO), (DIG). If there is one commodity not expecting another Great Recession, it is crude oil. Slow the economy more than traders expect, and Texas tea drops in value by half. Strip out the monetary demand from those seeking a dollar alternative, and it halves again. Settle down the Middle East, and it halves a third time. Yes, Harry Dent is predicting that crude will fall from $115 a barrel today (and $128 for Brent), down to $15 by 2015. Yikes!
Precious Metals. (GLD), (SLV) If oil is wearing a toe tag, will gold be far behind? Coming deflation will cut the inflationistas off at the knees. A strong dollar sends those looking for alternatives into the Looney Bin. Take these frills away, and the barbarous relic becomes just a heavy rock that will take it from $1,550 an ounce, down to $250-$400. Gold bugs are about to get doused with insecticide. As for silver? How about a move from $50 to $4-$8?
To prove that Harry is willing to put his money where his mouth is, he is advising the Dent Tactical ETF (DENT) which mirrors and executes on his views. The fund is up 20% in the past 12 months.
Harry was originally a 'good ole boy' from South Carolina, who like Federal Reserve governor Ben Bernanke, improbably went off to Harvard where he got his MBA. His career then took him to the top notch management consulting firm, Bain & Co. After years of consulting with Fortune 100 companies, he found gaping holes in their understanding of the global economy. That spurred him to take off and create his own research boutique to address these grievous shortfalls in understanding.
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'We are starting to see signs that the smart money, the 1% who make most of the money, are starting to get out of the market,' said Harry S. Dent of the HS Dent network.
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2) The Economic Headwinds Are Coming. I have followed David Hale's prognostications about the global economy for two decades, and have always found his views insightful, if not useful. Although based in Chicago (click here for his site), he is almost permanently on the road, consulting with foreign governments, major banks and big hedge funds.
He called me recently while driving a rental car to some godforsaken Midwestern airport, holding a GPS in one hand, a cell phone in the other, and steering the wheel with his knees, to give me his current take. It is not a pretty picture.
The end of QE2 and Obama's many stimulus programs are about to create a major drag on the US economy. On top if this you have to consider the likelihood that the Bush tax cuts will not be renewed a second time. You can also take out the deflationary impact of high oil prices. Add it all up and you come up with a negative 5% headwind in annualized GDP hitting at the beginning 2012. Although the sedentary, Harris tweed jacket wearing David is not prone to making extremist, sensationalist comments, only one ugly word can come out of this: recession.
The bad news is that the markets don't know this yet. But they will. Using the traditional rule of thumb that equity markets lead the economy by about six months, that means you should start unloading you positions right about now.
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Featured Trades: (STOCKS JUST GOT A LOT MORE EXPENSIVE)
3) The Stock Market Suddenly Just Got a Lot More Expensive. The news on Thursday that Q1 GDP growth came in at a piddling 1.8% annualized was a huge disappointment. The number was under the low end of most predictions, and a far cry from the reasonable 3.1% rate we saw in Q4, 2010. However, it is completely consistent with the long term 2.0%-2.5% rate that I have been forecasting in this letter. That is a mere shadow of the 3.9% rate we saw during the last, steroid powered decade.
The stock market is going to have a big problem with this number. It has recently been ascending at a rate that assumes at least a 4% rate. When cooler heads prevail, and traders take their smelling salts, they will realize that the 1.8% rate in no way justifies the current level of stock prices. Those fingers hovering over computer mice will get itchy, and some serious selling will ensure.
How did the markets respond to the news? Stocks, bonds, gold, silver, foreign currencies, and oil all blasted through to new highs for the year. If you needed any proof that the markets have reached the final capitulation bubble stage of their move, this is it.
An analyst friend of mine told me yesterday that this kind of perfect correlation among all assets classes has only occurred a handful of times in the last century, only lasted a quarter, and always ended badly. Even my own Macro Millionaire model portfolio has surged to a new all-time high every day this week, and is now posting a 27% return in five months.
Of course, it is theoretically possible that you can flip a coin and get heads, draw a perfect blackjack, or pull an inside straight, 20 times in a row. But you won't catch me betting my, or your, money on it actually happening. Thank you Ben Bernanke!
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1) Barrick Gold's Big Copper Buy Speaks to the Future. 'Watch where the big companies make their direct investments and that is where the markets will follow.' That golden rule is what the head of investments at JP Morgan, Carl Van Horn, taught me some three decades ago. So I take Barrick Gold's (ABX) purchase of Canada's Equinox Minerals for $7.6 billion, one of the world's largest copper producers, a complete reaffirmation of my long term focus on hard assets of all descriptions.
The deal tells us much about the future of the world economy. For a start, it shows how much Barrick believes in the future price appreciation of not only gold, but the red metal as well. He obviously spoke to some hedge fund friends of mine who have been warehousing 100 pound copper ingots around the country at undisclosed locations since 2002, unwilling to liquidate until it hits $6 a pound. Barrick beat out a competing hostile bid from China's Minmetals, which has been scouring the world to lock in its own long term sources of raw materials.
The deal also tells us something about Barrick. Peter Munk built this company up from a few depleted Canadian mines to the world's largest gold producer, virtually overnight. His move to take off all his hedges in the futures market 18 months ago, when the barbarous relic was nudging through $1,050 an ounce, was one of the greatest management decisions in corporate history. But Barrick is now developing marginal mines in Africa and Chile, and it has clearly reached limits on its growth. The Equinox deal provides a strategic expansion of its existing copper production, which is often found alongside gold deposits.
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Featured Trades: (FROM BAD TO WORSE FOR RESIDENTIAL HOUSING)
2) Residential Housing Goes From Bad to Worse. That home you are sitting in while reading this letter just got cheaper. The February Case-Shiller home price index came out yesterday, showing us that the double dip in residential real estate is well under way.
Overall, the widely followed indicator showed a 1.1% month on month decline, a 3.3% drop against year ago levels, and an outright plunge from the 2006 peak of 32.6%. Some 20 out of 21 markets declined, with Minneapolis leading the charge to the downside. Perhaps this was a sick joke, but only Detroit showed a price gain last month.
The truly frightening thing about this chart is that while the greatest monetary stimulus programs in world history were underway, house prices remained comatose. Unprecedented amounts of money have poured into stocks, bonds, commodities, foreign currencies, and precious metals. While this love fest was going on, that great sucking sound you heard was money fleeing housing. If this is the best that house prices can do, what happens when the fundamentals deteriorate? These are the challenges real estate is facing going forward:
*The end of QE2
*Rising interest rates
*The end of the home mortgage deduction
*The end of subsidized government financing through Fannie Mae and Freddie Mac
*An inventory of 5 million unsold homes
*Vastly more restructure bank lending policies
*No more 'liar loans'
*A hurricane force demographic headwind. When 80 million baby boomers try to sell their homes to 65 million gen Xer's there will be more sellers than buyers for 20 years.
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1) My Victory Lap on Silver. 'If you don't rush out and buy silver right now at $13.70 an ounce, I'm going to pick you up and shake you by the lapels of your coat until your false teeth pop out and fall clattering to the ground.' This is exactly how I led my newsletter on May 9, 2009 (click here for the link). I reaffirmed that recommendation in my 2011 Global Forecast last January when silver was still trading only at $31 (click here for that link) . Today the white metal traded just a few pennies short of my long term target of $50 an ounce, having taken two years to get there.
My logic at the time seems positively Delphic in retrospect. The historic silver/gold ratio was 12 to 70, and with gold then trading at 65 times the price of silver, the latter seemed like a screaming buy. Today, silver is trading at a somewhat less compelling 31 times the price of gold. To reach the top end of the 100 year range it needs to rise to $124 an ounce. In the meantime, silver producers, like my favorite, Silver Wheaton (SLW), have started to flatten out.
Geologically, silver is 17 times more common than the yellow metal. All of the gold ever mined is still around, from King Solomon's mine, to Nazi gold bars in Swiss bank vaults, and would fill two and a half Olympic sized swimming pools. But most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps around the world.
Silver did take a multiyear hit when the world shifted from silver based films to digital photography during the nineties. Now rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference, as in Latin America. That set up the classic supply demand squeeze that I predicted so long ago, back when I was still wearing a '5' handle.
Now that the $50 target is a done deal, targets from latecomers that go as high as $100 an ounce abound. Tomorrow, no one would be surprised to see silver $10 higher or $10 lower. Nelson Bunker Hunt and his co-conspirator brother William Herbert Hunt, who together sparked the speculative frenzy that first drove silver to $50 some 32 years ago and were later driven into a chapter 11 filing, are probably kicking themselves today.
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3) An Update on My Nissan Leaf. I called my local Nissan dealer yesterday with some trepidation, fully expecting to be told that my new all electric Nissan Leaf sedan was buried under tons of mud after Japan's disastrous tsunami, and that I would now have to wait until 2012 for a delivery. I was pleasantly surprised when told that the car I have been waiting for 15 months for would only be delayed by another month, thanks to a shipping snafu caused by the earthquake. A ship is docking in Los Angeles next week with 125 leafs, and one of them is mine. With any luck, I should be behind the wheel by June.
I have been chronicling by odyssey to obtain a Leaf for the last two years, and final success could not be coming at a better time. Gasoline in the San Francisco Bay area is about to reach $5 a gallon. A full charge on the Leaf, which will take me 100 miles, costs $1.20, giving me an implied fuel cost of 24 cents per gallon.
Since the engine has only five moving parts, there is no maintenance cost whatsoever. Nissan has told me that in the first 100,000 miles my only expenses will be for tires and windshield wipers. The five passenger vehicle, which comes with an eight year warranty for its 600 pound battery, will cost only $25,000 after a $7,500 federal subsidy.
The delay will actually be beneficial for me because it has given Nissan time to find and fix a software glitch that kept it from starting. The company quit taking orders last year when the waiting list hit 20,000. It has resumed taking orders in the eight most environmentally conscious states (Texas is not among them), and is striving to shorten the wait time to 4-11 months. Drivers of the 500 Leaf's already on US roads say the biggest problems have been crowds of people taking pictures at the shopping mall, and the absence of plug-compatible public charging stations. (the J-1776 standard was only agreed to in 2009).
By the way, I think Nissan (NSANY) stock will be on my list of things to buy when we get the summer sell off. With global production targeted at 500,000 by the end of 2013, Nissan is going to own a market that every other car company wishes they were in.
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