Featured Trades: (WHERE'S THE BEEF?), (SPX), (SPY)

3) Where's the Beef? With the Q1 earnings season now underway, investors seeking a repeat of Q4's blistering results are about to be sorely disappointed. While calendar 2010 delivered a white hot 41% improvement in reported earnings, the growth rate for the most recent quarter could deliver gains as low as a paltry 13.6%. Still, a gain is still a gain.

However, we are about to see divergences between sectors not seen in the past arising from the huge increases in commodities prices. Rising costs against frozen selling prices is not a great business model. The distinction is very simple to predict. Industries that produce energy, commodities, and food, and those that service and transport them, will surprise to the upside. Industries that consume these things will disappoint. Since consuming industries substantially outnumber producing ones, the overall results will be muted at best.

Perhaps this is what the stock market is trying to tell us with its recent subdued performance. Take a look at the chart of the S&P 500 below and tell me if you see a double top lurking in there somewhere. My experience is that if it looks like a duck and quacks like a duck, it is definitely not a bull. This is why I have been studiously avoiding longs since the first peak in February. It is also why I am stretching my muscles and cracking my knuckles, getting ready to lay on some serious shorts into the next rally.

-

-

Looks More Like a Bear to Me

Featured Trades:? (VNM)
Market Vectors Vietnam ETF

4) Vietnam is a Paradise for Demographic Investors. Now that we have figured out that Vietnam is a great place to invest, take a look at the Van Eck Groups Vietnam Index Fund (VNM). The venture will invest in companies that get 50% or more of their earnings from that country, with an anticipated 37% exposure in finance, and 19% in energy. This will get you easily tradable exposure in the country where China does its offshoring.

Vietnam was one of the top performing stock markets in 2009. It was a real basket case in 2008, when zero growth and a 25% inflation rate took it down 78% from 1,160 to 250. This is definitely your E-ticket ride. Vietnam is a classic emerging market play with a turbocharger. It offers lower labor costs than China, a growing middle class, and has been the target of large scale foreign direct investment. General Electric (GE) recently built a wind turbine factory there. You always want to follow the big, smart money. Its new membership in the World Trade Organization is definitely going to be a help.

I still set off metal detectors and my scars itch at night when the weather is turning, thanks to my last encounter with the Vietnamese, so it is with some trepidation that I revisit this enigmatic country. Throw this one into the hopper of ten year long plays you only buy on big dips, and go there on a long vacation. If you are looking for a laggard emerging market that has not participated in this year's meteoric move up, this one fits the bill nicely. Their green shoots are real. But watch out for the old land mines.

-

Pass Me a 'BUY' Ticket Please

Featured Trades: (PALLADIUM), (PLATINUM), (PALL), (PPLT)

4) Check Out the Dip in Palladium. If you want to see the one precious metal that has been beaten senseless by the disaster in Japan, take a look at Palladium (PALL). Thanks to its close ties to the auto industry, the white metal has plummeted by 22% since its February peak. Similarly used platinum (PPLT) has been pared back by 9%.? If you believe in the 'V' economic scenario that I described for the world economy above, and the auto industry specifically, these should be the first metals that you pile back into.

Palladium was one of my star performers last year, soaring by 112% since my initial recommendation in January, 2010 (click here for the piece).? Double dippers beware! Moves like this by industrial commodities do not occur in the face of a collapsing economy.

It's looking like the car manufacturers, which consume huge amounts of the palladium and platinum, could turn out as many as 13 million cars this year. This could rise to 15 million by 2015. The 2008 nadir was a paltry 8.5 million vehicles. You can forget seeing the drug induced haze of 20 million annual units free money brought us, returning in our lifetime. Fewer than one million of these will be hybrids or electrics. That means industry demand for catalytic converters is ramping up by another 1 million units a year.
Some 80% of the world's palladium production comes from Russia and South Africa, dubious sources on the best of days. This means that a long position in this white metal gives you a free call on political instability in these two less than perfectly run countries.

Also known as the 'poor man's platinum,' demand for palladium for jewelry in China has been soaring with the growth of the middle class. On top of this, you can add huge new investment demand from the palladium ETF (PALL) last year. The fund is thought to be bumping up against of its position limit of 1.29 million ounces, which amounts to a breathtaking 18% of global production in 2009.

If you are looking for something to stash in your gun safe, bury in the backyard, or give to the grandkids on their college graduation, get physical. You can buy 100 ounce bars at $50 over spot or Royal Canadian Mint one ounce .9995% fine palladium Maple Leaf coins at $50 over spot. And yes, you can even buy them on Amazon by clicking here.

Think I Should Buy Palladium on the Dip?

-

-

Featured Trades: (US HEDGE FUNDS ARE ABOUT TO UNDRESS)

2) Hedge Funds are About to Undress. The July 21 deadline for the hedge funds to register required by the one year anniversary of the Dodd-Frank bill is fast approaching, and the industry is roiling with turmoil. The net result for the rest of us could be shrinking market liquidity and falling asset prices as hundreds of funds shut down or move overseas rather than meet the new, onerous disclosure requirements and the vastly increased legal liabilities they imply.

The new regulations raise the level of disclosure virtually to the same level already demanded by your garden variety, plain vanilla mutual fund. Details will have to be released about assets under management, performance, strategy, risk management procedures, custody, brokerage relationships, soft dollar arrangements, commission discounts and kickbacks, fees, compensation of the managers, types of clients, conflicts of interest, and of course, their largest holding. All of this information must be provided in plain English, filed with the SEC, where it will be available online to the public.

The filings will provide a treasure trove of information about this most secretive corner of the financial markets. Commercial banks and mutual funds have long complained that hedge funds gained an unfair advantage hiding behind the curtains. Previous efforts to register the industry were thrown out of the federal courts, since they do not deal with the public. It took a massive lobbying effort in Washington to bring them to heal once again.

Hedge fund managers feel they are getting a raw deal. They were virtually the only class of financial institution that did not need a government bailout during the financial crisis. The cost of compliance will run many millions of dollars per fund. Even the slightest error in the filings, such as a 0.1% error in performance claims, could open them up to claims of securities fraud. Publication of holdings will allow competitors to game the market against them. The compensation information will provide a ripe target for divorce lawyers and other civil litigants. Frivolous law suits will soar. Kidnappers have also been provided a handy shopping list.

The are few exemptions left. Venture capital funds and family offices need not register. Nor do foreign based hedge funds with 15 or less US clients, less that $25 million in assets raised in the US, and no American based offices.

The largest funds, like Bridgewater ($58.9 billion), JP Morgan $45.5 billion), and Paulsen & Co. ($36 billion) will no doubt register, as they are too big to move and the incremental cost is small. It's another story for small funds, which may decide to move to foreign centers like Geneva or Singapore rather than undress in public. The net result could be a flight of capital from the US markets and falling prices, as the deadline coincides with the seasonal summer lull.

US Hedge Funds Are About to Disrobe in Public