Diary Archives - Mad Hedge Fund Trader

December 11, 2009

Global Market Comments
December 11, 2009
SPECIAL NUCLEAR POWER ISSUE

Featured Trades: (NUCLEAR ENERGY),
(CCJ), (NLR), (WIND TURBINES), (GE),
(HEDGE FUND RADIO)

1) The seventies are about to make a comeback. No, don?t drag your leisure suits, bell bottoms, and Bee Gee?s records out of your storage facility. I mean the nuclear industry, which has been in hibernation since the accident at Three Mile Island in 1979. There is absolutely no way we can deal with our energy crunch without a huge expansion of our nuclear capacity, which sits at a lowly 20% of our power generation. France has already achieved 85%, followed by Sweden at 60% and Belgium at 54%. Unless you?re a nuclear engineer, you are probably unaware how far the technology has moved ahead in the last 30 years. The first generation produced the aging behemoths we now see on coasts and rivers, which used high grade fuel that would melt down if someone forgot to flip a switch. Think Chernobyl. Generations two and three never got off the drawing board. Generation four is known as a pebble reactor,? which relies on a new form of fuel embedded in graphite tennis balls that is just hot enough to generate electricity, but too weak to allow a disaster. This eliminates the need for four foot thick, steel reinforced concrete containment structures, which accounted for 50% of the old design?s cost. Low grade waste can be stored on site, not shipped to Nevada or France. I?ll write more about this fascinating technology later. The permitting process is being shortened from 15 years to four by confining new construction to existing facilities instead of green fields, urged on by a less fearful public and even some CO2 conscious environmentalists. At least 30 new reactors are expected to start construction in the US over the next five years, and over 90 in China. There is a great equity play here, and I would use any substantial dip in the market to scale in.? The Market Vectors Nuclear Energy ETF (NLR), which has jumped an impressive 78% to $25 since March, is the easiest way in. You can also buy its largest components, like Cameco (CCJ) (click here for their website), the world?s largest uranium producer, which has seen its stock clock a nice double this year. And you might start practicing your ?hustle? once again.

2) On my recent trip to Oregon I met with venture capital investors in NuScale Power, which is trailblazing the brave new world of ?new? nuclear. Their technology has been pioneered by Dr. Jose Reyes, dean of the School of Engineering at Oregon State University in Corvallis. This is definitely not your father?s nuclear power plant. The company has applied for design certification with the Nuclear Regulatory Commission for a mini light water reactor with a passive cooling system rated at 45 megawatts. The idea is to site a dozen of these together which in aggregate can generate 540 Megawatts, little more than half the size of the old 1 gigawatt monsters. Running a dozen small reactors instead of one big one makes for vastly easier operation and maintenance, as individual units can be brought on and offline as needed. Small size also eliminates the need for gargantuan, expensive containment structures. This power source runs at night, when solar and wind plants are offline. Modular design makes mass production of these units economical. Once certification, approval, permitting, and construction are complete, we can expect to see the NuScale plants running by 2018. After all, if something similar works in nuclear powered submarines and aircraft carriers, why not in industrial zones on the outskirts of town? For more on NuScale?s innovative efforts visit their website by clicking here .

3) Deal of the Day??General Electric (GE) has sold 529 wind turbines to Caithness Energy for $1.4 billion for construction of the largest wind farm in the US. The Oregon facility will generate 757 megawatts of power, almost the size of a conventional nuclear power plant. The power will come online from 2011 and will be sold to California. This will no doubt help local utilities like Pacific Gas & Electric (PGE), which has a state mandate to obtain 20% of its power from renewable sources by 2017. Europe has a 20% target by 2020, and China has a similar goal, but the US has no fixed objective, although 30 individual states do. America currently gets a miserable 6% of its energy from renewable sources. The long term trend towards renewables hit a violent air pocket in 2008-2009 as the financial crisis dried up funding. Just ask T. Boone Pickens about this and you?ll get an earful. Conditions are now easing, as this deal shows, but there are still huge obstacles, like the needed upgrade of the national transmission grid (click here for more background on the crucial Tres Amigas project). GE originally got into this business by buying the wind assets of Enron for pennies on the dollar. If you had any doubt that alternative energy is THE NEXT BIG THING, this is the proof in the pudding.

4) My guest on Hedge Fund Radio this week is Charles Nenner of the Charles Nenner Research Center in Amsterdam. Charles hails from Holland, and has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years at Goldman Sachs. He has spent three decades developing his proprietary Cycle Analysis System, which generates calls of tops and bottoms for every major market in the world. Charles developed a huge following after 2007, when he accurately nailed the top in the Dow at 14,500 and urged his clients to put on short positions when everyone else was predicting that the market would keep grinding higher. I have been following Charles daily research reports myself for two years, and found them to be uncannily accurate. Today, Charles Nenner counts major hedge funds, banks, brokerage houses, and individuals among his clients. You can find out more about Charles? work at his website at www.charlesnenner.com. Hedge Fund Radio is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For the online link to the live show, please go to www.bizradio.com or click here , click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?? For archives of past Hedge Fund Radio shows, please go to my website by clicking here.

QUOTE OF THE DAY

?Ben Bernanke is not going to take the punchbowl away, but he may turn the music down,? said Bernie McSherry, senior VP of strategic initiatives at Cuttone & Co., a New York prime broker.

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 DougD https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png DougD2009-12-11 14:45:022009-12-11 14:45:02December 11, 2009

December 10, 2009

Diary

Global Market Comments
December 10, 2009

Featured Trades: (COPPER), (FCX),
(CRUDE), (XTO), (RIG), (USO), (MUSTANGS)

1) I have to tell you that my old friend, Dr. Copper, the only commodity that has a PhD in economics, looks like he may be giving the market an ?F? on its latest exam. If you recall, I was feverishly pounding on the table trying to get people to buy the red metal at $1.35 in January (click here for the call) . It tickled $3.28 last week. I also was pushing the world?s largest copper producer, Freeport McMoRan (FCX) at $30, which eventually ran to $88, and has been one of my best performing stocks this year.? Watching the two charts roll over in tandem like a Busby Berkeley musical merits a quick review of the base metals. If this were happening in isolation, I would just write it off to another hiccup in the long supply chain to China. But coming against a backdrop of a sharp rally in the dollar, and sell offs in gold and oil, it is possible that something more ominous is at work. If we get a New Year liquidity surge you might want to lighten up on these positions. Of course, the long term bull market in the red metal is still alive and well. But wouldn?t you like to have enough dry powder to buy more copper 60 cents cheaper? And watch out for that next report card.

2) I recently spent an evening with Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency in Paris, who had some eye opening things to say about the energy space. The IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top drawer energy research organization. World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia?s to fill the gap or prices are going up, possibly a lot. His conservative target has crude at $190 in twenty years. Some 39% of that increase in demand will come from China and 15% from India. A collapse in investment caused by the financial crisis last year means that supply can?t recover in time to avoid another price spike. More than 1.5 billion people today don?t have electricity at all, but would love to have it. The best the Copenhagen climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out. This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels. The total 20 year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion. Richard, who comes from a long diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn?t pull any punches. I have been a huge fan of the IEA?s data for 35 years. Better use the current plunge in oil prices to accumulate long term positions in crude through the futures (LOH10), the ETF (USO), the offshore drilling companies like Transocean (RIG), and leveraged oil and gas plays like XTO Energy (XTO). When oil comes back, it will do so with a vengeance.

3) The Western US has found a new wrinkle in the housing collapse, where homeowners are desperately struggling to cut living costs to meet the next doubling of their adjustable rate mortgage payments on their underwater houses. Raising horses can cost more than children, so Nevadans are turning them loose to join herds of wild mustangs, to dodge the $30,000/year it costs to board and care for these voracious animals. Local populations are exploding, eating local ranchers out of house and home, who depend on public grazing lands to feed commercial livestock. This week the Bureau of Land Management held hearings on where to place 25,000 excess animals. Mustangs are the feral descendents of horses which escaped the conquistadores, and there are now thought to be 30,000 running wild, down from a 19th century peak of 2 million. The BLM has another 30,000 in pens, and is making 10,000/year available for adoption at $125/each. The problem is that many who adopt ?pets? who then flip them to Canadian slaughterhouses, which cater to the odd French taste for horseflesh. To see how this works, watch Clark Gable, Marilyn Monroe, and James Dean?s last film, The Misfits. Madeleine Pickens, the wife of famed oil trader T. Boone Pickens, has offered to take the BLM?s entire herd and put them out to pasture at an undisclosed million acre location. If there is anyone who could have an undisclosed million acres, it is Boone. I have frequently run into majestic and beautiful mustang herds over the years while camping in the remote desert (no, I don?t go to Burning Man). Reminding me that there is still some ?wild? in the ?West?, I will miss them when they are gone.

QUOTE OF THE DAY

?God bless Tiger. This week we got a huge uplift. The scandal has been better for Yahoo than the death of Michael Jackson, because it?s kind of hard to put an ad up next to a funeral,? said the ever blunt CEO, Carol Bartz.

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TRIVIA OF THE DAY

Google has named ?John McCain? as the fastest falling search term of the year. It is better to have been Googled and lost, then to have never been Googled at all.

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December 9, 2009

Diary

Global Market Comments
December 9, 2009

Featured Trades: (MERRIDETH WHITNEY), (SPX),
(SEF), (SKF), (SDS), (COFFEE), (KTH10.NYM),
(CARBON CAPTURE & STORAGE), (CER's)

1) Meredith Whitney is about to have a second wind. The brassy, former Fox News reporter parlayed a gutsy, ultra bearish call on financials in 2007 into a multimillion dollar advisory business that catapulted her on to Fortune Magazine's much coveted list of the 100 most influential people, as well as their more exclusive list of top movers and shakers under 40. She says the sand will hit the fan in Q1 2010 as another wave of losses hit the banks, taking the rest of the stock market down with them. There will be no place to hide. There is no credit for medium and small sized borrowers. There has been no bail out for consumers, which account for 70% of American GDP, and there has never been an economic recovery without their participation. Their free spending hands of been tied by the chopping of some $1.5 trillion in credit card limits. The Dubai default could trigger a fire sale of commercial real estate which will deliver more grief to an already distressed sector. Some 10% of consumers who gained new access to credit for the first time over the last 15 years are having it ripped away. The longer the S&P 500 stalls under the 1120 level, the more soothing I find bearish calls like Meredith's for 2010. Better start tracking the short ETF's, including the Proshares 2X Ultra Short S&P 500 (SDS), the 1X short financials ETF (SEF), and the 2X Proshares Ultra Short financials ETF (SKF).

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2) Where is the tidal wave of global hot money surging to next? Coffee has moved up 24% to $1.48/pound since the July low, to a new high for the year on decent volume, and technicians are pounding the table that an upside breakout is imminent. This is both good and bad news, as coffee can be your worst nightmare to trade, being an unholy marriage of weather and international politics. Brazil is still the Saudi Arabia of global coffee production, with traders glued to screens looking for the most recent weather forecasts that might affect the country's fragile Arabica and Robusta trees. That makes coffee an indirect play on Brazil's appreciating currency, the real. Rising fertilizer prices and El Nino are causing supply problems in Vietnam and Indonesia. A multiyear draught is hurting production in Kenya. And demand is soaring where? In China, where fashion conscious consumers are replacing traditional teas with coffee. Yes, coffee is a rising emerging market standard of living play. If I haven't scared you off, you can trade coffee futures on the New York Mercantile Exchange, where one March, 2010 contract (KTH10.NYM) buys you 37,500 pounds of the caffeine laden commodity worth $55,500, with a margin requirement of only $3,640. My coffee consumption alone in preparing this letter makes it a strong buy. If you want to know how to get set up on trading these, or any other futures contracts, please email me at madhedgefundtrader@yahoo.com.

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Make that a triple shot!

3) With the negotiations going hot and heavy in Copenhagen this week over the future of greenhouse gasses, I thought it would be useful to examine the astronomical cost of one of the proposals being bandied about. I got the low down from some friends at Lawrence Livermore National Laboratory. The modern day descendent of the Atomic Energy Commission, where I had a student job in the seventies, the leading researcher on laser induced nuclear fission, and the administrator of our atomic weapons stockpile, I figured they'd have some good numbers. Dirty coal currently supplies the US with 50% of our electricity, and total electricity demand is expected to go up by 30% by 2030. The industry is spewing out 32 billion tons of carbon dioxide (CO2) a year and the global warming it is causing will lead us to an environmental disaster, possibly within decades. Carbon Capture and Storage technology (CCS) locks up these emissions deep underground forever. The problem is that there is only one of these plants with any real operational history in North Dakota, a legacy of the Carter administration, and they cost $4 billion each. The low estimate to replace the 250 existing coal plants in the US is $1 trillion, and this will produce electricity that costs 30%-50% more than we now pay. And while we can build all the walls we want to keep out immigrants, it won't keep out CO2. I know from my nuclear testing day that it only takes a week for gases to cross from the Middle Kingdom to the US. This is a big problem, as China is currently completing one new coal fire plant a week. In fact, China is rushing to perfect cheaper CCS technologies, not only for their own use, but also for selling to us. That's why Secretary of Energy, Dr. Steven Chu, says it is economically vital for the US to be a leader, not a follower in this field. Expect to hear a lot of handwringing about Obama's controversial, big ticket climate bill when it comes up for a vote in 2010.

4) I can tell you right now that cap and trade is going to win the political battle over a carbon tax, hands down. Don't waste a nanosecond of your time even thinking about it. Obama doesn't wants to be tarred with pushing yet another new tax, and Wall Street is gearing up to make a fortune in the new trading vehicle. Europe has already adopted the system, and a Paris based exchange called Bluenext, partnered with NYSE Euronext, trades Certified Emission Reduction credits (CERS's). Some 4-6 million CER's trade each day worth $50-$75 million. After peaking last year at ???30, CER's crashed to ???7.5 in February and then bounced to ???13.14 today. They are traded in 1,000 unit lots, and are backed up with far month futures contracts. Check out their cool website by clicking here. Morgan Stanley and Goldman Sachs have already set up trading operations in the instrument. The EC government grants CER's to green companies, which then sell them to big polluters, which must buy them to expand their business. The true costs are passed on to consumers. The system contributed to a 3.8% reduction in CO2 emissions in Europe last year. The current world market for carbon credits is $126 billion, but if the US joins the system, that will jump by $1 trillion. I was involved in the creation of the Japanese equity warrant market in the early eighties, and I can tell you from experience that new, poorly understood markets with spreads wide enough to drive a truck through are a license to print money for the early players. Perhaps there is hope after all for the legions of traders, market makers, brokers and analysts left unemployed by last year's collapse.

QUOTE OF THE DAY

'The biggest trend of 2010 is to see who gets kicked out of the banking system,' said Meredith Whitney, who runs a boutique financial research firm

December 8, 2009

Diary

Global Market Comments
December 8, 2009

Featured Trades: (RISK), (GOLD), (GLD),
(DGP), (HBD.TO), (MEXICAN GOLD PESO), (DOLLAR)

1) Reflections on Risk ? The behavior of the global markets on Friday was a great ?tell? on the current state of risk taking.? We finally got the one data point that we have been hoping for, even praying for, for two years, nonfarm payroll job losses near zero. The stock market should have soared, but the Dow eaked out only a miserly 22 point gain. The markets that should go down on this news got absolutely slaughtered, like bonds, gold, silver, platinum, crude, commodities, and foreign currencies. This tells you that the current risk/reward in the markets totally sucks right now. I believe that Mr. Market does whatever he must to shortchange the most people. And with almost all positions right now, you are facing a ?heads, Mr. Market wins; tails, you lose? dilemma. This is why I have been out of the market since October, except for my physical precious metals, which are too expensive to turn over. Furthermore, all of the markets that have the greatest long term fundamentals suffered the most ferocious falls, like gold?s $80 hickey, because they have become the most overbought, thanks to those late to the party, the performance chasers and momentum players. This all leaves me more convinced than ever that I am making the right long term strategic call. Buy hard assets, but not at frothy peaks. Shun paper of all kinds, including stocks and bonds, especially US Treasuries, the world?s most overvalued asset.

2) With gold?s whopping great $80, 6.6% pull back from Thursday?s all time high, I have been deluged by readers asking if this was the peak, if this was the final blow off top, and if gold is finished as an asset class. My answers are no, never, and not on your life. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad overnight. When I pull a dollar bill out of my wallet, it?s as limp as ever. The relentless whir of the printing presses still keeps me awake at night; even though, according to Mapquest, I live 2,804.08 miles from Washington DC. I see the three day plunge as a gift. If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. Start scaling in around the Dubai low of $1,135, and add on further declines down to $1,040. That?s where the Reserve Bank of India started the recent love fest for the barbaric relic with its 200 ton purchase in November. Then the next time that snarky guy at the country club starts boasting again about the killing he made in gold futures, the UPS delivery guy chortles about his gold mining stocks, and your cleaning lady quits because of the fortune she made in Mexican 50 peso gold coins, you?ll at least be able to shoot back with your own witty response. If the institutional world devotes just 5% of their asset to a weighting in the yellow metal, as many have recently promised, it has to fly to at least $2,300, or higher. By the way, you can pick up those gold pesos by visiting Millennium Metals by clicking here . ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP). If you don?t believe a single word of this, or want to protect your existing holdings from a more prolonged move South, visit the Horizons BetaPro Comex Gold Bullion Bear ETF (HBD.TO), a 200% leveraged short position in the yellow metal.

3) If you are counting on more than a trading rally in the dollar, you are betting against the trend, and I mean the really long term trend. The chart below shows the purchasing power of the dollar since the Revolutionary War, and it has been mostly a downhill slide since day one.? Monetary historians remind us that winning the War for Independence broke the country, and it took 50 years to dig out of the hole. The brilliance of Alexander Hamilton, who graces the face of our $10 bill, was how he kept the financial system running with the US in a state of bankruptcy. I?m sure that Ben Bernanke mumbles Hamilton?s biography in his sleep by now. No, I have not been trading the market that long, but some of my ancestors who intimately knew our scandal prone first Treasury Secretary have. The decline in the value of the buck greatly accelerated after we went off the gold standard in 1933 and discovered the wonderful world of fiat currencies.?? Better to take your pay in Euros, American Eagle gold coins, bushels of wheat, or barrels of crude.?

QUOTE OF THE DAY

?We are going to have to work harder as a country,? said Jeff Imelt, CEO of General Electric.

December 4, 2009

Diary

Global Market Comments
December 4, 2009

Featured Trades: (SILVER), (GOLD), (ABX), (CDE), (SLW), (HL), (HEDGE FUND RADIO), (JAPAN)

NOTE TO SUBSCRIBERS: I?m taking a research day on Monday, December 7, so the next letter will be published on Tuesday, December 8.

1) Those transfixed by gold blasting through the $1,200 level have been missing the real action in silver. The white metal has soared 86% to $19.50 since the beginning of the year, compared to a more modest 56% move for the barbaric relic, an outperformance of almost two to one. I have been a raging bull on silver all year, and on May 7, grabbed you by the lapels and shook you senseless if you didn?t buy at $12.70 (click here for earlier report ). It is nothing less than owning gold with a turbocharger. Silver gives you a nice double play. Its qualities as a precious metal are giving it a major boost from the flight from the dollar, one of this year?s certainties.? It is also an industrial commodity, which unlike gold, is consumed, and therefore gives you a call on the recovering economy. If you don?t think this move is real, check out the shares of the silver producers. Coeur D Alene Mines (CDE) has rocketed by 357% this year, while Silver Wheaton (SLW) is up 350% and Hecla Mining (HL) has soared by 395%.? If you want to get set up on buying silver futures, e-mail me at madhedgefundtrader@yahoo.com and I?ll tell you how to do it. To accumulate .999 fine Silver Eagles or silver bullion for the tightest spreads over spot, visit www.mileniummetals.net by clicking here. How long will it take to get to the old high of $50? William Herbert Hunt, who engineered the 1980 squeeze with his brother Nelson with a 100 million ounce long position that last took it that high, could tell you, but only from the grave.

2) I just want to pass on the torrent of? rumors that came flooding back to me inspired by my GOLD SPECIAL ISSUE two days ago (click here for the full report). The major gold producers, led by Peter Munk?s Barrick Gold (ABX), very publicly and with great fanfare took off their hedges and ceased all forward sales, turning themselves instantly into leveraged long gold funds. Now they are deliberately withholding spot supplies from the market in a brazen move to squeeze prices higher. Then the black swan flew in from Dubai (click here for the full story), confirming everyone?s worst fears about the incompetence of all governments, and delivering the parabolic move that took the barbaric relic up a gob smacking $80 in a week to an all time high of $1,220. Whether this is actually true is anybody?s guess, but the market certainly buys it. The yellow metal is starting to look overheated by me, but I?m just an old fart looking forward to his first social security check. I like buying the steak and selling the sizzle, after I?ve ripped a few chunks of red meat out for myself, of course. But who knows, gold could keep flying until year end, and my government check will probably bounce anyway.

3) Given the barrels of ink spilled about the Dubai?s troubles, (click here for full report). I thought I?d update readers about the Emirate?s largest US asset, which I recently visited.? One can?t help but be overwhelmed by a sense of history walking by the Las Vegas City Center; without a doubt one of the worst commercial real estate disasters in human history. The glitzy, ultra modern, Cesar Pelli designed, 16.8 million square foot, 63 acre complex occupies the quarter mile on the city?s fabled Strip between the Bellagio and the Monte Carlo Hotels, and will unquestionably become one of the Wonders of the World, if it is ever finished. It includes the Mandarin Oriental, Aria, Veer, and Harmon Hotels, offering 4,000 rooms and 2,600 condos. The 57 story Vdara condo-hotel opened just this week, despite the fact that many original investors have sued to recover their deposits.?? They will be adorned by two casinos, a convention center, a new theater for the Cirque du Soleil, an gargantuan shopping mall, and parking for 6,900. The finished project will employ 12,000. But strikes and overruns sent costs soaring to $8.5 billion, and the project is now hopelessly behind schedule. Equity in the mammoth project is now widely believed to be worth zero. I saw a total of one worker in a cherry picker working on the project with a screwdriver. The other guy going up in an elevator turned out to be a lender contemplating a jump off the top. Kirk Kerkorian wanted to build the ultimate Sin City destination resort when his MGM-Mirage partnered with Dubai World. The relationship has soured, with Dubai World filing a suit against its partner for negligence and mismanagement, which it later withdrew. Who is going to stay in all these rooms? Those who financed trips to Vegas with home equity loans or subprime credit cards definitely are not coming back. If the project grinds to a halt, it will leave a gigantic eyesore at the heart of the city?s tourist area, becoming a monument to excess in a city of excesses. Unfortunately, what happens in Vegas doesn?t always stay in Vegas, as a financial collapse would send shivers through the industry globally.

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4) My guest on Hedge Fund Radio this week is Ed Merner, CEO of the Atlantis Japan Growth Fund (LSE-AJG), who has long been rated the number one stock picker in the Land of the Rising Sun. Ed?s fund, which trades on the London Stock Exchange, is up a stunning 54% from the March bottom. When the ink was barely dry on the US Japan peace treaty in 1950, Ed?s father uprooted his family from rural Truckee, California, and moved them to Tokyo Japan. That gave him a front row seat to the economic miracle that followed in the fifties and sixties. Ed started managing money in Japan just a few years before me, in 1970. He toiled away as a portfolio manager at Schroeder?s & Co. in Tokyo for 25 years and then launched his own firm in 1995. Ed, who is a fascinating individual and a genuine nice guy, will discuss the long term opportunities for investing in Japan and Korea. Hedge Fund Radio is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the live show, please go to www.bizradio.com or click here , then click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?
? For archives of past Hedge Fund Radio shows, please go to my website by clicking here .

ATLANTIS JAPAN GROWTH FUND

QUOTE OF THE DAY

?There are people who can?t get used to the idea that the country is being run by a black guy living in public housing. Obama is only half black, so I guess that makes him our ?starter Negro,? said political commentator Will Durst.

December 3, 2009

Diary

Global Market Comments
December 3, 2009

Featured Trades: (DUBAI), (EEM), (EDZ), (JOB OFFER),
(HEDGE FUND RADIO)

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1) Who did Dubai's emir, Mohammed bin Rashid Al Maktoum, think he was kidding? He launched one of the biggest construction booms in history, erecting the Burj Dubai, which at 161 stories is the world's tallest building. He built artificial islands in the Persian Gulf with lofty names like 'The World' that are so big they are visible from space. He bought the legendary Queen Elizabeth II, a ship that holds many fond memories of transatlantic crossings for me, to convert into a floating hotel at unimaginable expense. The spending didn't stop there. His spending binge went global, taking a partnership role in the Las Vegas City Center, which became the worst commercial real estate project since the Tower of Babel. The problem is that all of these acquisitions were done on credit, with only a fig leaf of equity, and the wind is now blowing with hurricane force. Dubai property values have slid 50% in a year, and the plunge shows no sign of abating. No surprise then that development arm Dubai World has defaulted on $59 billion in debt. The spendthrift emir spent way too much time on horse racing and not enough on research. Sure, turning Dubai into the next Hong Kong was a laudable goal, but did anyone think this through? While the former crown colony is backed by the sweating masses of China, tiny Emirate is surrounded on two sides by 2,000 miles of sand and on the other two by the not so friendly maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar salad has more oil than Dubai. Haven't they heard of peak oil? I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea. Now that Dubai's debt has been correctly marked down to junk the big question is who else this hubris gone wild is going to take down. The shareholders of the UK's Standard Chartered Bank and HKSB, the lead lenders, are going to take a body blow, and a rash of hickies will spread among the many syndicate members. Greece and Ireland could be next, as the premiums for their credit default swaps have skyrocketed. Things could get ugly in Dubai when the country's 360,000 migrant Indian workers find out they aren't going to get paid. How do you say 'domino theory' in Arabic?

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HEY PAL, WANT TO BUY A CHEAP CONDO?

2) As the markets get increasingly elevated and overpriced, I am widening my search for cheap disaster insurance. Today I'm looking at a hedge for those with substantial emerging markets exposure, which pretty much should be everyone who reads this letter. Take a look at the Direxion Daily Emerging Markets Bear 3X Shares (EDZ) (click here for details), which is a triple inverse ETF on the emerging stock markets. In theory, a 10% drop in the emerging markets would produce a 30% gain in the ETF. In reality, the trip can be much more rocky. To say these markets have simply gone up is a gross understatement. The major components of the EDZ include short positions in shares from China, which has risen this year by 94%, India, up 95%, Brazil, up 116%, and Russia up a mind boggling 183%. No surprise then that the EDZ has had its face ripped off, down a gut churning 92%. You can buy $33,000 of EDZ to imperfectly hedge $100,000 worth of emerging market longs, or scale in here at $5 with a view to a quick double early next year when the inevitable profit taking hits. I'll throw in a cautionary warning that if we enter a prolonged period of grind sideways, the EDZ could very well get dragged down to zero by its internal cost of carry. In flight school they always teach you to wear a reserve parachute when engaging in high level aerobatics. Best to apply this philosophy to your portfolio.

3) You can now access the archived shows of Hedge Fund Radio on my website by clicking here . Hedge Fund Radio is a weekly program featuring one-on-one interviews with the titans of the hedge fund industry. The show is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the live show, please go to www.bizradio.com or click here , then click on 'Listen Live!', and click on 'Houston 1110 AM KTEK.'

QUOTE OF THE DAY

'Until you get small business back on their feet, you're knocking out about 20% of GDP' said Camden Fine, CEO of Independent Community Bankers of America.

JOB OFFER OF THE DAY

Precious metals trader and dealer, Millennium Metals, is looking to hire an experienced professional to manage their gold, silver, and platinum retail business. The firm is looking to grow its share in the national market for coins and bullion. In depth knowledge of precious metals and industry experience a plus. You can work either at our headquarters in Green Bay, Wisconsin or from home anywhere in the US. Please email your resume directly to Rick Renard at cpdrp@aol.com , and mark the subject bar with 'resume'

December 2, 2009

Diary

Global Market Comments
December 2, 2009

ANOTHER SPECIAL GOLD ISSUE

Featured Trades: (GOLD), (GLD)
(HARD ASSETS INVESTMENT CONFERENCE)

1) Welcome to the new gold standard! There was a time that to own gold you had to be a 'gold bug' and believe in the myriad urban legends that percolated in the underground. Fort Knox is either empty, or full of gold plated steel bars. The Treasury cut back on the minting of new gold coins because it had to ship the bulk of our reserves to China to cover the trade deficit. The US government is going to ban private gold ownership again. The Feds have unwittingly fanned the flames of paranoia, with the Patriot Act forcing all American gold and jewelry dealers to register with the Treasury Dept. But adherents to the yellow metal are considered raving nut cases and conspiracy theorists no more. Emerging market central banks, pension funds, hedge funds, mutual funds, and millions of individuals around the world have all simultaneously decided to keep a certain percentage of their assets in the barbaric relic. They are either making a bet on an extended super cycle in favor of all hard assets, or looking for insurance against a wave of hyperinflation that Washington's policies threaten.?? Enthusiasts are no longer burying pillow cases of coins in the back yard, but instead are pouring into an ever expanding legion of ETF's, mining shares, bullion, and futures contracts. The SPDR Gold Shares (GLD), with $37 billion of the yellow metal, is now the world's sixth largest owner of gold. Some economists are now arguing that if you take world GDP and divide it by the value of the gold above ground today, an historic mean ratio would put the yellow metal at $5,300 an ounce. That makes the current spot price look like the deal of the century, and my target of the old inflation adjusted high of $2,300 positively conservative. To sign up for an excellent free weekly research product on precious metals, please click here for the Millennium Metals website.

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2) I thought I'd visit the front trenches of the gold boom by dropping in on the Hard Assets Investment Conference in San Francisco. I planned on spending one hour, but stayed eight. It proved incredibly fertile ground, not just for gold bugs, but also of enthusiasts for silver, platinum, uranium, rare earths, and base metals. A nearly football field sized conference hall was filled with booths from over 100 participating companies. Of course the coin dealers were out in force, flogging maple leaves, silver eagles, and krugerands. The gold miners alone had reps from Africa, Canada, Peru, Brazil, Argentina, Guyana, Mongolia, the Congo, and Burkino Faso.?? I gravitated to the tables manned by grizzled old mining engineers with dirt under their fingernails who gave me the hard data on yields, processes, and costs that I was looking for. I pawed ore samples and core drillings of every possible description. The newsletter publishers also had a large presence. It turns out that there is no environmental movement without rare earths, and we are entering the golden age of nuclear power. One guy even offered to drink the runoff from pure yellow cake to make his point. The financial leverage of the junior miners is spectacular if the price of the barbaric relic keeps going up. I even learned about the fascinating world of collectable gold nuggets. By the end of the day my back finally gave out, and I went cross-eyed poring over a topographic map of lithium deposits in Chile's Atacama Desert. I'll delve into each of these areas in detail in the coming weeks, once I have had a chance to sort through the wheat from the chaff. The early preview: the price of everything is going up. The next conference on May 10-11 at New York Marriot should be a real whopper.

QUOTE OF THE DAY

'Central Banks are sewing gold into their lapels,' said Philip Gotthelf, president of Equidex, a foreign exchange dealer

November 25, 2009

Diary

Global Market Comments
November 25, 2009

Featured Trades: (HEDGE FUND RADIO),
(PLATINUM), (PGM), (PTM)

1) On Hedge Fund Radio this week I?ll be interviewing the legendary hedge fund manager, Bill Fleckenstein, who will give us his 2010 view of stocks, bonds, commodities, currencies, and of course gold. ?Fleck? is a 25 year industry veteran holding almost as many out of consensus views as me. Premium subscribers are invited to submit questions to me in advance at www.madhedgefundtrader@yahoo.com. To learn more about Bill, Please go to his daily blog by clicking here , and to his? Microsoft News Money Column by clicking here . The show will be broadcast live on station KTEK 1110 AM in Houston, Texas as part of the BizRadio?? network to 100,000 local listeners, and will be streamed online to a further 100,000 national and international listeners. The show will broadcast on Saturday, November 28 at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the show, please go to www.bizradio.com or click here , click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?

2) Since you?ve been romancing gold, you should check out platinum, her younger, racier, and better looking sister, who wears the thong and the low riders. The white metal has risen by 67% this year compared to the more sedentary 44% appreciation seen in gold. While gold has made a hard fought new all time high, the Pt has to rise a further 50% from here just to match its 2008 high of $2,200, suggesting that some catch up play is in order. I have always been puzzled by the fact that platinum is 30 times more rare than gold, but at $1,500 an ounce, trades at a mere 30% premium to the barbaric metal. You have to refine a staggering 10 tons of ore to come up with a single ounce of platinum. The bulk of the world?s 210 tons in annual production comes from only four large mines, 80% of it in South Africa, and another 10% in the old Soviet Union. All of these mines peaked in the seventies and eighties, and have been on a downward slide since then. That overdependence could lead to sudden and dramatic price spikes if any of these are taken out by unexpected floods, strikes, or political unrest. While no gold is consumed, 50% of platinum production is soaked up by industrial demand, mostly by the auto industry for catalytic converters. Only last week, no lesser authority than Jim Lentz, the CEO of Toyota Motors Sales, USA, told me he expects the American car market to recover from the current 10 million units to 15-16 million units by 2015. That?s a lot of catalytic converters. Jewelry demand for platinum, 95% of which comes from Japan, is also strong, as the global pandemic of gold fever spreads to other precious metals. You can trade Platinum futures on the New York Mercantile Exchange, where a margin requirement of only $6,075 for one contract gets you exposure to 50 ounces of platinum worth $75,000, giving you 12:1 leverage. Email me at madhedgefundtrader@yahoo.com if you want to learn how to do this. For those who like to get physical, the US mint issues Platinum eagles from 1997-2008 in nominal denominations of $100 (one ounce), $50 (?? ounce), $25 (1/4 ounce) and $10 (1/10th ounce) denominations. Stock traders should look at the ETF?s (PGM) and (PTM).

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3) I guess it?s a sign of the times when the comedy show, Saturday Night Live, pokes fun at America?s trade deficit with China. In an imaginary press conference, President Hu Jintao told Obama he was not allowed to pay off the US debt to the Middle Kingdom by giving them the 750,000 clunkers he bought with last summer?s stimulus program. He then asked how many jobs his program has actually created, and Obama had to give the sorry answer that it was none. China?s president then asked how the $1 trillion health care plan for 31 million uninsured Americans was going to cut the deficit, while China?s 1.3 billion went without coverage. I won?t tell you what happened next, except that China?s president complained he wasn?t being taken out to dinner and a movie first. Where is the Federal Communications Commission when you need them? Have America?s economic policies become the laughing stock of the world? I never thought I?d see the day when out budget and current account deficits became a target for popular culture, but here we are. Better take another look at the TBT.

4) The Mad Hedge Fund Trader is taking a break to have Turkey with the family. I ate an entire pumpkin pie last night just to give my digestive system notice that some heavy lifting was on its way. The next letter will be published on Tuesday, December 1. I am the oldest of seven of the most fractious and divided siblings on the planet. No doubt by brother will show up in his new Bentley Turbo R, flaunting his outrageous bonus check from Goldman Sachs. My born again Christian sister will be bemoaning Sarah Palin?s drubbing at the polls last year. The gay rights activist sister will be arguing the case for same sex marriage. A third sister does humanitarian work visiting the many American women held in Middle Eastern jails. Don?t even think about pulling out of Iraq! Sister no. 4, who is making a killing in commodities in Australia, and is up to her eyeballs in iron ore, will be missing. My poor youngest sister took it on the nose in the subprime derivatives market, and is holding on for a comeback. She is the only member of the family I was not able to convince to sell her house in 2005 to duck the coming real estate collapse because she thought the nirvana would last forever. My two Arabic speaking nephews in Army Intelligence will again delight in telling me that they can?t talk about their work or they?d have to kill me. Another nephew will be back from his third tour in Iraq with the Marine First Division without a scratch, God willing. My oldest son won?t be able to make it because they don?t have a Thanksgiving break in China, and he is trading shares like a demon anyway. We all be thankful that my yougest son wasn?t arrested in the latest round of rioting at the University of California at Berkeley. Reading the riot act will be my spritely, but hardnosed mother, who at 82 can still prop herself up on a cane well enough to knock down 14 out of 15 skeet with a shotgun, although we have had to move her down from a 12 to a 410 gage because of her advanced age and brittle bones. Suffice to say, that we?ll be talking a lot about the weather. I?ll be rejoining you next week. That i
s, if I survive.

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QUOTE OF THE DAY

?I think we?re headed towards VAT taxes. It?s only a question of how long it takes for them to wake up and figure it out. You can?t tax the wealthy enough to close the budget deficit we have,? said Leon Cooperman of hedge fund Omega Advisors.

November 24, 2009

Diary

Global Market Comments
November 24, 2009

Featured Trades: (PCY), (LQD), (TM),
(TM), (BEN BERNANKE)

1) I spent an evening chewing the fat with James Lentz, the president of Toyota Motor Sales, USA, (TM) who let loose some incredibly insightful views on the long term future of the global economy. I have been following Toyota for 35 years, hobnobbing with senior management, touring their factories in Japan, and driving their marvelously engineered products. It is far and away one of the best run multinationals, with awesome research resources, spending $9 billion a year on R&D, but are also one of the most secretive organizations on the planet. If the CIA only kept its secrets so well! Peak oil is going to hit in 2017-2020, making gasoline prohibitively expensive. Toyota is racing to get as many hybrids out there as possible by then, converting a Mississippi factory from Highlanders to the hugely popular Prius. In Japan there is a backlog of 200,000 orders for these cars, and Toyota makes a profit on every one. The plug in version of this car will be fleet tested in the US next year, and sold to the public from 2012. But hybrids, which reduce emissions by 70%, compared to conventional cars, are just a transitional solution until the technology for hydrocarbon free alternatives, like electric only and fuel cells, mature in the 2020?s. The US car market will come in at 10 million units this year, but will rebound to 15-16 million units by 2015. At 9.3 years, the average age of the American car fleet is the oldest on record, and replacement demand will be huge. New car based consumer societies are also emerging in Argentina, Mexico, Thailand, and Indonesia. The American car industry, accounting for 4% of GDP and 10% of total employment, isn?t going away, as many fear. However, it will evolve beyond current recognition. Toyota is certainly putting its money where its mouth is, with an $18.2 billion investment in 14 American factories, directly employing 34,000, and indirectly another 380,000. Long term, I love this stock. James has worked for Japan?s largest car maker for 26 years, but still can only order one beer in that impossible pictographic language. By the time the evening was out, I made sure he could order a second, and a third, in Japanese.?

2) Last September, I suggested emerging market sovereign debt ETF?s as safe, high yielding investments in which to hide out in case the equity markets swoon again (click here for the link). Well, the stock market hasn?t swooned yet, so let?s see how they performed. The Invesco PowerShares Emerging Market Sovereign Debt ETF (PCY), which has 40% of its assets in Latin American bonds and 31% in Asia, rose by a modest 3% before pulling back to unchanged. The two year old fund now boasts $340 million in market cap and pays a handy 6.20% dividend. This beats the daylights out of the one basis point you currently earn for cash, the 3.40% yield on 10 year Treasuries, and still exceeds the 5.38% dividend on the iShares Investment Grade Bond ETN (LQD), which buys predominantly single ?A? US corporates. The big difference here is that PCY has a much rosier future of credit upgrades to look forward to. It turns out that many emerging markets have little or no debt, because until recently, investors thought their credit quality was too poor. No doubt a history of defaults in Brazil and Argentina in the seventies and eighties is at the back of their minds. With US government bond issuance going through the roof, the shoe is now on the other foot. A price appreciation of 125% over the past year tells you this is not exactly an undiscovered concept. Still, it is something to keep on your ?buy on dips? list.

I?m safer than US paper, and pay a higher dividend too!

3) I managed to catch up with David Wessel, the Wall Street Journal economics editor, who has just published?? In Fed We Trust: Ben Bernanke?s War on the Great Panic. I doubted David could tell me anything more about the former Princeton professor I didn?t already know. I couldn?t have been more wrong, as David gave me some fascinating insights into the inner soul of our much vaunted chairman of the Federal Reserve.?? Bernanke was the smartest kid in rural Dillon, South Carolina, who, through a series of improbable accidents, ended up at Harvard. He built his career on studying the Great Depression, then the closest thing to paleontology economics had to offer, a field focused so distantly on the past that it was irrelevant. Bernanke took over the Fed when Greenspan was considered a rock star, inhaling his libertarian, free market, Ayn Rand inspired philosophy in great giant gulps. Within a year the landscape was suddenly overrun with T-Rex?s and Brontesauri. He tried to stop the panic 150 different ways, 125 of which were terrible ideas, the remaining 25 saving us from the Great Depression II. This is why unemployment is now only 10.2%, instead of 25%. The Fed governor is naturally a very shy and withdrawing person, and would have been quite happy limiting his political career to the local school board. But to rebuild confidence, he took his campaign to the masses, attending town hall meetings and meeting the public like a campaigning first term congressman. The price of his success has been large, with the Fed balance sheet exploding from $800 million to $2 trillion, solely on his signature. The true cost of the financial crisis won?t be known for a decade. Now that having pulled back from the brink, the biggest risk is that we grow complacent, and let desperately needed reforms of the system slide. How Bernanke unwinds this bubble will define his legacy. Too soon, and we go back into a real depression. Too late, and hyperinflation hits. That?s when we see how smart Bernanke really is.

QUOTE OF THE DAY

?The whole US market is pretty much low quality these days,? said Richard Bernstein, of Bernstein Capital Management.

November 20, 2009

Diary

Global Market Comments
November 20, 2009

Featured Trades: (LUMBER), (TBT), (ZIMBABWEAN DOLLARS), (GOLD), (SILVER)
(HEDGE FUND RADIO)

1) Sometimes I think I?m the only guy who follows lumber futures. But they are a great ?tell? on the direction of wide swaths of the economy. Today, I?m not alone. Chart watchers have gone apoplectic because they think the five year downtrend for this most unloved of commodities was broken yesterday with an impressive limit up move (see my April call to buy this aromatic commodity by clicking here ). The move is telling us that either (a) new home construction is slowly reviving, (b) the Chinese have stepped up their buying of natural resources, (c) hard asset investors are rotating into the laggards after running up everything else, (d) the economy is recovering faster than we realize, or (e) all of the above. Better take a look at top lumber producers Weyerhaeuser (WY) and Louisiana Pacific (LPX), or the Timber ETF (CUT). If you want to know how to get involved in the futures, please email me at madhedgefundtrader@yahoo.com.

2) I want to thank the many readers who have been mailing in gold and silver coins in appreciation of my efforts to get them in at the beginning of the year at $800/ ounce for gold and $10/ounce for silver. Gold hit a new high today of $1,155, while silver tickled $18,75. The guys who leveraged up made an absolute killing, and they have numbers like $1,300, $2,300, and $5,000 dancing in their dreams. Hardly a day goes by without the mailman knocking on the door, a heavy but compact package in hand, smiling and winking while I sign. I also want to thank the reader who I got into the TBT in January. He had never heard of the thing, the ETF that bets on falling Treasury bond prices, but managed to ride this bucking bronco from the high thirties to $60 before pulling the ripcord. He sent me $300 trillion Zimbabwean dollars in cash in three crisp new $100 trillion banknotes hot of the printing press. He gave that amount because that is what it now costs to buy a cup of coffee in the hopelessly mismanaged African country. I see the TBT is back down to $45 handle again. Hmmm, looking at Obama?s latest deficit spending plans, I wonder if it is time to take another bite out of the apple?

3) There will be no letter on Monday, as I will be speaking at the San Francisco Hard Assets Investment Conference. No doubt things will be hopping this year. They say they have fascinating metal called ?gold? which magically levitates without the aid of hidden wires and pulley?s. I can?t wait to learn all about it. I?ll be reporting back. MHFT

QUOTES OF THE DAY

?The real problem is that the subprime foreclosure crisis is mutating faster than our ability to keep ahead of it. You have not just a second wave, but a third wave coming, as well,? said Howard Glasser of the Glasser Group, a real estate consultant.

?Forget the stock market. I am putting everything into whisky, gold, and ammo,? said a reader of the Diary of the Mad Hedge Fund Trader to me yesterday.