Diary Archives - Mad Hedge Fund Trader

October 21, 2009

Global Market Comments
October 21, 2009

Featured Trades: (GOOG), (MS),
(1987 CRASH), (CVA), (AMSC)

1) When people ask me what is the one stock they should put in their kid?s college fund and forget about, I always give them the same company: Google (GOOG). The toll taker for the Internet that controls 70% of the global market for search just announced record Q3 profits of $1.6 billion on a revenue rise from $4 billion to $4.4 billion. In this economic environment these numbers are nothing less than astounding, making GOOG one of the few US firms that has actual top line growth.? Google earnings, in fact, have turned into a valuable leading economic indicator by telling us that the strong ad growth came in the retail, travel, and the automotive sectors. This bang up performance is further proof that the irresistible tectonic shift away from old line media like newspapers, radio, and TV, to online, is accelerating, offering advertisers far and away the highest return on investment. Google is fast becoming the operating system for all advertising. While critics focus on the myriad ways the company recklessly burns money on peripheral businesses like Google TV, YouTube, forays into print media, and their private space program, I see gigantic growth opportunities that will prevent the company from becoming another Microsoft (MSFT). Mobile search grew 30% QOQ as the growing legion of sophisticated portable devices are increasingly used for search. Also, click rates cratered in the great recession, the price of ?investment advisor? for example plunging from $4 to pennies. A recovery could bring an equally ferocious rebound in rates that fall straight to GOOG?s bottom line. Most analysts are now targeting the high $600s for the stock price, which I believe will prove conservative. If you are ever worried about America?s future, then just look at these two kids, Larry Page and Sergey Brin, who built a $400 billion company out of their dorm room at Stanford in virtually no time, with no capital. Just ignore the office foosball table, volley ball court, and at-desk massage service.

2) With the orgy of recollections about the 1987 stock market crash on the 22nd anniversary yesterday, I suppose I should throw in my two cents worth. I was in Paris visiting Morgan Stanley?s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise. I was escorting around our Tokyo economist, David Gerstenhaber, now a noted hedge fund manager, who waxed on bullishly about the long term prospects for the Japanese economy. When we walked into our last appointment, David casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow was down 300. Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock. A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found? all transatlantic lines jammed. I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport, and flew my twin Cessna as fast as the turbocharged engines would go, breaking every known air traffic control rule. But by the time I got back to London, the Dow had closed down 512. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won. We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won. How much did the others bid? He told us that we were the only ones who bid at all. Scrotums tightened throughout the firm. The next morning the Dow continued its plunge, but after an hour managed a U-turn, and ensued on a monster rally that went on the rest of the year. We made $75 million on that one trade. It was the worst investment decision I have seen in the markets in 35 years, executed by its most brilliant player. Go figure. Maybe it was George?s risk control discipline kicking in. At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Margaret Thatcher refused to postpone the issue, giving Morgan Stanley?s equity division a flat P&L for the month of October, 1987. I think I sweated off five pounds that day Even now, I refuse to gas up at a BP station, no matter how green it is.

3) If the 2009 Clean Energy Bill passes, it is going to pave the way for major structural changes to the US economy, which few of the non-engineering types voting for it in Congress understand. The bill encourages electric power utilities to switch to renewables, upgrade the electric power grid, and put in place a cap and trade system which places an enormous burden on the power industry to go green (click here for background report). The bill is expected to sail through the House, but faces a major fight in the Senate, where the administration is going to have to get all of their ducks in a row for it to pass. The bill provides the legal structure to spend that $100 billion for alternative energy already passed in the stimulus bill. In his cheerleading press conference for the bill, Obama correctly declared that dependence on hydrocarbons was jeopardizing our national security. He also cleverly described this as a massive creator of high tech jobs that can?t be exported.?? I?m not highlighting this because I live in California, wear sandals all year, drive a Prius, or have a refrigerator stuffed with organic greens as if a giant gerbil does my shopping. Since this economic crisis started, the key has been to buy whatever the government is buying, and since they are going into alternatives in a big way, you want to be right ahead of them (click here to see my solar piece). Time to add more alternative energy names to your list to buy on the bigger dips. Look at American Superconductor (AMSC), which is involved in advanced wind turbine designs and electric power grid upgrades. Also take a peek at Covanta (CVA), an established business that profitably burns trash to create electricity.

QUOTE OF THE DAY

?The shape of the recession is going to be an ?L? for Europe, a ?U? for the US, and a ?V? for Asia,? said my former Morgan Stanley colleague and buddy, Tom McManus, the chief investment officer at Wells Fargo Advisors. Tom?s current number one pick is the energy sector, also a favorite of min
e.LUV

October 20, 2009

Diary

Global Market Comments
October 20, 2009

Featured Trades: (DINNER WITH OBAMA),
(MS), (BYRON WIEN), (JULIUS CAESAR),

1) The black GM Suburban barreled into the parking structure at San Francisco?s posh St. Francis Hotel, its emergency lights flashing, and quickly disgorged a team of secret service agents. Behind them the armored Cadillac limo screeched to a halt, and out lept Barrack Obama, the President of the United States. He came to speak to a select group of wealthy, A-list, party faithful who had paid $15,200 each for the privilege of? having their picture taken with our famous president. Although the tension was so thick you could cut it with a knife, Obama firmly shook my hand with the controlled cool he is famous for, and produced the obligatory grin for the camera, as if on autopilot. The scene outside in Union Square was a mad house, with every fringe group but the Lemurians well represented, and the police struggling to prevent a shouting match between antiwar demonstrators and the anti-abortion activists exploding into violence. An Obama win in the California was never in doubt, with 85% of some districts going for the Democratic candidate. Yet,?? the Golden State was a mandatory stop for Obama as it generated the cash flow needed to fund wins in a half dozen battleground states. The support paid off, as dozens of desperately needed infrastructure projects started raining down upon us the second after the budget was passed, and no less than a half dozen UC Berkeley notables filed into the administration, with more waiting in the wings. I always thought that Obama was a man from the future, but he is 150 years from the future, and would bring upon us more rapid change than many even in his own party are able to digest. He is not an African American, but an African and an American, and bears no taint of slavery in his DNA. He is taking huge risks with the future of the country now, and may drive us all to ruin if his lofty plans don?t work out. But what choice does he have? The backdrop for the 2012 was either going to be the Great Depression II or a fragile recovery fueled by massive borrowing. Seems like a no brainer to me. I?ll just go out and short more dollars, laughing all the way to the bank. Call me a cynic, but as they used to say at Morgan Stanley, who is guilty of losing the $100 bill, the guy who dropped it, or the one who picked it up? You can find the photo on my Facebook page.

2) It warmed the heart to see my old Morgan Stanley (MS) colleague, Byron Wien, on TV. After my incendiary and iconoclastic interview with Bill Fleckenstein yesterday (click here to read), I thought I?d get the view from the other side of the street. Byron was our strategy guru at MS, then went on to mega hedge fund Pequot, and then parachuted comfortably into a co-chairman?s role at the all seeing, all knowing Blackstone. At 76, he looks pretty old and crotchety, but then he looked old and crotchety when I first met him 30 years ago. Byron gained his fame by annually publishing a top ten list of market surprises that traders believe are unlikely, but have a high probability of happening, which the clients used to absolutely eat up. His list for 2009 is looking pretty good. Back in January when the world was ending, Byron predicted that by year end, gold would blast through to a new high of $1,200, oil would rebound to $80, the S&P 500 would reach 1,200, Chinese growth would come in at 7%, ten year Treasuries would sell off to a 4% yield, housing would bottom, and Obama would become a hawk on Afghanistan. He could be batting ten for ten by year end. He argues that Christmas sales will come in better than expected, and the top line surge will enable the S&P 500 to climb the last leg to his target. We are close enough to his other targets to call it a win for him. When his next top ten list comes out in January, pay close attention.

3) One of the great pleasures of running an online business like this is that not a day passes without being totally amazed by the Internet. You may recall that last week I wrote a piece translating the arcane Latin found on a US dollar bill (click here for the story). What do I find in my in-box the next morning but a dozen new subscriptions from Romans! Who knew Romans were surfing the net? I mean the modern kind from Rome and other parts of Italy. It turns out that an Italian language investment website is screening the net for Italian language pieces, and to your dumb, garden variety search engine, Latin is close enough. If you want to give your Italian a real work out and see that I?m not making this up, click here . I haven?t been to Italy since I totaled a plane there taking off from Palermo, Sicily, which it turns out has one of the worst wind shear airports in Europe (it was a rental). So to my new Italian subscribers, I say, quoting Julius Caesar, vini, vidi, vici!

QUOTE OF THE DAY

?In the next two to three years, more money will be lost in long term Treasury bonds than was lost in the last two years in the stock market,? said Allan Lance of the Lance Letter.

October 19, 2009

Diary

Global Market Comments
October 19, 2009

Featured Trades: (BILL FLECKENSTEIN),
(DIN), (RIMM), (JWN), (DOW 10,000), (FSLR)
(TRES AMIGAS TRANSMISSION FACILITY)

1) I have worshipped legendary hedge fund manager, Bill Fleckenstein, as the God that he is for decades. So I thought it was time to catch up with the noted bear on the day the Dow popped above 10,000. Bill said he took out his 'Dow 10,000' hat and symbolically placed it on top of the six foot tall stuffed grizzly he keeps in his office. The same idiots who sold the bottom in March are now buying the top, and some fantastic short selling opportunities are setting up. He is in no rush, as the current liquidity driven tide that is lifting all boats could run into January. But 2010 could be the year when serious money is once again made on the short side. His favorite targets will be technology companies like Research in Motion (RIMM), where double ordering is now rampant, as Kool-Aide drinking managers rush to replenish depleted inventories. Retailers like high end department store Nordstrom (JWN) are also in his cross hairs, as are restaurant chains like IHOP (DIN). Big banks are a temptation, but they are a black hole on information, and the government is changing the rules every day, so he'll stay away. 'Anything with a bad balance sheet will get clubbed,' said Bill, with the subtlety of a 20 pound sledge hammer. Long Treasury bonds are a bubble waiting to burst, and the TBT is a home run staring you in the face. He can understand why the low end in residential real estate is holding up, with the government offering a tax free bribe of $8,000 to all comers ($15,000 in California). But the high end is in serious trouble, and it is raining McMansions in tony neighborhoods.?? The nightmare won't end until the banks foreclose on everything and then puke it all out, putting in the real bottom. This could be a long time off. He doesn't see any way commercial real estate can avoid disaster. What Bill does like is gold and silver, which seem to be climbing a higher wall of worry than stocks. He also likes the commodity producing currency, the Canadian dollar. Imagine that? Have I left anything out? Buy wheat. Traders are transfixed by this year's huge American crop, when in reality, 40% of the wheat producing areas of the world are suffering prolonged droughts, and $8/bushel is not out of the question. How does he know all of my positions? Did someone tell? At least if I'm wrong in my own views, I'll have some distinguished, articulate, and very entertaining company. For more on Bill's views, go to his insightful and informative blog called the 'Daily Rap' by clicking here

2) Wow! Dow 10,000! It is definitely the year of the bungee cord. Of course, the GDP is now 40% higher, and the national debt, at $12 trillion, is more than double the first time the index crossed this magic number in 1999. Some are saying this is an indication of how cheap the market is. Some, but not all- including me. We have a 'V' shaped stock market recovery discounting an 'L' shaped economic recovery, a match made in Hell, which will come back to haunt us all. Bond fund subscriptions are outpacing stock fund subscriptions by 13 to one. Humongous amounts of cash prefer to sit on the sidelines in money market funds and short term Treasury bills yielding nothing. Insider buying is nonexistent. Only 85% of the population is participating in the economy now, if you use the broader unemployment statistics, and only 75% of you take out the 'black' economy. It seems like much of the investing public has taken up the attitude of fool me once, shame on you. Fool me twice, shame on me. Sure you could strap on a long here and make a few bucks. Could you conceivably get away with it? Maybe. Is it a good idea? No. Making 10% on the upside at the risk of a 50% loss is not how great fortunes are wrested from the market. There is a time to play and a time to sit, and I vote for the latter. There is no law that says that you always have to trade, despite what your broker might say.

3) Just thought I'd pass on a complimentary review of my letter and website by one of the more sophisticated personal blogs out there, posted by Laurence Hunt. You can read it by clicking here . I slave away 16 hours a day, tracking 100 markets around the world, writing until my shoulders are so stiff they feel like they've turned into concrete, wondering if anyone ever reads this stuff. Reviews like this are indisputable proof that someone is, and keeps me going.

4) There was an article in the Wall Street Journal the other day which I'm sure you skipped over, but which has earthshaking implications for the energy future of the US. Until now, the country's power grid has been divided into three unconnected chunks, making transnational transmission impossible, leading to huge regional mispricing. While California and New York suffered from brown outs and sky high prices, electricity was given away virtually for free in Texas. A group of power companies is now proposing to build the $1 billion Tres Amigas superstation in Clovis, New Mexico that would connect all three grids. The plant would use advanced superconducting technology that will send five gigawatts of power down cables cooled at 300 degrees below zero. The facility would solve a major headache of alternative energy planners, and will no doubt accelerate development. It would allow the enormous wind farms on the drawing board in the Midwest to ship energy to the power hungry coasts. Ditto for the mega solar projects proposed in the Southwest deserts, and the big geothermal plants being built in Nevada. With Obama sending tidal waves of government cash towards the sector, the timing couldn't be better. It is also great news for major alternative suppliers like First Solar (FSLR). Some of these projects might now actually make some sense. For the complete story, please click here .

QUOTE OF THE DAY

'The economic crisis will continue until we get some real leaders and get rid of all the whores in Washington,' said the ever diplomatic Bill Fleckenstein, a legendary hedge fund manager.

October 16, 2009

Diary

Global Market Comments
October 16, 2009

Featured Trades: (RESIDENTIAL REAL ESTATE), (ETF?s), (CALIFORNIA WINE MARKET)

1) I can honestly say that I have worked for the worst boss on the planet, Rupert Murdoch, when I free lanced for his flagship newspaper, The Australian. No matter what I wrote about Japan?s trade down under in sugar, wheat, coal, iron ore, steel, or uranium, it was always ?bloody awful,? even though I was usually accurate, timely and right (and cheap). His visits to Tokyo were a total nightmare, and since I was the only one in the organization then who spoke Japanese, the chore to escort him always fell to me. I can tell you that the grandfatherly Rupert you see today is a cheap, watered down Chinese imitation of the tyrant who terrorized us 30 years ago. When good people were fired, which was often, they were overwhelmed by an immense sense of relief. That rant aside, his newly acquired toy, the Wall Street Journal, still occasionally publishes some useful information. The October 5 issue ran a survey of websites for Exchange Traded Funds, the most popular and rapidly growing investment vehicle to come out so far this century.? ETF?s make possible narrow, rifle shot bets on specific, markets, sectors, currencies, and commodities in both long and short, and leveraged or non leveraged formats. They are the perfect securities for a guy like me who is constantly trolling the world for opportunities. Morningstar (click here)? is the most comprehensive, handing out star ratings, as it does with mutual funds. Tom Lydon?s ever helpful ETF Trends (click here) , offers a paid subscription service, which publishes 8-10 specific ETF recommendations a day, based on his own investment strategy, which is somewhat similar to my own. For a free ETF data base and directory you can go to the ETF Guide (click here) . To check out the WSJ piece in its entirety, please click here .

2) Since I have been pelted daily with predictions that residential real estate has bottomed for the last two years, like hail in a Midwestern summer thun derstorm, I feel a public duty to tell you that is just not the case. Now that the state and federal moratoriums are off, foreclosures are accelerating. There are over a million Option ARM and Alt-A loan resets about to hit the fan. Since many owners will not see positive equity in their homes in their lifetimes, banks are seeing more walk aways and keys mailed in, often with tearful letters attached. The run up in mortgage rates from 4.5% to 5.5% has yet to hit the market. Some 18 million homeowners divert 50% of their incomes to pay for housing, double the 25% that is considered healthy, and many of them are losing jobs at a record rate. While the volume of units sold has rebounded, the action is dominated by speculators, flippers, and bottom feeders bidding for properties at 10-40 cents on the dollar, not exactly a sign of health. I like to visit the plethora of open houses in my neighborhood, but always find the dead broker hanging from the showerhead a bit of a downer for a Sunday afternoon. Call me when Ozzie & Harriet Nelson come back to the market. I listened to industry insiders call the bottom of the Japanese real estate market for 15 years, until they finally died, and the market is still a fraction of its 1990 high. I think we are closer to the bottom than the top in terms of price, but closer to the top than the bottom in terms of time. You can take that to the bank.

3) One of the great things about living in Northern California is the proximity to Napa Valley, one of the world?s preeminent wine making regions. But as children frolicked in huge tubs of merlot at the annual fall grape stomping ritual, nothing but sour grapes could be heard among the vineyard owners huddled in small furtive groups.? The California? market has crashed, with premium Napa Valley cabernet fetching only half the $4,000/ton achieved only two years ago. The weather hasn?t helped, with alternating hot and cold spells shrinking the harvest by 10%-20%.? The glassy winged sharpshooter pest is an ever present risk, and there are still some holdouts of the phylloxera plague that forced most grapevine roots to be torn up two decades ago. Plunging prices and shrinking volumes do not make a great business model. Napa had its own version of the subprime boom, with nouveau riche pouring in to buy starter vineyards brandishing vanity labels-no experience required. Today foreclosures on these trophy properties are rampant, and you can buy them for a dime a dozen. CALPERS, the California State Pension Fund?s $200 million investment in the sector is starting to smell like a three day old bottle of Thunderbird, not fit for use as salad dressing. The new age of frugality has consumers migrating en masse to the low end of the market, leaving high priced labels like Opus One and Grgich Hills (made famous by the cute movie Bottle Shock) stranded in the marketplace. Central Valley winemaker and low end mass marketer, Charles Shaw, known locally and unaffectionately as ?Two Buck Chuck,? is making a fortune buying bulk wine at bankruptcy auctions for 50 cents a gallon, bottling it at his Napa plant, and knocking it out as low end supermarket wine with the Napa appellation for, well, $2. It?s a great time to expand your portfolio to investment grade wine. At least you can drink your mistakes.

QUOTE OF THE DAY

?The only recovery that?s happening is the one on Wall Street. The one on Main Street hasn?t happened yet,? said Gary Kaminsky, the former managing director of Neuberger Berman, who thinks liquidity and fear of underperformance could drive stocks higher for the rest of the year.

October 15, 2009

Diary

Global Market Comments
October 15, 2009Featured Trades: (WHEAT), (WZ09), (HELEN THOMAS), (TROLL DOLLS)

1) I bet I?m the only guy you know whose wedding was filmed by the KGB. My friend, the TASS correspondent,? shot 8mm film of the entire assembled foreign press at the event at The Foreign Correspondents Club of Japan in the seventies, no doubt for their files in Moscow. No wonder they lost the cold war. We?ve stayed in touch through the years, through the collapse of the Soviet Union and the many wars, revolutions, booms, and busts that followed. He now advises a Russian hedge fund. What else? He called me the other day to tell me I was right on track with my recommendation to buy wheat (WZ09), because the Ukrainian grain crop had just come in 12% lower than last year. Poor weather had caused yields to plummet, and this would no doubt be good news not only for wheat, but corn and soybeans as well. The country was once known as the bread basket of Europe, which was one of the reasons why it was invaded by Napoleon in 1812 and the Germans in 1942. They still have a sizeable impact on global prices. I have also gotten an assist from my trading partner is the Midwest, one Jack Frost, whose early arrival has analysts slashing forecasts of grain crops here, leading to a 18% pop in price in the last week to $5.18/bushel. It?s even getting nippy hear in Fog City, where the roses in my front yard have commenced an early die off.?? I?ve noticed over the decades that when do the hard research and get your fundamental call right, all of the accidents and surprises tend to happen in your favor. That seems to be happening here.

2) One of the joys of having small children is that you get to know the guy at the local plumbing supply shop really well. It?s amazing what will fit down a toilet these days. He once told me that when Troll Dolls hit the market, every plumber in the country was guaranteed a job for life. When I went there yesterday I thought I?d pick up some leading economic indicators as well. After a deadly year, business is picking up a bit. Sure, it is still down a third from two years ago, but there is a definite improvement going on. The Eureka moment! His comments confirm the sort of ?L? or ?square root? shaped recovery I have been expecting. We aren?t going to zero anymore, but it is not exactly off to the races either. Throughout the nineties, a salesman at Circuit City (RIP) walked me through every generation of technology, and he was worth his weight in gold. All I had to do was buy a new TV from him every year, and they kept getting bigger and more expensive. I bought the second high definition TV sold in California, after George Lucas, who I used to run into at the local IHOP. Sometimes figuring out the direction of the economy is as simple as going down to the local butcher, baker, or candlestick maker and asking. They are on the front lines of economic activity, and they will see any changes months before those of us glued to computer screens. Asking George Lucas also helps.

3) I managed to catch up with my former white House Press Corp colleague, Helen Thomas, when her national book tour swung through San Francisco. At 89, Helen is the oldest and longest serving member of this esteemed group of journalists, and has the traditional right to ask the first question at each press conference. The native Kentuckian has covered every president since Kennedy, but has been observing the political scene since the Roosevelt era (Franklin, not Teddy). I knew her when I was a wet nosed apprentice writer during the Carter administration and she was a senior writer for the old United Press International. Helen hasn?t changed an iota, and is as feisty as ever. John F. Kennedy was her favorite president, a man of peace who knew war, who inspired people and launched the space program and the Peace Corp. Lyndon Johnson brought to life the most sweeping social programs since FDR?s New Deal, but saw his legacy shattered by the Vietnam War. She pitied Richard Nixon, who at the end felt the wrath of the nation fall upon his shoulders. Gerald Ford was a decent human being, too nice, really, for the job that was thrust upon him. Ronald Reagan was a master at managing the press. George W. Bush lied to the people about WMD?s in Iraq and hung the albatross of torture around America?s neck. He then sanitized the war for public consumption, and cowed the press into fearing being called unpatriotic and anti-American. Bush heard that Helen was murmuring that he was the worst president in US history, and broke with a century of precedent by conspicuously ignoring her seniority during his administration. Obama, who shares a birthday with Helen, lacks the courage to do the right thing and should stick to his guns. But all new presidents come in completely unaware of what they have signed up for and there is a tortuous learning process. Investigative reporting is gone forever because newspapers can?t afford it. Helen has seen public morals become more liberal for ourselves, but more strict for our public officials. I know there isn?t any real investment insight here, and I will probably get some angry e-mails from conservatives. But hey, when a piece of living history crosses your path, you grab on to her with both hands and shake her until the gems of insight she possesses fall loose. If Helen could only bottle and sell the energy she has at her age, she could make a fortune.

QUOTE OF THE DAY

?Seek the truth, and let the chips fall where they may,? Said Helen Thomas about her profession, adding ?I?m a cynic with hope.?

October 14, 2009

Diary

Global Market Comments
October 14, 2009Featured Trades: (NATURAL GAS), (CHK),
(DATA BASE SEARCH), (REGIONAL BANKS),
(DOLLAR BILLS)

1) I received another scratchy, crackling cell phone call from my drilling buddy in the Texas natural gas fields today. You could almost hear the dust on the line. The doubling of prices in the last month is totally bogus, and is nothing more than a short covering rally ahead of the seasonally strong run up to winter. Storage facilities are completely full, and while the production cutbacks have been substantial, they are still not enough. Some companies, like Chesapeake (CHK), are even suicidally boosting production in a desperate attempt to offset falling prices with jacked up volumes, at everyone else?s expense. This is all setting up a fabulous short selling opportunity, possible in early December, once the winter draws are priced in. There is still a huge risk that production will overwhelm storage as more new unconventional shale and tight gas deposits are brought on line, leading to another collapse in prices. A retest of the September lows is a gimme, and the $1 handle is still a possibility. So those of you who were nimble enough to bite a hunk out of the recent pop in CH4, better use any strength to cash in positions. I?d love to get more out of my friend, but I don?t think my aged, arthritic back could take another three hours driving down washboard roads in?? a beat up pickup truck with no springs.

2) Paid subscribers should be aware that you can use The Mad Hedge Fund Trader?s Data Base Search at any time by clicking here at http://madhedgefundradio.com/Data_Base_Search.html . Simply type in any stock symbol, company name, or individual name, and all references going back to February, 2008 will pop up. The original purpose was to enable potential investors to track what I was saying about specific markets, sectors, and securities over time, and see if I knew what I was talking about, or if I was just making it all up. I use it myself daily to track down data I know is lurking in there somewhere, like the number of BTU?s in a ton of coal, global electric power generation, or the price of cherries in California. The search engine is powered by Google (GOOG), so you will see text ads on the same topic cleverly placed alongside anything you find. The only limitation is that entries be at least three characters long. So instead of entering just ?X,? you?ll have to type in the full name ?US Steel.? I have in fact written about 350,000 words in the past 21 months, or about half the length of War and Peace. It took Tolstoy six years to write his epic about Napoleon?s invasion of Russia in 1812, and no one made a dime off of his stock tips. Try it, you?ll like it.

3) I have really been avoiding financials for the last few months after they had their dead cat bounces. However, I had to listen to MidSouth Bank CEO Rusty Cloutier when he spoke on CNBC. His 24 branch bank, with a market cap of only $103 million, is based in Lafayette, LA, one of my old stomping grounds, and home of the world?s greatest touff? and shrimp gumbo. He says that ?Unless we break up the big banks and get back to sound banking principles we are going to relive this over and over again??.Free enterprise has to have the right to fail??.Allan Greenspan and his administration have some problems they have to ??fess up to.? With the current system of megabanks ?They get the gain and we get the pain??.I?m regulated now by 13 agencies of the US government and I don?t know that I need a 14th.??? Regional Banks have really been taking it on the kisser this year, with 99 going under, four times the previous year?s rate. The FDIC has turned into an effective stealth undertaker, checking into local motels under assumed names, marching in at the Friday afternoon close with court orders in hand, and selling assets at fire sale prices to a healthy competitor by Monday morning. None of the government owned banks have been targeted by the federal agency yet. There?s no one who can read you a riot act like a Southern regional banker.

4) If you want to impress your friends with your vast knowledge of financial matters, then here are the Latin translations of the script on the backside of a US dollar bill. ?ANNUIT COEPTIS? means ?God has favored our undertaking.? ?NOVUS ORDO SECLORUM? translates into ?A new order has begun.? The Roman numerals at the base of the pyramid are ?1776.? The better known ?E PLURIBUS UNUM? is ?One nation from many people.? The basic design for the cotton and linen currency with red and blue silk fibers, which has been in circulation since 1957, carries enough symbolism to drive conspiracy theorists to distraction. An all seeing eye? The darkened Western face of the pyramid? And of course, the number ?13? abounds. Thank Benjamin Franklin for these cryptic symbols, and watch Nicholas Cage?s movie National Treasure. The balanced scales in the seal are certainly wishful thinking and a bit quaint. Study the buck closely, because there are going to be a lot more of them around.

QUOTE OF THE DAY

?By thinking at the 30,000-foot-level about asset classes, investors will get much better results from their portfolios,? said Steven M. Sears, vice president for asset allocation at PIMCO, the world?s largest bond fund.

October 13, 2009

Diary

Global Market Comments
October 13, 2009GLOBAL RISK ALERT!

Featured Trades: (GOLD), (SILVER), (CANADIAN DOLLARS), (AUSTRALIAN DOLLARS), (NEW ZEALAND DOLLARS), (BRAZIL), (RUSSIA), (INDIA), (CHINA), (TAIWAN), (SOUTH KOREA), (VIETNAM), (JNK), (TBT)

1) When everything is working, and my portfolio is firing on all 12 cylinders, I pinch myself and ask ?Is this real? What can go wrong?? I?m reminded of the slave whose task it was to remind conquering Roman generals ?All glory is fleeting.? Virtually all of my recommended core longs in gold, silver, Canadian, New Zealand, and Australian dollars, Brazil, Russia, India, South Korea, Taiwan, Vietnam, and?? junk bonds are at or near highs for the year. I called the bottom in Natural Gas within 40 cents, and mercifully baled on my one short in US government bonds, the TBT. What we are seeing is a global surge in liquidity as cash emerges from the bomb shelter, squints at the day light, and then rushes to buy the first thing it can find. Everything is going up, regardless of fundamentals. It is the proverbial tide that is lifting all boats. You can make a lot of money in these conditions, but there is no way of knowing if this will last for one week, or another year. But they can go on much longer than you think. In the last two liquidity driven markets I traded, Japan in the eighties and NASDAQ in the nineties, fundamental analysts railed against the tide for years, claiming that stocks were overvalued, each call getting their office moved ever closer to the elevator and men?s bathroom. When someone finally did throw the switch on these markets, it got dark amazingly fast. Tokyo went out at an all time high on the last day of 1989, and then dropped a staggering 45% in January. NASDAQ plunged just as fast from its 2000 top. The one thing we can all be certain about is that the survivors have vastly improved their risk control after our recent crash. Make hay while the sun shines, but keep your finger hovering over that mouse. The level of risk is definitely high than it was in March. When the next real downturn starts, it could resemble a flash fire in a movie theater.

2)?? I have to admit that I was stunned when the announcement hit the tape that Obama won the Nobel Peace Prize. I was sure he would get it, but not until he left office in 2012 or 2016. Even Obama admitted he didn?t deserve it. I happen to know the Swedish royal family quite well, as they invested in my hedge fund during the nineties. When I visited their money managers in Stockholm, I stayed at the Grand Hotel, where the Nobel winners are put up during the December ceremonies. On the wall of my suite hung original letters from fellow Californian and Nobel Prize winner in literature John Steinbeck. It turns out that more than 20% of?? the 829 Nobel Prizes have been awarded to Californians, thanks to the state?s massive investment in the sciences, 21 to UC Berkeley professors alone, including this year?s prize for economics. During the 100 year anniversary of the prize in 2004, all living Nobel winners in the state were invited to lunch with the Crown Princess Victoria, the Duchess of V??sterg??tland. I sat next to Milton Friedman and debated monetarism with the cantankerous University of Chicago economist for an hour. Swedes feel that since their country is small and relatively insignificant on the world stage, the Nobel Prizes are one of the few ways they can influence international events. By giving Obama an early prize, they are giving him a vote of confidence and attempting to give him some credibility in his dealings. Many countries certainly have every reason to be wary of his outstretched hand, given our recent history. The best news for Obama? The $1.5 million prize is denominated in Swedish kroner, which has been appreciating against the dollar. And no, I don?t have a Nobel Prize myself, at least until they start handing them out to hedge fund managers.

3) There?s nothing like getting up in the morning, sharpening your ax, taking off your shirt, and splitting a quarter cord of wood to get the blood flowing. I managed get the same invigorating effect by catching part of a nice 50% move in lumber futures earlier in the year, based on an expected recovery of exports to China (click here for my earlier call ). A wave of buyers followed me, heralding a recovery in the housing market, which I didn?t believe in for two seconds. Since June, the performance of the knotty, aromatic commodity has been definitely pekid. Listen hard and the trees are trying to tell us something. How are we supposed to have a recovery in the housing market with falling lumber prices? Are they building houses now without wood? Have I missed some great technological development in the home construction industry where termite proof houses are now all the rage? I think it?s much more likely that the Chinese topped up their inventories and the recovery in real estate is wishful thinking. Please take a look at the chart and tell me where I?ve gone wrong. If the trees are right, then real estate stocks, REIT?s, homebuilders, and even the banks are about to get slammed again. Is that smoke I smell?

QUOTE OF THE DAY

?Sic transit gloria mundi?

For over a thousand years Roman conquerors returning from the wars enjoyed the honor of triumph, a tumultuous parade. In the procession came trumpeters, musicians and strange animals from conquered territories, together with carts laden with treasure and captured armaments. The conquerors rode in a triumphal chariot, the dazed prisoners walking in chains before him. Sometimes his children, robed in white, stood with him in the chariot or rode the trace horses. A slave stood behind the conqueror holding a golden crown and whispering in his ear a warning: that all glory is fleeting.
? Gen. George C. Patton

October 12, 2009

Diary

Global Market Comments
October 12, 2009 Featured Trades: (FBI),
(YELLOW CAKE), (CVX), (CRUDE)

1) I immediately recognized Robert Mueller as the kind of no nonsense, ex-Marine, Vietnam Vet that he was, the kind of officer who used to rip your? guts out for disobeying a direct order, which in my case was frequently. President Obama thought this is the man you want for your Director of the FBI, which is why Mueller survived as one of the few holdovers from the Bush administration. The Internet is not just a conduit for commerce, but also for crime and terrorism, and the bad guys are checking your doorknobs every day. Information is power, and fiber optic cable is a weapon. Terrorists, in particular, love the new Google Earth application. Only that morning, Mueller busted an American-Egyptian phishing ring, arresting 50, which looted 5,000 US accounts. We all must take ownership of the cyber security problem through the vigilant use of antivirus software, firewalls, sophisticated passwords, and constant patches. Tracing a 75 cent accounting discrepancy at UC Berkeley led to the smashing of a German industrial espionage ring that was tapping into university computers. Teenaged kids, like the Canadian who launched the biggest ?denial of service? attack against E-Trader and E-Bay, are to be feared. Be careful what you post on your Facebook page because it may kill a job prospect years down the road. The FBI is now embedding agents in police departments in Eastern Europe and China to take the fight global. When I got home, I immediately backed up all my files, reset my passwords, and bought my fourth antivirus program. I also installed bars on my windows and set booby traps on the front lawn for good measure.

2) I thought I?d pop next door to San Ramon and check in with Dave O?Reilly, the outgoing CEO of Chevron (CVX). The original Standard Oil of California, and one of the Seven Sisters, Chevron has a storied history. It discovered the legendary Ghawar field in Saudi Arabia in the thirties, the world?s largest, and later took over Gulf Oil (from Paul Getty), and Texaco. It is now the largest company in California.?? The problem for the US is that over the last 20 years demand has increased by 4 million b/d, while depletion has cut domestic production by 4 million b/d. The 8 million b/d gap can only be met with imports, which is why Chevron now earns 75% of its earnings from overseas, doing battle with Nigerian rebels and uncooperative foreign governments.?? The net net is that oil prices are going up. All alternative sources will need to be developed to deal with this widening gap, be it wind, solar, biofuel, or nuclear. Chevron is in fact the world?s largest producer of geothermal energy, accounting for 2% of its total supplies, is also the state?s largest installer of solar panels, and has invested $300 million in biofuel research. This is more than just ?feel good? money. The real impediment is that capital turnover in the energy industry is extremely slow. Coal fired power plants can last a century, and our 245 million cars last 15-18 years. Some of today?s low mileage clunkers will still be on the road in 2030. Even with the best efforts, Chevron will get three quarters of its revenues from oil in 2050. There is 100 years worth of investment in our current energy infrastructure and it won?t be replaced overnight. We will be lucky if we can cut CO2 emissions by 25% before 2050, a far cry from the Sierra Club?s 90% goal. The quickest way to cut emissions is to convert our coal fired power plants to natural gas. When Chevron took over Texaco in 2001, it inherited its legal headache in a $27 billion lawsuit over clean up of the Lago Agrio field in Ecuador, a hot button with environmentalists. Now David, a modest Irish engineer who came up through the research side of the company, has to be escorted by bodyguards at public events.

3) If we are just on the verge of entering a long term bull market for nuclear energy (click here for full report ), then you have to expect the same for nuclear fuel. Last year, the US consumed 55 million pounds of ?yellow cake? or uranium oxide (U3O8), but produced only 4 million pounds. The rest came out of stockpiles or from imports, much if it from the reprocessed Russian nuclear warheads. The new Department of Energy, under Dr. Stephen Chu, has made a big priority of making loan guarantees available to expand nuclear capacity from a lowly 20% of our total grid. The price of uranium is also rising, dragged up by crude, at one point popping 40% this year. The futures may be the better way to play this, as Uranium mining stocks are notoriously subject to manipulation, and are at the moment a tad expensive.?? In 2007, NYMEX started trading in uranium futures where one contract for 250 pounds is now worth 11,250. Good luck taking delivery is you aren?t running a nuclear power plant. You could be getting a midnight knock on your door from Robert Mueller.

QUOTE OF THE DAY

?If you get an email from me, ignore it, especially if I am asking for money,? said Robert Mueller, Director of the FBI, who nearly fell victim to a phishing scam targeting his personal bank accounts.

October 9, 2009

Diary

Global Market Comments
October 9, 2009

Featured Trades: (BILL CLINTON),
(WHEAT), (CANADIAN DOLLAR),
(ALTERNATIVE ENERGY),
(ORCL), (TM)

1) I opened the e-mail at my usual wake up time of 4:00 am. President Bill Clinton was playing with Tiger Woods at the Presidents? Cup PGA tournament at the Harding Park Golf Course in San Francisco today. Would I have time for a chat about US economic policy afterwards? That afternoon, in walked Bill, sunburned from his morning on the links, to chew the fat with some Bay Area business leaders. I can?t say who else was there, but I?ll give you a hint: I was the only one without a NYSE listing. The US needs a new job engine every five to seven years to continue growing. Reagan had the personal computer, he had the Internet, but since then there has been nothing. As a result, new job creation fell from 23 million during his administration to a net job loss of 1.5 million during the Bush years (click here for BLS stats ), causing real standards of living to fall for two thirds of all Americans. The big challenge is how to bring back the economy without burning up the planet. $1 billion of new spending would create only 870 jobs in a conventional coal fired power plant, but 2,000 jobs for a solar plant, 3,300 for a wind facility, and 6,000 from improved building efficiencies. So creating a new job engine is a matter of political survival for Obama and the Democratic Party, and you can expect new subsidized alternative energy projects to be raining down upon us for the next three years, like hail in the Book of Exodus. Getting health care costs off the back of corporations is also essential for recovery. As things now stand, all of our net new economic growth is going to cover increased health care costs. And that only gets us an outcome that ranks 25th globally. Clinton now devotes himself to his Clinton Global Initiative, on non-profit which coordinates inter governmental cooperation in health care, education, and the environment, and has raised $57 billion for? new development projects (click here for? their website ). He was incredibly well informed, obviously still has access to confidential intelligence briefings, and rattled off statistics like an M60 machine gun. You really get the impression you are dealing with a Rhodes Scholar. I reminded him of the 1968 anti-war demonstration we both attended in London and he laughed. Wow! Invitations from both Obama and Clinton in the same week! Was it something I said?

2) Just a little note to let you know that my recommendation to buy December wheat (WZ09) is showing signs of life (click here for my initial call ). The perfect weather couldn?t continue forever. That was a mathematical certainty. The freezes this week started in Minnesota, moved over to the Dakotas, and have gone as far south as Iowa. Although it hasn?t affected the wheat crop as much as corn, since wheat is mostly in the silo, the change in the weather is a reminder to traders that this is not a one way trade, and it is time to cover shorts. It could also be that the strength in gold, silver, and the currencies means that the global liquidity tidal wave is reaching the further corners of the financial world, like the ags. Whatever the reason, the charts for all the grains appear to have bottomed and it may be time to start scaling in longs.

3) Another reminder that the Canadian dollar has gone ballistic today, decisively breaking through the $1.06 level, and the Looney is now on its way to parity with the greenback (click hear for my last recommendation). All aspects of the global commodity trade are now in full play, and with hurricane force winds behind us, the risk of a ?melt up,? where futures markets see lock limit moves up, is rising. Kudos to those who followed my advice all year to pour into the commodity currencies early. Run those positions. Be careful adding longs here because the risk is rising. I have been so negative on the dollar this year that I should have spurned the vanity of calling this ?The Diary of the Mad Hedge Fund Trader,? and instead named it the ?Why I Hate the Buck Daily,? or the ?Bail on America Digest.? If you can?t trade the futures, look at the chart below for the Canadian dollar ETF (FCX). And check out once more the gratuitous photo of my favorite Canadian, Pamela Anderson.

4) For those of? you whose 30 days trial subscription are about to expire, here is my calendar of meetings for the next month as an incentive to renew:

Barrack Obama, President of the United States

Bill Clinton, 43rd President of the United States

Robert Mueller-Director of the FBI

Leon Panetta-Director of?? the CIA

Larry Ellison? CEO of Oracle (ORCL)

Steve Lentz-President of Toyota (USA) (TM)

Ralph Nader-former presidential candidate and consumer advocate

Daryl Steinberg-President of the California State Senate

Stephen Levitt-Coauthor of? Freakonomics

Captain ?Sully? Sullenberger-the US Air pilot who landed in the Hudson

Helen Thomas-Senior correspondent of the White House Press Corp., and a former colleague of mine.

Michael Moore-Film maker whose invitation I turned down

Muammar Abu Minyar al-Gaddafi-President of Libya and Brother and Supreme Guide of the Revolution, who I missed because he was only in town two days and I couldn?t find his damn tent.

Watch this space!

QUOTE OF THE DAY

?Alternative energy is the only way to restart the job engine,? Said Bill Clinton, the 43rd President of the United States.

October 8, 2009

Diary

Global Market Comments
October 8, 2009 SPECIAL NATURAL GAS ISSUE

Featured Trades: (UNG), ($NATGAS),
(CHK), (DVN), (USO), CRUDE), (COP), (PBR)

1)? Happy as I am to open beer bottles with my teeth and do my own tattoos, I have recently become a wimp when it comes to trading natural gas futures. I managed to warn my readers that a collapse of Biblical proportions was coming on June 2, when I recommended a sale at $4.40 (click here for the report ). Yes, you may fan me with ostrich feathers like a Middle Eastern potentate for that call. No, I did not predict a $1.90 bottom by throwing a dart at a dartboard. I simply called a half dozen buddies from my drilling days in the Texas Barnet shale and came up with a worst case cost of production of $2/MBTU. As it turned out we got a $2.40 bottom, and then a pop to $5/MBTU in a nanosecond, obviously the mother of all short covering squeezes. The industry is still on the horns of a massive dilemma. More than 100 years of supplies of CH4 have been discovered recently, but all of the main production companies may go under before we get much of it out of the ground if prices don?t stabilize. Virtually all natural gas storage facilities in the country are either full or locked up by hedge funds capitalizing on the massive contango, and it is impossible to export the stuff. Many shareholders have recently found religion, praying for a cold winter to balance out supply and demand. Long term, my bet is that the Pickens Plan (click here for my chat with the homespun Boone ) kicks in and pushes prices back up. If you still want to play where traders gulp down a quart of hot steaming volatility before breakfast every morning, e-mail me at www.madhedgefundtrader.com and I?ll tell you how to get set up. Just keep in mind, though, that you are moving into one of the toughest neighborhoods in the financial markets, where the ?widow maker? lives.

2) For an update on the Pickens Plan, I managed to catch the 81 year old Boone?s interview on CNBC yesterday, who spouted out statistics like the University of Oklahoma State University geology graduate that he is.?? After cutting through the love fest and the softball questions, I managed to get some actual facts out of it. Boone wants to target the country?s 6.5 million heavy trucks, converting them from diesel to natural gas on a replacement basis. These vehicles account for 2.5 million barrels a day of the 9.8 million barrels/day the US currently imports (click here for GOVT. stats) . To this end, he is pushing for the passage of the Natural Gas Act (HR 1835 and Senate bill 1408) which will create 18 year tax credits and subsidies for the production and use of natural gas vehicles along with the necessary infrastructure, like pipelines and pumps. His chances of success are good, as the last NG related bill, HR 1622, an appetizer sized $30 million five year project to promote NG, passed by an overwhelming 387 to 24. Of course, everything is on hold until health care passes, which may eat up the calendar for the rest of the year, so energy legislation will almost certainly be 2010 business. All of this is not soon enough for the industry, which is desperate for anything to keep their commodity from falling back to the mat.

3) T. Boone Pickens, CEO of BP Capital Managements, which manages three energy hedge funds, also made some interesting comments on oil. I worked with Boone on some of his ?pac man? oil company takeovers during the eighties when I was at Morgan Stanley, and he has been the best call on crude for the last 30 years. At least until last year, when the stunning speed of the crude collapse hit him squarely between the eyes, decimating his funds. Boone continues to ring the alarm bell about China. Its insatiable appetite for crude and other commodities led it to recently lock up 5 billion barrels in global reserves through foreign takeovers and partnerships, and that demand is only going to increase. During the last five years the Middle Kingdom?s consumption has soared from 3 million barrels/day to 8.1 million barrels/day, and half of that has to be imported. The super spike in oil prices is inevitable, unless the US does something radical to replace imports. With most reserves now controlled by foreign governments, the US is at risk of getting shut out of the oil market. Long time readers know that I have been a huge bull on crude prices since the beginning of the year when it traded at $32/barrel. The only question is how fast they will go up. If we do get a synchronized global economic recovery, then look out above! Single stock traders have Warren Buffet?s favorite, vertically integrated super major ConocoPhillips (COP) to look at, foreign stock investors should be focused on Petrobras (PBR), ETF players have the United States Oil Fund (USO), and if you want to play in the futures, where you can still get 7:1 leverage, then email me at madhedgefundtrader@yahoo.com to set up an account.

4) Note to subscribers: In view of the huge response I received on my upcoming dinner with President Obama, please e-mail me your favorite questions you would like me to ask him to madhedgefundtrader@yahoo.com.?? I will publish the top ten. Can?t guarantee you I will get all the answers though.

QUOTE OF THE DAY

?It?s the labor market that is going to end the recession, and that?s not going to happen any time soon,? said Richard Suttmeier, the chief market strategist at ValueEngine.com.