For the first time this decade, I did not care a whit about the monthly Nonfarm Payroll report.
Not an iota, a scintilla, a modicum, or even a speck.
That?s because no matter high or low the number came it, it would be vastly overshadowed by tomorrow?s election.
Nationwide voting is not the 800-pound gorilla in the room. It is the 800-ton gorilla in the room.
Like everyone else in the country, I feel like I have been the subject of a vicious child support battle between warring parents.
I just want it over.
The big question about the Federal Reserve is not about its possible move to raise interest rates in December. It?s whether our central bank will exist at all in the New Year!
Will Janet Yellen be demoted to washing Tesla windshields on street corners in Berkeley?
As it turned out, the Employment Situation Report could not have been more boring, missing the consensus by a mere 12,000.
The October Nonfarm Payroll Report came in at 161,000, versus a consensus expectation of 173,000.
The headline unemployment rate fell to 4.9%, a decade low.
The hourly earnings jumped an eye popping 0.40%, bringing the year-on-year gain to 2.8%, the largest increase since June, 2009.
Are these the early seeds of inflation? One can only hope.
The back month revisions were big, with September bumped up by 9,000, and July goosed also by 9,000.
Professional and business services led by 43,000 jobs, health care with 31,000, and government, mostly at the local level, at 19,000.
Hurricane Matthew seemed to have caused a drag on the numbers coming from the Southeast.
Another shocker was the U-6 long-term structural unemployment rate, which plunged to 9.5%, another ten year low.
Traders will certainly have their hands full this week.
The polls close at 8:00 PM, and network projections of the winners of the obvious states should be out a few minutes later.
However, it?s the battleground states that count, and the early results will be misleading.
Clinton?s support in the cities is overwhelming which will report first. Trumps voters are largely rural, and results will come in slowly.
So don?t be fooled by reports of an early Clinton landslide win. Trump will make up the gap as the night wears on, but not enough to win in the Electoral College.
Nate Silver?s FiveThirtyEight has the best long-term record of predicting election outcomes using mathematical models (click here for his site at? http://fivethirtyeight.com/?ex_cid=2016-forecast . As of Friday, he had Hillary winning by at least 58 electoral votes (see map below).
I think the margin will be much wider, as the polls are missing millions of Hispanics who have never voted before.
This will give Hillary the majority of the battleground states, especially Florida, North Carolina, Georgia, Colorado, Virginia, Arizona, and Nevada, where I voted, and was presented with a ballot in Spanish.
Evan McMullin, a practicing Mormon, could take Utah, depriving Trump of a further 6 electoral votes.
That?s why I dipped my toe in the water by adding a modest 5% position in the Velocity Shares Daily Inverse VIX Short Term ETN (XIV) at the close on Friday, a bet that the Volatility Index (VIX) goes down.
Once the markets get a whiff of a Clinton win, it is going to be really hard to sell the Volatility Index (VIX) fast enough. Time to put my money where my mouth is. If the (VIX) rises on Monday, I?ll double up.
This renders all economic data releases for the coming week essentially meaningless. But I?ll go through the motions anyway.
Monday, November 7th at 8:30 AM EST, we get the Gallup Consumer Spending Report.
On Tuesday, November 8th at 6:00 AM EST we get a new update on the NFIB Small Business Optimism Index.
On Wednesday, November 9th at 7:00 AM EST, the MBA Mortgage Applications are published.
Thursday, November 10th we learn the Weekly Jobless Claims at 8:30 AM.
On Friday, November 11th at 10:00 AM EST we get the October Consumer Sentiment, and 1:00 PM delivers us the Baker Hughes Rig Count.
I hope everyone gets out there and votes. This time, it really IS the most important election in history.
This is your last chance to register for tonight?s strategy webinar on how to most profitably trade tomorrow?s presidential election.
This could be the most decisive move you make this year on increasing your wealth and assuring a comfortable retirement.
We are limited to only 500 participants, so it?s first come, first served.
Let trading veterans, John Thomas and Matthew Buckley, guide you about how to respond to every potential election outcome, including the unbelievable ones, or no outcome at all.
Join them for a FREE LIVE one-time-only webinar on Monday, November 7th at 9:00 PM EST. A chat box will be available for you to type in your questions.??
This may be the last chance you get to preserve your wealth before the election results are posted less than 24 hours later.
Get the 50,000-foot view you need from two experienced combat pilots.
Please click Trading the Election to register for this FREE webinar.
I look forward to working with you.
John Thomas
The Mad Hedge Fund Trader
We are right down to the wire for what has become one of the most contentious and narrow presidential elections in recent memory.
Your net worth is about to get a big boost or take a painful hit.
To generate the most positive outcome for your personal portfolio, listen to two of the most seasoned pros in the market.
Veteran traders, John Thomas and Matthew Buckley, will guide you on how to respond to every potential election outcome, including the unbelievable ones, or no outcome at all.
Join them for a FREE LIVE one-time-only webinar on Monday, November 7th at 9:00 PM EST. A chat box will be available for you to type in your questions.?
This may be the last chance you get to preserve your wealth before the election results are posted less than 24 hours later.
Get the 50,000-foot view you need from two experienced combat pilots.
Please click Trading the Election to register for this FREE webinar.
I look forward to working with you.
John Thomas
The Mad Hedge Fund Trader
The biggest risk event of the decade is now upon us.
By Wednesday morning, we should know the outcome of the presidential election.
Will markets take off for the moon?
Or will we witness the Great Crash of 2016?
Get this one right, and you will make a fortune. Blow it, and you could get wiped out.
John Thomas and Matthew Buckley have 70 years of trading experience between them.
They are among the few trading veterans who can tell you, with any precision, how to trade every potential election outcome, including the unthinkable ones.
Join John and Matt for a FREE no holds barred discussion about how to trade the election to maximize your profits while controlling your risk.
The webinar will be broadcast one time only on Monday, November 7th at 9:00 PM EST. A chat box will be available for you to type in your questions.
Please click Trading the Election to register for this FREE webinar.
I look forward to working with you.
John Thomas
The Mad Hedge Fund Trader
Global Market Comments
November 4, 2016
Fiat Lux
Featured Trade:
(NOVEMBER 9th GLOBAL STRATEGY WEBINAR),
(REVOLUTIONARY NEW DISCOVERY CONVERTS CO2 INTO ALCOHOL),
(CORN), (KOL),
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VEOEY), (TTEK), (PNR)
Teucrium Corn ETF (CORN)
VanEck Vectors Coal ETF (KOL)
Guggenheim S&P Global Water ETF (CGW)
PowerShares Water Resources ETF (PHO)
First Trust ISE Water ETF (FIW)
Veolia Environnement S.A. (VEOEY)
Tetra Tech, Inc. (TTEK)
Pentair plc (PNR)
The Internet has recently been abuzz about a revolutionary new discovery that converts carbon dioxide (CO2) into ethanol.
Readers often refer me to new, incredible, and earth-shattering technologies which often turn out to be nothing more than investment scams. The cold fusion boom of the 1990s comes to mind.
As a reformed and non-practicing biochemist, I decided to check this one out.
What I discovered blew my mind.
Scientists at the US Department of Energy?s Oak Ridge National Laboratory literally stumbled across a process that could become a game changer for the entire energy industry.
Carbon dioxide is passed over a carbon and copper catalyst, energized with a jolt of electricity, and ethanol comes out the other end. How nice is that!
Ethanol (CH3CH2OH) is the kind of alcohol we drink, and is found in beer, wine, and spirits. It is not to be confused with methanol (CH3OH), known as rubbing alcohol which is lethal if drunk in quantity.
Ethanol boils at 78.4 degrees centigrade, compared to 64.7 degrees for methanol, which is how home distillers and moonshiners keep from killing themselves.
Oak Ridge National Laboratory is no slouch when it comes to energy research.
Built in Tennessee in a huge rush during 1942, it used to be one of the most secretive research institutions in the world.
Its original mission was to produce highly enriched uranium for the first atomic bomb, known as the Manhattan Project. Many of my college professors worked there during WWII.
In recent years, it has broadened its mandate to include materials science, artificial intelligence, systems biology, and national security. It possesses the Titan, one of the world?s most powerful super computers.
Since President Obama came into office, it has received an infusion of cash to explore new forms of alternative energy.
To visit their website, click https://www.ornl.gov .
The key to their method is how the copper is arranged. First, the researchers create a scaffold made from carbon and nitrogen. The surface is covered in tiny spikes, each about 50 nanometers high.
The researchers then deposit copper particles onto the surface which acts as a catalyst for the reaction.
When electricity is run through the material, the reactions are concentrated?at the very tips of the spikes, providing the energy required?for carbon dioxide dissolved in water to break apart and reform as ethanol.
The?reaction achieved an efficiency of 63 percent, using a power supply of just 1.2 volts at room temperature.
Of course, the process is still years away from scalability and mass production.
But the fact that this process can take place at room temperature and requires only small power inputs means it could become economically viable.
The long-term possibilities of this new technology would be momentous.
Previous carbon capture and conversion plans were wildly expensive. Carbon dioxide is one of the most stable molecules in the universe. Until now, breaking it apart required huge amounts of energy.
That is why the end products of all combustion are CO2 and H2O. There is nowhere else for a chemical reaction to go without help.
It would cost more than $1 trillion just to convert America?s existing coal fired power plants (to read more, click The Price Tag for Clean Coal).
This new technology could capture the carbon dioxide emitted by power plants, convert it into ethanol, and then burn the ethanol, all in a closed system. Nothing would reach the atmosphere.
Solar cells could be used to produce the ethanol during the day, which is then burned at night.
Ethanol could also be used to power cars. In most states about 10% of the gasoline you purchase at the pump is comprised of ethanol.
The new process could extend a lifeline to the beleaguered coal industry (KOL) which has been in free fall for years.
Many of the biggest firms, like Peabody Energy, Arch Coal, Alpha Natural Resources, and Walter Energy, have gone bankrupt.? It is unlikely that another coaled fired power plant will ever be built in the US again.
About 70% of America?s coal output is now exported to China, much of it in rail cars rumbling past my home late at night.
Coal's problems have become so severe that the plight of unemployed coal miners has become an issue in the presidential election.
The big loser from this technological breakthrough (there is ALWAYS a big loser) is a farmer in the Midwest who grows corn (CORN).
About 40% of the total US corn production is now used to make ethanol for fuel, an activity heavily subsidized by the government (for more on that sensitive topic, please read The Great Ethanol Boondoggle).
If the carbon dioxide conversion process goes mainstream, which could happen sooner than you think, it could trigger a collapse in corn prices, by half or more.
Maybe that is what the price of corn has been trying to tell us. For a host of reasons, it has been one of the world?s worst performing asset classes for the past four years, down some 67%.
Mind you, converting carbon dioxide to ethanol is no panacea. Burning ethanol puts plenty of CO2 into the atmosphere as well, just not as much as gasoline. It is an improvement, but not a solution.
Sometimes, markets can sniff these things out sooner than we mere mortals can. And I can tell you that my nose, in particular, is finely attuned to the scent of alcohol.
Should Jack Daniels be worried?
To read more, click ?High-Selectivity Electrochemical Conversion of CO2 to Ethanol?
A Carbon Nanospike
If you think that an energy shortage was bad, it will pale in comparison to the next water crisis. So investment in fresh water infrastructure is going to be a great recurring long-term investment theme.
One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights.
Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles.
In places like China, with a quarter of the world?s population, up to 90% of the fresh water is already polluted, some irretrievably so.
Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years.
Aquifers in the US, which took nature millennia to create, are approaching exhaustion, especially in California?s Central Valley.
While membrane osmosis technologies exist to convert seawater into fresh, they use ten times more energy than current treatment processes, a real problem if you don't have any, and will easily double the end cost of water to consumers.?
While it may take 16 pounds of grain to produce a pound of beef,?it takes a staggering 2,416 gallons of water?to do the same. Beef exports are really a way of shipping water abroad in highly concentrated form.
The UN says that $11 billion a year is needed for water infrastructure investment and $15 billion of the 2008 US stimulus package was similarly spent.
It says a lot that when I went to the University of California at Berkeley's School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds!
At the top of the shopping list to participate here would be the Guggenheim S&P Global Water Index ETF (CGW).
You can also check out the PowerShares Water Resources Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VEOEY), Tetra-Tech (TTEK) and Pentair (PNR).
Bonus Question:? Which country has the world?s greatest water resources? Siberia, which could become a major exporter of H2O to China in the decades to come.
The New Liquid Gold?
Global Market Comments
November 2, 2016
Fiat Lux
Featured Trade:
(WHY I?M GOING INTO CASH),
(SPY), (IWM), (TLT), (USO), (GLD),
(SHOPPING FOR A NEW BROKER)
SPDR S&P 500 ETF (SPY)
iShares Russell 2000 (IWM)
iShares 20+ Year Treasury Bond (TLT)
United States Oil (USO)
SPDR Gold Shares (GLD)
I am up 22% on the year.
I like being up 22% on the year, and I want to stay up 22%, or more.
I am pulling this off in the worst trading year in hedge fund history, beating funds that have hundreds of in-house analysts.
So I am therefore going to stick to my strict stop loss discipline and bail out here on my position in the S&P 500 SPDR (SPY) November, 2016 $203-$208 in-the-money vertical bull call spread for a small loss.
This trade will almost certainly be a winner, as there are only 12 trading days left until expiration.
I seriously doubt the (SPY) is going to trade below the 200-day moving average at 206.49 at the November 18th expiration, just below the breakeven point for this position.
The pinprick inflicted by this trade is more than amply offset by the large gains I took in with my hedges in short positions in the S&P 500 (SPY), the Russell 2000 (IWM), oil (USO), US Treasury bonds (TLT) and my long in gold (GLD).
This puts me in the enviable position of going into the November 8th presidential election entirely in cash. That has been my goal for all of 2016.
And I go into this cash position coming off an absolute tear in trading performance, making an eye popping 8.13% in October, enduring a flat September, and taking in a whopping 7.52% in August.
Those lucky folks who bought my service in July must think I?m some kind of genius.
I?m not. I just work very hard and love what I do.
Cash has an option value, and by maximizing my cash here I am creating the maximum amount of dry powder going into an extreme risk event, one of the biggest in a decade.
I think Hillary Clinton has the Electoral College locked up. It is mathematically impossible for Trump to win.
Of the 13 battle ground states, Clinton is winning 10 by large margins and breaking even in three. It is an insurmountable lead.
And Clinton has 50,000 ground troops to get out the vote, which Trump lacks.
Absentee voting in Hispanic neighborhoods across the country is coming in at levels 100% higher than in the last election.
Donald Trump finally pulled off what Democrats were never able to do on their own: get Hispanics to vote in large numbers for Democrats.
If you want the 50,000-foot view, this is all part of a century long transition of the United States from a predominately white to a multiethnic society where no single group has a majority.
That happened in San Francisco 20 years ago, in California ten years ago, and will take place nationally by 2040.
Our politics are changing as a result. Expect the road to be bumpy.
Even the betting polls are showing 70-30 odds in Clinton?s favor.
I have another poll to refer to that is even more valuable.
Of the 6,000 followers in all 50 US states and 135 countries who read the Diary of a Mad Hedge Fund Trader on a daily basis, I know of only two who are voting for Donald Trump.
After all, this is an educated, pragmatic, and opportunistic group who are primarily interested in making money.
Of the two who are going to vote for Clinton, one is a hard core conservative in Arkansas who is still fighting the Civil War (yes, that?d be you, Rufus!).
The other, in Oklahoma, believes in every Internet conspiracy theory that comes along, no matter how frequently they are proven wrong.
But I would rather read about the election outcome in the newspapers than in my portfolio. This is how you get to stay in the game for 50 years, as I have.
The last time I went 100% into cash was before the Brexit vote, and that worked out pretty well.
The goal here is not to be right, feel good, or seize the moral high ground. It is all about earning absolute positive returns at all times.
THIS IS HOW YOU DO IT!
Having said all that, and being out of the market, I?m now heading off to the Incline Village, Nevada Public Library to vote early. Nevada is a battleground state, and every vote will count, even mine.
I hear it?s going to be crowded on Election Day.
If you are uncertain about? how to execute this options spread, please watch my training video How to Execute a Vertical Bull Call Debit Spread
Occasionally I hear from subscribers to the flagship publication of Mad Hedge Fund Trader, Global Trading Dispatch, that they can?t execute one of my market beating Trade Alerts because broker commissions will eat up a large chunk of their potential profits.
This is especially true with low dollar priced stocks, like Bank of America (BAC), involving large numbers of contracts.
When I ask how much they are paying in commissions, I am absolutely flabbergasted. Investors are being raped left, right, and center by excessive commissions, ticket charges, custodial expenses and exchange fees.
Brokerage management philosophy seems to be, ?if it moves or breathes, charge it.? Small individual investors are particularly abused.
You want to be paying for your own yacht, not your broker?s.
So, I decided to go shopping for a new online broker, assuming that I would be executing a typical volume of orders one might execute following the sometimes frenetic Trade Alerts of the Mad Hedge Fund Trader. That works out to about 20 trades a month in options, stocks, and ETFs at about 40 contracts per trade.
After speaking to a dozen different companies, I gained a pretty good read on the current state of the business.
This is a fantastically competitive industry. Firms are fighting tooth and nail to gain customer trade flows which they then sell to high frequency traders, where the real money is made.
If you are strictly passive and simply open an account on your own, the initial commissions will be very high. But lift up the phone, and suddenly everything is negotiable, and the world is your oyster.
Some will offer you 60 days of commission free trading to wrest your account away from the competition. Others will pay cash bonuses up to $2,000, depending on the size of your trading capital.
Services will vary all over the map, from bare bones discount services, to full service houses with massive research and analytical resources. Some companies charge premiums for speaking to live humans, while others don?t.
It is very important that their technical support be easily accessible to sort out the inevitable glitches and mistakes. Before taking any action, visit a potential broker?s website for a test-drive and see if it meets your needs.
Caution: none of these guys have any idea whatsoever what the market is going to do. That is my job.
Before sending that wire transfer, make sure that your new broker is FDIC insured for $250,000. Several houses went bust during the crash, and that government guarantee was worth its weight in gold.
If you have the financial sophistication, you might also ask for the broker?s financial statement. Small private firms won?t have these as they are privately owned.
When times get tough, keeping all your money in a financial institution that is ?too big to fail? is a good idea.
Here?s another warning: the people who work in this business are fantastically aggressive. Don?t give them your home phone number or they will pester you to death until you send them money. It?s almost as bad as talking to solar panel installers.
Remember also that opening a brokerage account these days requires gargantuan amounts of paperwork, thanks to vastly expanded regulation.
I?m sure they cause entire forests to needlessly fall under the axe. It is also one of the last industries, along with real estate, to still use the dinosaurian fax machine.
A further headache: many documents have to be notarized to make sure you are not a terrorist or a drug dealer laundering money.
I would also keep open a minimum of two accounts at different brokers at any one time. The lesson of MF Global is that you never want all your eggs in one basket. Everyone eventually got all their money back, but it took three years of litigation to get the last couple of bucks.
Once your account is open and has established a trade history, call your broker again. If your size or frequency of trading has increased, so has your negotiating leverage, and they will agree to better deals and bigger discounts.
Remember, it is the squeaky wheel that gets the grease.
I spoke to a dozen brokers and here is what I found. Commissions are expressed in terms of a ticket charge per options trade and a fixed commission per contract. A few cents in exchange fees get tacked on to every trade.
Interactive Brokers
Has been rated the number one firm for the last three years by the Barron?s annual survey of online brokers. They also have a large international following among my many readers abroad (we have customers in 135 countries).
They offered me a very competitive 50-cent a share commission, and ticket charges depending on whether I am adding to, or subtracting from, liquidity in the market. To learn more, go to their website: https://www.interactivebrokers.com/ind/en/main.php
OptionsHouse (formerly TradeMonster)
Founded by my friends, Jon and Pete Najarian, TradeMonster is a full service house with extensive analytical and educational resources. You can even find the Mad Hedge Fund Trader in there sometimes. They offered me a flat commission rate of 60 cents a share, no ticket charge, and a $600 cash back signing bonus.
TradeMonster merged with Options House, and the two firms have integrated customer lists, market data management, and services.
https://www.optionshouse.com/
Place Trade
A deep discount broker located in Raleigh, North Carolina would charge me a 75-cent commission and a $1.00 ticket charge, but these were soft numbers. I?m sure one more phone call would have dropped them by half.
http://www.us.placetrade.com/
TD Ameritrade
Their website offered a 60 cent commission, $600 in cash back and 60 days of free commissions. But when I called to learn more, I was left on hold for 20 minutes, so I gave up.
https://www.tdameritrade.com/home.page
TradeStation
This ubiquitous marketer offered me a $4.99 ticket charge and a 20 cent commission if I did more than 200 trades a month. Drop below this and it jumps up quite a lot.
http://www.tradestation.com/
OptionsXpress
This Charles Schwab subsidiary could do an $8.95 ticket charge and a 75-cent commission. It has recently invested a lot in mobile (smart phone) executive, one of the fastest growing parts of the market.
About a third of my readers now access my research through their phones, although how they read those tiny letters is beyond me.
http://www.optionsxpress.com/
TradeKing
Is giving customers a $4.95 ticket charge and a 65-cent commission. They have been growing through acquisition in recent years, picking up a number of other small online brokers.
https://www.tradeking.com/
Fidelity
Its website offers a $7.95 ticket charge and a mere 10 cent commission along with its Trade Armor service. Unfortunately, I couldn?t find out what this is because I was left on hold for 20 minutes. As you can probably tell by now, my patience with poor customer service is pretty low, so I hung up.
https://www.fidelity.com/
E*TRADE
This firm earned a perpetual place in the minds of San Francisco based traders when a disgruntled customer shot out one of their massive windows at their Market Street branch at the height of the financial crisis.
This firm seemed one of the most eager to get my business. They have a steep starter $9.95 ticket charge and a 75-cent commission. But that declines dramatically if I trade more than 150 times a month. They also offered me a generous $1,200 cash bonus to switch my account, and 60 days of commission free trading.
Tony, I?ll get back to you!
https://us.etrade.com/home
Merrill Edge
This old line wire house came close to going under during the crash, and was bought at the last minute by Bank of America (BAC) for a pittance, after no small amount of government pressure.
With a $6.95 ticket charge and a 75-cent commission, they are no bargain. But if you like a lot of hand holding, and want someone to take you out to play golf on your birthday, this is your place. And if you maintain cash balances of over $25,000 at (BAC) you get 100 free trades and a cash back bonus of $1,200. It?s all in the family.
https://www.merrilledge.com/
Scottrade
Another prolific advertiser, they came in at a $7 ticket charge and a $1.25 per contract commission. They will offer cash bonuses to move an account from $100 up to $2,000 for amounts over $1 million. They will also toss in another $100 to cover transfer fees.
Although they are an online broker, they boast a 500 branch national network that comes in handy when handling the extensive paperwork for a new account.
https://www.scottrade.com/
Charles Schwab
My first impression after looking at the Charles Schwab website was ?Charles, you?re getting really old!? Schwab has graced the box next to mine at the San Francisco Opera for the last 20 years.
It?s interesting to see how this firm has evolved over the last four decades. When it first arrived on the scene, it was a disruptive, iconoclastic discount broker that thumbed its nose at Wall Street.
Today, it is dripping with establishment pretention, and has moved up market, getting more expensive. Its main presence in the options market comes from its purchase of optionsXpress described above.
https://www.schwab.com/
To get more in-depth information on the many broker offerings out there, please read the Barron?s annual online broker rankings by clicking here at
http://online.barrons.com/articles/SB50001424053111904628504579433251867361162