I ran into Minxin Pei, a scholar at the Carnegie Endowment for International Peace who imparted to me some iconoclastic, out of consensus views on China?s position in the world today.

He thinks that power is not shifting from West to East; Asia is just lifting itself off the mat, with per capita GDP at $5,800, compared to $48,000 in the US. We are simply moving from a unipolar to a multipolar world. China is not going to dominate the world, or even Asia, where there is a long history of regional rivalries and wars.

China can?t even control China, where recessions lead to revolutions, and 30% of the country, Tibet and the Uighurs, want to secede. China?s military is entirely devoted to controlling its own people, which make US concerns about their recent build up laughable.

All of Asia?s progress, to date, has been built on selling to the US market. Take us out, and they?re nowhere. With enormous resource, environmental, and demographic challenges constraining growth, Asia is not replacing the US anytime soon.

There is no miracle form of Asian capitalism; impoverished, younger populations are simply forced to save more, because there is no social safety net. Try filing a Chinese individual tax return, where a maximum rate of 40% kicks in at an income of $35,000 a year, with no deductions, and there is no social security or Medicare in return. Ever heard of a Chinese unemployment office or jobs program?

Nor are benevolent dictatorships the answer, with the despots in Burma, Cambodia, North Korea, and Laos thoroughly trashing their countries. The press often touts the 600,000 engineers that China graduates, joined by 350,000 in India. In fact, 90% of these are only educated to a trade school standard. Asia has just one world-class school, the University of Tokyo.

As much as we Americans despise ourselves and wallow in our failures, Asians see us as a bright, shining example for the world. After all, it was our open trade policies and innovation that lifted them out of poverty and destitution. Walk the streets of China, as I have done for nearly four decades, and you feel this vibrating from everything around you. I?ll consider what Minxin Pei said next time I contemplate going back into the (FXI) and (EEM).

FXI 4-24-13

EEM 4-24-13

China - Parade China: Not All it?s Cracked Up to Be

Global Market Comments
April 24, 2013
Fiat Lux

Featured Trade:
(JULY 2 NEW YORK STRATEGY LUNCHEON),
(THINGS ARE HEATING UP IN MEXICO),
(EWW), (UMX), (BSMX), (EEM),
(BUDGET CUTS HOT THE WILD ANIMAL MARKET)

iShares MSCI Mexico Capped Invstbl Mkt (EWW)
ProShares Ultra MSCI Mexico Cppd IMI (UMX)
Grupo Financiero Santander S.A.B. de C.V. (BSMX)
iShares MSCI Emerging Markets Index (EEM)

Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy Seminar, which I will be conducting in New York, NY on Tuesday, July 2, 2013. An excellent three-course lunch will be provided. A PowerPoint presentation will be followed by an extended question and answer period.

I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $209.

The formal luncheon will run from 12:00 to 2:00 PM. I?ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.

The event will be held at a prestigious private club on Central Park South, the details of which will be emailed to you with your purchase confirmation.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.

Empire State Building

In case you missed it, the second hand animal market has crashed. Forced to slash budgets by cash starved municipalities, the nation?s public zoos have been paring back their collections of living exhibits.

The Washington Zoo is trying to offload a 7,000 pound hippopotamus; while the San Francisco Zoo is short some tigers after one ate a visitor and had to be shot. The Portland Zoo was able to liquidate a portfolio of lemurs only because of the popularity of the recent DreamWorks? ?Madagascar 3? animated film.

When zoos are forced to economize, they downsize the big eaters first to save on feed costs; hence, the absence of elephants in San Francisco (Could this be a political gesture?). In fact, zoo staff was recently busted for illegally harvesting acacia on private property, a favorite food of giraffes, which grows wild here after its introduction a century ago.

The hardest to move? Baltimore has been trying to sell its snake collection for two years now. Talk about an illiquid market. Maybe they should try AIG. Snake derivatives anyone?

Tiger Pink Slips for Tony?

Bring Back the Uptic Rule!

When the Dow crashed 514 points in a single day a few years ago, the market lost a staggering $850 billion in market capitalization. High frequency traders were possibly responsible for half of this move, but generated a mere $65 million in profits, some 7/1,000?s of a percent of the total loss. Are market authorities and regulators being penny wise, but pound foolish?

The carnage the HF traders are causing is triggering a rising cry from market participants to ban the despised strategy. Many are calling for the return of the ?short sale test tick rule?, or SEC Rule 17 CFR 240.10a-1, otherwise known as the ?uptick rule?, which permits traders to execute short sales only if the previous trade caused an uptick in prices.

The rule was created eons ago to prevent the sort of cascading, snowball selling that we are seeing today. It was repealed on July 6, 2007. Check out a chart of the volatility that ensued and it will make the hair on the back of your neck raise.

Those unfamiliar with how algorithmic trading works see it as something akin to illegal front running. ?Co-location? of mainframes with exchange computers, or having them in adjacent rooms, gives them another head start over the rest of us. Much of the trading sees HF traders battling each other, and involves what used to be called ?spoofing?, the placing of large, out of the market orders with no intention of execution. Needless to say, if you or I tried any of these shenanigans, the SEC would lock us up in the can so fast it would make your head spin.

Many accuse exchange authorities of a conflict of interest, allowing members to reap sizeable custody fees from HF traders, while the rest of us get taken to the cleaners. Co-location fees run in the hundreds of thousands of dollars per customer per month. This is happening while traditional revenue sources, like proprietary trading, are disappearing, thanks to Dodd-Frank. There is no doubt that the volatility is driving the retail investor from the market.

In fact, HF trading has been around since the nineties, back when the uptick rule was still in place and colocation was a term out of Star Trek. But it was small potatoes then, confined to a few niche players like Renaissance, and certainly lacked the firepower to engineer 500 point market swings.

The big problem with this solution is that HF trading now accounts for up to 70% of the daily trading volume. Ban them, and the market volatility will shrink back to double digit trading ranges that will put us all asleep. The diminished liquidity might make it difficult for the 800 pound gorillas of the market, like Fidelity and Caplers, to execute trades, further frightening end investors from equities. It is possible that we have become so addicted to the crack cocaine that HF traders provide us that we can?t live without it?

Stock Swings Surge

Art work HF Traders Are Driving Individual Investors Out of the Market

Global Market Comments
April 23, 2013
Fiat Lux

Featured Trade:
(MAY 8 LAS VEGAS STRATEGY LUNCHEON),
(PROBING FOR A BOTTOM IN GOLD), (GLD),
(IS THIS THE FINAL BOTTOM FOR APPLE?),
(AAPL), (GOOG), (JCP)

SPDR Gold Shares (GLD)
Apple Inc. (AAPL)
Google Inc. (GOOG)
J. C. Penney Company, Inc. (JCP)

Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Las Vegas, Nevada on Wednesday, May 8, 2013. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.

I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. I will also explain how I have been able to deliver a blowout 40% return since the November, 2012 market bottom. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $179.

I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets. The PowerPoint presentation will be emailed to you three days before the event.

The lunch will be held at a major Las Vegas hotel on the Strip, the details will be emailed with your purchase confirmation. Please make your own hotel reservations, as business there is booming.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.

las-vegas-welcome-sign

Thanks to last week?s Armageddon type crash in gold prices, implied volatilities on options in the SPDR Gold Trust Shares (GLD) have rocketed to five-year highs. This is in sharp contrast to equity index option implieds, which are just a few percent above six year lows. Therefore, the deep in the money option strategy in the (GLD) is now vastly superior to alternatives found in the S&P 500 (SPY) and the Russell 2000 (IWM).

This means that it is possible to strap on a call spread in (GLD) that is miles in the money with extremely low risk, and still earn a decent four-week return. That is the case with the SPDR Gold Trust Shares May, 2013 $125-$130 call spread. The (GLD) has to drop a further $8.11, or $81 in underlying gold terms over the next 19 trading days for you to lose money.

Coming on top of the previous $200 collapse in gold, a mathematician would describe this as a six standard deviation event. That is another way of saying that moves like this occur only once every 2,000 years. This is a probability that I am more than happy to bet against. Also, redemption in ETF (GLD) hit $2 billion last week, the largest on record, and has probably peaked.

I spent the weekend talking to my consulting clients at the central banks of China and Singapore. Although they are not allowed to disclose their exact plans in advance, using the standard code words they made it clear to me that they would be major buyers of the barbarous relic at $1,250 and below.

You can bet that at least a dozen other emerging market central banks will be joining them there. $1,250 in gold was a major upside breakout level on the way up that should provide solid support on the way down. That is why I am going with such a hefty 20% weighting. I am also taking a big bite of (GLD) because there are so few attractive risk/reward propositions in other asset classes at these lofty levels.

You have to go back nearly three and a half years to find new buyers with a cost basis lower than $1,250. That means we have probably flushed out all of the weak, short and medium term owners of gold with the recent melt down, and there is probably not much selling left to be seen.

There is also a ton of technical support that kicks in at the $1,250-$1,300 range. The bull market in gold ignited in 2001 at $255/ounce. A 38.2% Fibonacci retracement from the $1,920 peak takes us back to $1,286. Focusing on a shorter time frame, a 50% drop from the most recent run that started at $750 in 2008 hits at $1,302. When you get this much technical congestion around the same price levels, they tend to hold.

This could be the trade that keeps on giving. If we really are putting in a long-term bottom for the yellow metal over $1,250, it could take several months for the cement to dry. That means we could strap on a new position every month, possibly until the end of the year. It will be like having a rich uncle that writes you a check every four weeks, much like shorting the Japanese yen was last year.

Gold is not dead, it is just resting. All of the long-term arguments in favor of gold still hold true. Those include, the desire of emerging market central banks to own a higher percentage of their reserves in gold, rising emerging market standards of living, the return of double digit inflation during a global economic boom in the 2020?s, and the preference of global central banks to print money until then. It also makes a nice Christmas present. So at some point, the barbarous relic should take another run at its old inflation adjusted high of $2,300 an ounce.

GLD 2-22-13

VIX 2-22-13

Gold Nuggets The Summer Sales Started Early This Year

Global Market Comments
April 22, 2013
Fiat Lux

Featured Trade:
(MAY 8 LAS VEGAS STRATEGY LUNCHEON),
(THE TAX RATE FALLACY),
(AN AFTERNOON WITH BOONE PICKENS)

Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Las Vegas, Nevada on Wednesday, May 8, 2013. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.

I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. I will also explain how I have been able to deliver a blowout 40% return since the November, 2012 market bottom. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $179.

I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets. The PowerPoint presentation will be emailed to you three days before the event.

The lunch will be held at a major Las Vegas hotel on the Strip, the details will be emailed with your purchase confirmation. Please make your own hotel reservations, as business there is booming.

I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.

las-vegas-welcome-sign