Featured Trade: (HOW THE UKRAINE CRISIS WILL PLAY OUT), (USO), (UNG), (WMT), (AAPL), (MCD) (MY PERSONAL ECONOMIC INDICATOR), (HMC), (NSANY), (GM), (F), (TSLA)
United States Oil (USO)
United States Natural Gas (UNG)
Wal-Mart Stores Inc. (WMT)
Apple Inc. (AAPL)
McDonald's Corp. (MCD)
Honda Motor Co., Ltd. (HMC)
Nissan Motor Co. Ltd. (NSANY)
General Motors Company (GM)
Ford Motor Co. (F)
Tesla Motors, Inc. (TSLA)
I can tell you exactly how the crisis in the Ukraine is going to play out. This has major implications for the global economy, financial markets and your personal portfolio, so listen up!
The key to deciphering this puzzle is oil, far and away Russia?s largest export. At 10 million barrels a day, the country is taking in $360 billion a year in revenues from oil shipments.
You can analyze Russia all day long, and come up with bullish arguments for the country, like the emerging middle class, its huge hoard of basic commodities, and substantial wheat exports. But Texas tea (Russian tea?) overwhelms everything else in its impact on the national accounts.
The bottom line is that Russia is basically a call option on oil. This is why I never buy the Market Vectors ETF Trust (RSX). Look at the charts below for oil, and it is clear that it almost trades tick for tick with the (RSX).
If I?m bullish on oil, I go straight to the end commodity, and not the intermediary, where price earnings multiples are permanently low, corruption is rampant and the rule of law is absent.
And therein lies the problem for Vladimir Putin.
Any chink in the global growth picture flows straight into the price of oil. Slower growth brings lower oil prices and therefore smaller incomes for the Russians. And guess who the principal threat to global growth is? Vladimir Putin and his attempt to take over the Ukraine by force.
So far, crude has dropped by 10% from the May peak of $107.60. That may not sound like a lot. But this is not your father?s Russian oil industry.
Back in the old days, when my friend, Occidental Petroleum?s (OXY) Dr. Armand Hammer and Fred Koch were the only Americans running around the Caucasus, oil there was incredibly cheap. There, technology was 50 years old and labor was virtually free. Slave labor is great for profit margins. If you don?t believe me, just ask Wal-Mart (WMT) and Apple (AAPL).
The fall of the Berlin Wall and the end of the Soviet Union brought many far-reaching, unintended consequences. A big one is that Russia?s dependence on international trade grew tremendously. The country was also able to modernize its oil industry with extensive American assistance.
Russian oil production exploded, as did the cost of production. In my lifetime, expenses have soared from $5 to $70 a barrel. So when oil dips by 10% on the international markets, Russian incomes plunge by 25%. The Russian oil industry has become a highly leveraged affair.
This is why such relatively minor price declines brought apparently desperate actions by the Russian authorities to prop up the economy. They have imposed a 3% emergency VAT, or sales tax. While I was in Europe, four Russian tour companies were driven into bankruptcy by the banking sanctions, stranding some 10,000 tourists on Mediterranean beaches.
Now there is a ban on food imports from Europe, stranding thousands of trucks at the Russian borders. Russia doesn?t grow much food, thanks to their horrendous winters and short growing seasons. Essentially, it?s just wheat and potatoes.
Everything else has to be imported. Some of the lost food can be made up with new imports from emerging, non sanctioning economies, but not much. In the meantime, some 350 McDonald?s franchises in Russia are trying to figure out how to make Big Macs purely from domestic supplies. Good luck to that!
The thing that really struck me speaking to Russians in Europe this summer was Putin?s unbelievably high 85% approval rating (our congress is at 14%!). They trotted out the most incredible conspiracy theories which painted them as the injured party. (The Ukraine was trying to assassinate Putin when it shot down Malaysian Air 17, and then blamed it on Russia).
It almost reminded me of home. The Russians are calling their opponents ?fascists.? This is a people who act like WWII ended last week.
Which leads me to believe that Putin?s popularity is peaking. The sanctions coupled with falling oil revenues are starting to have a severe impact on Russian standards of living. It is a matter of time before this feeds into poor election results for Putin. Nationalism is great, but who wants to live on canned food left over from the Soviet Union (yuck!).
Putin knows this. So to head off the riot, he is going to declare victory in the Ukraine fairly soon, and then take his troops home. This will enable the Ukraine to snuff out the separatists and return to an uneasy peace. We might even luck out and get a written treaty.
If that is a case, you can expect global financial markets to rocket. There would me a massive shift of capital out the risk spectrum, out of bonds and into stocks. This would give the green light for my scenario where S&P 500 adds 10% from last week?s low to end of 2014.
Maybe this is what stocks are trying to tell us by refusing to go down more that 5% this summer and the face of a host of geopolitical disasters.
As for the exact timing for all of this, just watch the price of oil. The lower it goes, the sooner we will get a favorable resolution. The charts are hinting that another $5-$10 break to the downside is imminent.
The last Cold War drove the Soviet Union broke and Putin definitely has no interest in repeating the exercise.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/McDonalds-Russia.jpg321337Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-14 09:32:162014-08-14 09:32:16How the Ukraine Crisis Will Play Out
Featured Trade: (A SAD FAREWELL TO ROBIN WILLIAMS), (THE CASE AGAINST TREASURY BONDS), (TBT), (TLT), (MUB), (LQD), (LINE), (A NOTE ON THE FRIDAY OPTIONS EXPIRATION), (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
iShares 20+ Year Treasury Bond (TLT)
iShares National AMT-Free Muni Bond (MUB)
iShares iBoxx $ Invst Grade Crp Bond (LQD)
Linn Energy, LLC (LINE)
We have a couple of options positions that expire on Friday, and I just want to explain to the newbies how to best maximize their profits.
These include:
iShares Barclay 20+ Year Treasury Bond Fund (TLT) August, 2014 $115-$118 in-the-money bear put spread with a cost of $2.70
iShares Barclay 20+ Year Treasury Bond Fund (TLT) August, 2014 $117-$120 in-the-money bear put spread with a cost of $2.61
As long as the iShares Barclay 20+ Year Treasury Bond Fund (TLT) closes at $115.00 or below on Friday, you will achieve the maximum profit in both these positions. Today, the (TLT) closed at $114.76, so, so far, so good.
Both positions expire with a value of $3.00, giving you a profit of 11.1% on the $115-$118 put spread and 13% on the $117-$120 put spread.
In this case, the process is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
Your broker (are they still called that?) will automatically use the long put to cover the short put, cancelling out the positions. The profit will be credited to your account on Monday, and he margin freed up.
Of course, I am watching this position like a hawk. If an unforeseen geopolitical event causes the (TLT) to take off to the upside once again, such as if Russia invades the Ukraine in the next two days, I will quickly STOP OUT for a small loss. You should get the text alert in seconds.
Those who were able to put both spreads on will probably still make money overall, as the expiration breakeven point for the pair has been boosted to $115.69.
If the (TLT) expires slightly in the money, like at $115.05, or $115.10, then the situation may be a little more complicated, and can become a headache.
On the close, your short position expires worthless, but your long put position is converted into an outright naked short position in the (TLT) with a cost of $118.
This you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you put up a ton of new margin.
Professionals caught in this circumstance then buy a number of shares of (TLT) equal to the short position they inherit with the expiring $118 put. Then the short (TLT) position is cancelled out by the long (TLT) position, and on Monday both disappear from your statement. However, this can be dicey to execute going into the close.
So for individuals, I would recommend just selling the $115-$118 put spread in the market if it looks like this situation may develop and the (TLT) is going to close very close to $115.00.
Keep in mind, also, that the liquidity in the options market disappears, and the spreads widen, when a security has only hours, or minutes until expiration. This is known in the trade as the ?expiration risk.?
One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.
Well done, and on to the next trade.
What Do You Think? Will the (TLT) Close Over or under $115?
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/John-Thomas3.jpg370352Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-13 09:27:562014-08-13 09:27:56A Note on the Friday Options Expiration
Featured Trade:
(IS THE TURNAROUND AT HAND, AND TEN STOCKS TO BUY AT THE BOTTOM?), (SPX), (TLT),
(UNLOADING MORE EUROS), (FXE), (EUO),
(I?M BACK FROM EUROPE!)
S&P 500 Index (SPX)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Euro ETF (FXE)
ProShares UltraShort Euro (EUO)
War threatens in the Ukraine. Iraq is blowing up. Rebels are turning our own, highly advanced weapons against us. Israel invades Gaza. Ebola virus has hit the US. Oh, and two hurricanes are hitting Hawaii for the first time in 22 years.
Should I panic and sell everything I own? Is it time to stockpile canned food, water and ammo? Is the world about to end?
I think not.
In fact the opposite is coming true. The best entry point for risk assets in a year is setting up. If you missed 2014 so far, here is a chance to do it all over again.
It is an old trading nostrum that you should buy when there is blood in the streets. I had a friend who reliably bought every coup d? etat in Thailand during the seventies and eighties, and he made a fortune, retiring to one of the country?s idyllic islands off the coast of Phuket. In fact, I think he bought the whole island.
Now we have blood in multiple streets in multiple places, thankfully, this time, it is not ours.
I had Mad Day Trader, Jim Parker, do some technical work for me. He tracked the S&P 500/30 year Treasury spread for the past 30 years and produced the charts below. This is an indicator of overboughtness of one market compared to another that reliably peaks every decade.
And guess what? It is peaking. This tells you that any mean reversion is about to unleash an onslaught of bond selling and stock buying.
There is a whole raft of other positive things going on. Several good stocks have double bottomed off of ?stupid cheap? levels, like IBM (IBM), Ebay (EBAY), General Motors (GM), Tupperware (TUP), and Yum Brands (YUM). Both the Russian ruble and stock market are bouncing hard today.
There is another fascinating thing happening in the oil markets. This is the first time in history where a new Middle Eastern war caused oil price to collapse instead of skyrocket. This is all a testament to the new American independence in energy.
Hint: this is great news for US stocks.
If you asked me a month ago what would be my dream scenario for the rest of the year, I would have said an 8% correction in August to load the boat for a big yearend rally. Heavens to Betsy and wholly moley, but that appears to be what we are getting.
It puts followers of my Trade Alert service in a particularly strong position. As of today, they are up 24% during 2014 in a market that is down -0.3%. Replay the year again, and that gets followers up 50% or more by the end of December.
Here is my own shopping list of what to buy when we hit the final bottom, which is probably only a few percent away:
Longs
JP Morgan (JPM) Apple (AAPL) Google (GOOG) General Motors (GM) Freeport McMoRan (FCX) Corn (CORN) Russell 2000 (IWM) S&P 500 (SPY)
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/Gun-Ammunition-War-Room.jpg280438Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-11 01:05:382014-08-11 01:05:38Is the Turnaround at Hand, and Ten Stocks to Buy at the Bottom?
The entire foreign exchange world has been on hold this week, waiting for ECB president Mario Draghi to announce a well-deserved cut in Euro (FXE), (EUO) interest rates.
The sanctions war with Russia is escalating by the day. Russia banned food imports from the US and Europe, a mere $1 billion trade hickey for us, but a $15 billion punch to the gut for the continentals. Some 350 McDonald franchises in Russia will be left with nothing to serve. Yikes!
Economists are paring expectations for European GDP growth for this year as fast as they can.
Italy announced a shocking dive in Q2 growth, and German data is deteriorating by the day, where some 300,000 jobs are dependent on trade with Russia.
The European bond market has certainly gotten the message. The yield on ten-year German bunds hit another all time low at a gob smacking 1.02%, while the return on two year paper fell below zero!
Throwing more fat on the Euro fire were the latest American weekly jobless claims, plunging by 14,000 to a new seven year low of 289,000. This augers for high US interest rates sooner, which is hugely dollar positive and Euro negative.
So given all this, Draghi?s announcement that there would be no interest rate cut whatsoever went over like a lead balloon. You would have expected the Euro to rocket a few cents on this news, thanks to the further yield support.
It didn?t, not even for a second.
Instead, another round of frustrated short sellers hit the market big time, who had been waiting for better prices at which to sell. I was one of those.
With the rapidly deteriorating fundamentals, selling short the Euro has become this year?s one way, ?free money? trade. It is a classic trading nostrum that if you throw good news on an asset and it fails to rally, you sell the hell out of it.
I will reiterate my long time targets for the beleaguered continental currency of $1.27, then $1.18, and possibly as low at $1.00. How quickly will we get to these low numbers?
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/Vladimir-Putin.jpg272409Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-11 01:04:422014-08-11 01:04:42Unloading More Euros
Before I checked out of my hotel in Zermatt, Switzerland, I took the owner of my hotel out to dinner. I asked what he had learned after many years of hosting foreign guests. This is what he told me:
HEAVEN IS WHERE:
The police are British
The chefs are Italian
The mechanics are German
The lovers are French
And it is all organized by the Swiss
HELL IS WHERE:
The police are German
The chefs are British
The mechanics are French
The lovers are Swiss
And it is all organized by the Italians
https://www.madhedgefundtrader.com/wp-content/uploads/2014/08/How-Americans-See-Europe.jpg509544Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-11 01:03:152014-08-11 01:03:15I?m Back From Europe!
Featured Trade: (AUGUST 13 GLOBAL STRATEGY WEBINAR), (ANNOUNCING THE MAD HEDGE FUND TRADER YOUTUBE VIDEO IN ISTANBUL) (AN UPDATE ON THE TESLA FIRE), (TSLA)
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-08-08 01:06:312014-08-08 01:06:31August 8, 2014
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