Global Market Comments
May 7, 2014
Fiat Lux
Featured Trade:
(CHICAGO FRIDAY, MAY 23 GLOBAL STRAGEGY LUNCHEON),
(THE NEW COLD WAR),
(THE BIPOLAR ECONOMY),
(TESTIMONIAL)
My friend, Ian Bremmer of the Eurasia Group, a global risk analyst who I regularly follow, has published an outstanding book entitled The End of the Free Markets: Who Wins the War Between States and Corporations. I find this highly depressing, as it takes me as long to read one of Ian?s books as it takes him to write another one. To read a review of his highly insightful tome published in 2008, The Fat Tail: The Power of Political Knowledge for Strategic Investing, please click here. The world is reaching a tipping point. For the past 40 years, global multinationals with unfettered access to capital, consumer, and labor markets have driven the world economy. There is now a new competitor on the scene, the ?state capitalist,? where political considerations trump economic ones in the allocation of resources. Of course, China is the main player, joined by several other emerging nations. The Middle Kingdom has posted double-digit annual growth for the past 30 years without freedom of speech, economic rules of the road, and independent judiciary, and credible property rights. China?s leadership is clearly worried that Western style freedoms will enable wealth to be generated outside their control and be used to orchestrate their overthrow. Private Western companies can only engage in transactions, which stand on their own economically and deliver the short-term profits, which their shareholders demand. In China, long-term political goals enable them to pay through the nose to obtain stable supplies of oil, gas, minerals, and materials. That keeps the country?s massive work force employed, off the streets, and politically neutered. The bottom line is that there are now two competing forms of capitalism. The recent financial crisis has accelerated their entrance to the global stage, moving us from a G7 to a G20 dominated world. Globalization is not ending, but it is definitely entering a new chapter. For those of us who read tea leaves to ascertain major, market moving economic trends, this will be a must read. To buy the book at Amazon, please click here. 
Global Market Comments
May 6, 2014
Fiat Lux
SPECIAL ISSUE ABOUT THE FAR FUTURE
Featured Trade:
(LAS VEGAS WEDNESDAY MAY 14 GLOBAL STRAGEGY LUNCHEON)
(PEAKING INTO THE FUTURE WITH RAY KURZWEIL),
(GOOG), (INTC), (AAPL), (TXN)
Google Inc. (GOOG)
Intel Corporation (INTC)
Apple Inc. (AAPL)
Texas Instruments Inc. (TXN)
Global Market Comments
May 5, 2014
Fiat Lux
SPECIAL ISSUE ABOUT THE FUTURE
Featured Trade:
(ORLANDO FLORIDA SATURDAY, MAY 17 GLOBAL STRAGEGY LUNCHEON),
(BEWARE THE ?SPINNING TOPS?),
(SPY), (TLT),
(THE HISTORY OF TECHNOLOGY)
SPDR S&P 500 (SPY)
iShares 20+ Year Treasury Bond (TLT)
Winter is definitely over here in Incline Village, Nevada. When I started my daily ten-mile hikes from the Tunnel Creek Caf? ten days ago, I had to don snowshoes in the parking lot. Yesterday, I had to climb for two hours to find snow at 8,000 feet.
It?s definitely time to put my winter equipment into storage. The aspen trees are budding and yellow crocuses are breaking out all over.
That was also the conclusion of the killer April nonfarm payroll report, which brought in an eye popping 288,000. March was revised up from 192,000 to 203,000. Even more stunning was the plunge in the headline unemployment rate from 6.7% to 6.3%. It was a perfect number. Almost. We?re almost back to normal again.
I thought we were home free on our iShares Barclay 20+ Year Treasury Bond Fund (TLT) May, 2014 $113-$116 in-the-money bear put spread.
The blockbuster release should have driven a stake through the heard of the bond market.
And fall it did?.for about 15 minutes. Then news of the White House press conference announcing a further ratcheting up of tensions with Russia over the Ukraine triggered one of those rip your face off short covering rallies that have become so common this year. Prices for the (TLT) jumped to new 2014 highs, just short of our near short strike at $113. Stocks sagged.
If you had a mole at the Department of Labor who leaked to you the April nonfarm payroll a day in advance, you would have loaded the boat with long stock/short bond positions. Instead, we got the opposite. Welcome to a trader?s dull, brutish, and short life in 2014.
Throw bad news on the market, and if it fails to go down, you buy the heck out of it. That is a valuable lesson that I have learned over the decades, and I think it applied to the Treasury (TLT) bond market on Friday.
This was not weekend I wanted to go into short of bonds so close to the money. Putin is on a roll and appears to be willing to toss the dice once again. Now, he?s calling for a United Nations Security Council Meeting. Better to talk than shoot, I always say. It?s cheaper. I?ve tried both, and definitely prefer the latter.
If there has been another valuable lesson this year, it has been to keep positions small, and stop out of losers fast. So, as much as I hate to, I pulled the ripcord on my short, taking another nick on my performance this year.
?Markets can remain irrational longer than you can remain liquid,? said the great economist and primordial hedge fund trader, John Maynard Keynes. So true, so true.
The goal here is to maintain iron discipline in risk control and be the last man still standing when trading conditions improve and markets become easy again later this year. Until then, I?ll be engaging in small, short term opportunistic trades. I?ll also be doing a ton of deep research, building short lists of positions to Hoover up when life gets better.
Mind you, yields at these levels make absolutely no sense. They are predicting that deflation is now a permanent aspect of our lives. (To understand how that might be possible, read my interview in tomorrow?s letter with Google engineering director, Ray Kurzweil). Bonds are also shouting at us that we will remain stuck at a subpar 2% economic growth rate for years to come.
The inverse of bad news is also true. If you shower good news on a stock market and it fails to rise, you sell it. This suggests that a big dump in stocks is imminent, which is long overdue.
The markets certainly think this. Take a look at the chart below showing the ?spinning tops? in the S&P 500 in recent days, where shares trade across a wide range, but remain unchanged on the day. So named because the bar looks like a child?s toy, a spinning top suggests indecision among investors and a possible coming selloff. This is what happened in the beginning of March and April, opening the way for drops of 50 and 85 (SPY) handles.
This means that the ?head and shoulders? scenario I talked about a week ago is still on the table (click here for the article ?Watch Out for the Head and Shoulders?). That?s why I quickly knocked out a (SPY) June $193-$196 put spread.
In the meantime the media deluge for the upcoming midterm elections has already started, which are still five months away. Nevada governor Brian Sandoval is basing his entire campaign on his failed attempt to stop Obamacare in the courts. It is a strategy that will be repeated across the Midwest this year.
It sounds like this will be a good summer to stay out of the country. Sell in May and go away?
Going Into Storage
Beware the Spinning Tops
Global Market Comments
May 2, 2014
Fiat Lux
Featured Trade:
(JUNE 23 LONDON STRATEGY LUNCHEON)
(APRIL 23 GLOBAL STRATEGY WEBINAR),
(COME TO THE JUNE 13-14 INVEST LIKE A MONSTER LAS VEGAS CONFERENCE),
(SCAM OF THE MONTH)
Please come to hear me, Mad Hedge Fund Trader John Thomas, as the keynote speaker at the Invest Like a Monster Las Vegas Conference on June 13-14.
I will be joined by many old friends from across the investment spectrum. Jon and Pete Najarian will teach you the tricks of the trade for navigating the ever complex options markets.
Fellow former combat pilot, Chuck Hughes, will go into depth on his own highly successful approach to trading the market. To listen to my in depth interview with him on Hedge Fund Radio, please click here.
Well known market commentator Guy Adami, the Prince of New Jersey, will be there to give his trading insights. So will former hedge fund manager and Yahoo Finance guru Jeff Macke.
The first day will be devoted to three educational sessions that get into the nitty gritty of trading options. The day winds up with a cocktail party with the Najarian Brothers and me.
I will kick off the Saturday session with and extended presentation on the long-term future of the financial markets, to be followed by an extensive question and answer session. I will be followed by an impressive lineup of market veterans.
The event will be held at the Bellagio Hotel on the Strip, my favorite Las Vegas haunt, best known for its spectacular water fountains out front. You may recognize it in the hit movies The Hangover and Ocean?s Eleven.
General admission costs $499 for the two full days. You can buy a VIP ticket for $699, which includes social events with the high and the mighty. It is all great value for the money, given the quality and quantity of the information you will obtain. Just click here: http://www.optionmonster.com/events/?refId=186 to buy tickets.
Trademonster?s proprietary program, called Heat Seeker ?, monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets. To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes, every 33 minutes.
The firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. The firm then distills this ocean of data into the top movers of the day, which is put up for free on its website, and offers much more detailed analysis through a premium subscription product.
?As with the NFL,? says Jon, ?you can?t defend against speed.?
The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.
Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.
Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.
June is a great time to visit Sin City, as the crowds are largely gone and the sun is wonderfully baking hot. You can ride the neck-breaking roller coaster at the New York New York Hotel, catch one of eight Cirque du Soleil shows, and ride a gondola at the Venetian Hotel.
Or you can try to get a great deal on a luxury item from my buddy, Rick Harrison, at the famous Gold and Silver Pawn, of Pawn Stars fame (good luck with that!).
Just be sure to bring extra sun tan lotion!
Global Market Comments
May 1, 2014
Fiat Lux
Featured Trade:
(LAS VEGAS WEDNESDAY, MAY 14 GLOBAL STRAGEGY LUNCHEON)
(MY MEA CULPA ON THE MARKETS),
(AN ENVIRONMENTAL ACTIVISTS TAKE ON THE MARKETS),
(DBA), (MOO), (PHO), (FIW)
PowerShares DB Agriculture (DBA)
Market Vectors Agribusiness ETF (MOO)
PowerShares Water Resources (PHO)
First Trust ISE Water Idx (FIW)
When the market let?s you out with a nice profit ahead of two major risk events, you take it. We have 64% of the potential profit in the S&P 500 (SPY) May, 2014 $192-$195 in-the-money bear put spread at today?s prices.
We have an important Federal Reserve meeting where they are expected to announce Taper IV, cutting their monthly bond buying to only $45 billion. The Fed is almost certainly going to take a hard look at the slowing real estate market (see yesterday?s letter).
Yesterday was also the end of the month, so you could expect the usual fun and games at the close as fund managers window dress. On Friday, we get the April nonfarm payroll, which could be anywhere. Go toss a coin.
The cruel lesson of the past two months has been to take profits quickly, to take the money and run. So, let?s do so.
If our remaining (TLT) put spread expires at its maximum value, and we get the (VXX) back up to cost, then the model trading portfolio will be up 13% on the year. I have had to work three times harder to make that 13% than I did to earn last year?s blowout 68% profit. It seems like every time I punch through to a new performance all time high, an invisible hand pushes me back down again.
I warned readers many time in 2013 that the market was sucking performance out of 2014 and bringing it forward into 2013. That is exactly what has happened. Almost all managers are down this year, and many hedge funds are getting crushed in these whippy, volatile conditions.
The last two months have been especially difficult. The ranges have been so narrow that it has been hard for anyone to make money. In technical terms, outside reversal days to the downside are then frequently followed by outside reversal days to the upside. This is a traditional trader?s worse nightmare. Only the high frequency traders are laughing their way to the bank.
If this sounds like a mea culpa, it is. Last year I delivered a mind blowing 17 consecutive profitable Trade Alerts, suffered a couple losses, then wracked up another 15 winners. I lulled people into thinking that making money in the stock market was easy. News flash: It?s not easy. You can earn profits, but only after the expenditure of much blood, sweat, and tears. Windfalls out of the blue only happen in the movies (loved Trading Places).
The goal here is to stay small, nimble, and still standing when trading gets easier in the second half, as it inevitably will. No one ever said trading was fair or easy. That?s show business.
Global Market Comments
April 30, 2014
Fiat Lux
Featured Trade:
(CHICAGO FRIDAY, MAY 23 GLOBAL STRAGEGY LUNCHEON)
(IS THE REAL ESTATE MARKET CATCHING COLD?),
(ITB), (KBE),
(ON EXECUTING TRADE ALERTS)
iShares US Home Construction (ITB)
SPDR S&P Bank ETF (KBE)