I am building lists of emerging market ETF?s to snap up during the current sell off, and Turkey popped up on the menu.
The country is only one of two Islamic countries that I consider investment grade, (Indonesia is the other one). The 82 million people of Turkey rank 15th in the world population, and 16th with a GDP of $960 billion. Furthermore, 25% of the population is under the age of 15, giving it one of the planet?s most attractive demographic profiles.
The real driver for Turkey is a rapidly rising middle class, generating consumer spending that is growing by leaps and bounds. Its low waged labor force is also a major exporter to the modestly recovering European Community next door. The present collapse of the Turkish Lira increases that advantage.
I first trod the magnificent hand woven carpets of Istanbul?s Aga Sophia in the late sixties while on my way to visit the rubble of Troy and what remained of the trenches at Gallipoli, a bloody WWI battlefield.
Remember the cult film Midnight Express? If it weren?t for the nonstop traffic jam of vintage fifties Chevy?s on the one main road along the Bosphorus, I might as well have stepped into the Arabian Nights. They were still using the sewer system built by the Romans.
Four decades later, and I find Turkey among a handful of emerging nations on the cusp of joining the economic big league. Exports are on a tear. Prime Minister Erdogan, whose AKP party took control in 2002, implemented a series of painful economic reform measures and banking controls, which have proven hugely successful.
Foreign multinationals like General Electric, Ford, and Vodafone, have poured into the country, attracted by a decent low waged work force and a rapidly rising middle class. The Turkish Lira has long been a hedge fund favorite, attracted by high interest rates.
Still, Turkey is not without its problems. It does battle with Kurdish separatists in the east, and has suffered its share of horrific terrorist attacks. There is a risk that it gets sucked further into the Syrian civil war. Inflation at 7.4% is a worry, but that?s down from 8.88% a year ago.
The play here has long been to buy ahead of membership in the European Community, which it has been denied for four decades. Suddenly, that outsider status has morphed from a problem to an advantage.
The way to get involved here is with an ETF heavily weighted in banks and telecommunications companies, classic emerging market growth industries like (TUR). You also always want to own the local cell phone company in countries like this, which in Turkey is Turkcell (TKC). Turkey is not a riskless trade, and has already had a great run, but is well worth keeping on your radar.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/Istanbul.jpg270363Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-28 09:20:192014-01-28 09:20:19Turkey is On the Menu
Featured Trade: (FEBRUARY 12 AUCKLAND NEW ZEALND STRATEGY LUNCH) (THE PRICE OF STARDOM AT DAVOS), (WILL GOLD COINS SUFFER THE FATE OF THE $10,000 BILL), (GLD), (SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
Featured Trade: (SATURDAY FEBRUARY 22 BRISBANE AUSTRALIA STRATEGY LUNCH) (A FEW THOUGHTS ON TRADING STRATEGY), (SPY), (QQQ), (IWM), (GLD), (GDX), (ABX), (TLT), (TBT), (ANOTHER DINNER WITH ROBERT REICH)
SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares Russell 2000 (IWM)
SPDR Gold Shares (GLD)
Market Vectors Gold Miners ETF (GDX)
Barrick Gold Corporation (ABX)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
After one of the wildest rides in recent memory, the stock market has ground to a complete halt. So have virtually all other asset classes as well.
You can see this in the activity of my Trade Alert service as well. After sending out Alerts as fast as I could write them for the past three months, some three or four a day, the action has slowed to a snails pace. What gives?
I think that the sudden, universal optimism we saw break out all over in November and December ended up pulling performance out of 2014 back into 2013. Traders were picking up positions not only for the yearend rally, but the January one as well.
As a result, there is nothing for us to do in January. Our New Year asset reallocation rally happened last month. The net result has been one of the most boring starts to a new year in history, with trading confined to tortuous, frustrating low volume ranges.
What have been the best performing assets so far in 2014? Gold (GLD), gold miners (GDX), (ABX), and bonds (TLT), (TBT), the worst performing ones of 2013. Don?t get your hopes up. These are only dead cat bounces prompted by short covering with broader, longer term bear markets.
In the meantime, the stars of last year have become the dogs of this year, like consumer cyclicals and banks. Suddenly, it has become an upside-down world, with the good becoming bad, and the bad good. Don?t expect this to last. It never does.
It gets worse. What if we didn?t pull forward only in January and the end of last year, but February and March as well? We could be sitting back on our haunches for quite a long time. Sounds like a good time to catch up on those old back issues of Diary of a Mad Hedge Fund Trader that we didn?t have time to read because trading was too frenetic.
As for me, I am getting an early start on my tax returns this year so I can figure out how much my Obamacare is going to cost me. Thanks to my spectacular, once in a lifetime performance in 2013, Uncle Sam and I have quite a lot to talk about. What? You mean a $2,000 bottle of wine purchased in Portofino on the Italian Riviera (the seaside resort featured in The Wolf of Wall Street) is not deductible? If it is for Morgan Stanley, why not me?
Another reason for the sudden silence is that investors have suddenly become very cautious. We have just had a run for the ages. From my June 14 low I made a staggering 41.15% profit for my followers. My last 14 consecutive Trade Alerts have been profitable, as has every one so far in 2014. Those are serious numbers. While almost no one else matched these numbers, quite a few traders did well too.
Suddenly protecting performance has become far more important than catching that next marginal trade. When everyone else is in the same boat, markets go very quiet, until the boat tips over.
Things aren?t going to remain this dead forever. It reminds me of a witticism voiced by President Nixon?s chairman of the Council of Economic Advisors, Herbert Stein: ?If something cannot go on forever, it will stop.?
When the Trade Alert traffic dies down, I get barraged by daily complaints from readers that I?ve gotten lazy, I?ve gotten too rich to focus on this anymore, and that I ought to be doing more. Can you blame them? With an 85% success rate with my Alerts, who wouldn?t want more?
One of the reasons that my success rate is one of the highest in the industry is that I know when to quit trading. Some 45 years trading the markets has taught me one thing. If you chase a trade that?s not there it?s a perfect formula for losing money. There is no law stating that you always must have a position. That?s what brokers want you to do, a mug?s game at best.
My advice to you? Go out and spend some of the hard earned money you made last year from my Trade Alert Service. I understand there are great deals to be had on large screen HD TV?s at Best Buy. Unfortunately, my hometown San Francisco 49ers blew a playoff game in the last 22 seconds, depriving me from a trip to New York for Super Bowl XLVIII. But if you?re from Seattle or Denver, you definitely have something better to do for the week leading up to February 2.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/01/Football-49er-Seahawks.jpg400388Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-24 01:04:402014-01-24 01:04:40A few Thoughts on Trading Strategy
I never tire of listening to economics guru, Robert Reich, speak about the economy. He was former Labor Secretary under Bill Clinton, and ran against Mitt Romney for governor of Massachusetts (he lost). He has published 13 books. Oh, and he dated our recent Secretary of State, Hillary Rodham, when they were in law school together at Yale.
I got to know Bob well when I took two of his courses at UC Berkeley, on public policy and labor statistics. His insights into the long-term evolution of the US economy are nothing less than breathtaking. New students are ordered to the bookstore to buy 400 pages of photocopied jobs data, which they must commit to memory. And he is damn funny.
Not everything Bob has to say makes pleasant listening. The central challenges for the economy are jobs and wages, not deficits or inflation. A rush to trim spending too fast unnecessarily robs the economy of growth. Look no further than Europe, where ill advised and ideologically driven austerity policies have led to near economic collapse. If similar policies are implemented here, they will no doubt bring the same result.
Past economic recoveries brought far more dramatic snap backs. After the 1929 crash, the GDP fell a staggering 28% over the following three years. Then in 1934 it bounced back by 8%, in 1935, by 8%, and 1936 by 10%. The stock market recovered two thirds of its losses. That compares to today?s tepid 2% growth rate.
Then in 1937, a rush to end stimulus prematurely sent the country into the second leg of the Great Depression. That didn?t end until 1942. Stocks fell again by half. The big question for us today is whether 2014 will be a replay of 1937.
All middle class coping mechanisms to deal with falling incomes have been exhausted. First, women entered the workforce during the seventies to offset spouses? declining wages. Then both began working longer hours. Today, Americans work 300 hours a year longer than Europeans and Japanese.
Finally, they turned to the home ATM in desperation during the nineties and 2000?s to make ends meet. Those cash machines abruptly shut down in 2008. Today, families have no resources left to maintain standards of living. This is why there has been no growth in the American median wage for 30 years. The declining consumer spending these trends inevitably produced our present slow growth economy.
There were two turbochargers that assured the downfall would be as dramatic as it has been. Globalization suddenly meant that the $75/ hour blue-collar worker was competing head to head against a $2/day Chinese wage slaves. The Internet made this face off practical.
Technology also created robots to replace workers on an enormous scale. Bob like to tell the story of an invitation he received to speak at a much-publicized factory reopening in the Midwest. When he took the tour, he found only 13 workers staring at computer screens running the place that had replaced 3,000 before them.
While we are seeing a weak recovery now, entry-level positions are paying a fraction of what they did a decade ago, not far above minimum wage. Those with only a high school education or less have taken the biggest hit, seeing unemployment rates soar to 15%. By contrast, college educated workers have an unemployment rate as low as 5%.
Of course the challenge for me has always been to translate Bob?s lofty, 30,000-foot views, steeped in millennia of history, into Trade Alerts tomorrow morning which make money for you, the reader, by Monday. That?s easier said than done.
Given my 130% net trading profit since the service started 38 months ago, I?d say so far, so good.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/Robert-Reich.jpg300231Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-24 01:03:582014-01-24 01:03:58Another Dinner With Robert Reich
Featured Trade: (THURSDAY FEBRUARY 20 MELBOURNE, AUSTRALIA STRATEGY LUNCH), (AIRLINE STOCKS ARE CLEARED FOR TAKEOFF), (AAL) (UAL), (DAL), (LUV), (TESTIMONIAL)
American Airlines Group Inc. (AAL)
United Continental Holdings, Inc. (UAL)
Delta Air Lines Inc. (DAL)
Southwest Airlines Co. (LUV)
When I was a young, clueless investment banker at Morgan Stanley 30 years ago, the head of equity sales took me aside to give me some fatherly advice. Never touch the airlines.
The profitability of this industry was totally dependent on fuel costs, interest rates and the state of the economy and management hadn't the slightest idea of what any of these were going to do. If I were ever tempted to buy an airline stock, I should lie down and take a long nap first.
At the time, the industry had just been deregulated and was still dominated by giants like Pan Am, TWA, Eastern Air, Western, Laker, Braniff, and a new low cost upstart called People Express. None of these companies exist today. It was the best investment advice that I ever got.
If you total up the P&L's of all of the US airlines that ever existed since Orville and Wilber Wright first flew in 1903 (their pictures are on my new anti-terrorism edition commercial pilots license), it is a giant negative number, well in excess of $100 billion. This is despite the massive government subsidies that have prevailed for much of the industry's existence.
The sector today is hugely leveraged, capital intensive, heavily regulated, highly unionized, offers customers terrible service, and is constantly flirting with or is in bankruptcy. Its track record is horrendous. It is a prime terrorist target. A worse nightmare of an industry never existed.
I became all too aware of the travails of this business while operating my own charter airline in Europe as a sideline to my investment business. The amount of paperwork involved in a single international flight was excruciating. Every country piled on fees and taxes wherever possible. The French air traffic controllers were always on strike, the Swiss were arrogant, and the Italians unintelligible and out of fuel.
The Greek military controllers once lost me over the Aegean Sea for two hours, while the Yugoslavs sent out two MIG fighter jets to intercept me. As for the US? Did you know that every rivet going into an American built aircraft must first be inspected by the government and painted yellow before it can be used in manufacture?
While flying a Red Cross mission into Croatia, I got shot down by the Serbians, crash landed at a small Austrian Alpine river, and lost a disc in my back. I had to make a $300 donation to the Zell Am Zee fire department Christmas fund to get their crane to lift my damaged aircraft out of the river (see picture below). Talk about killing the competition!
So you may be shocked to hear that I think there is a great opportunity here in airline stocks. A Darwinian weeding out has taken place over the last 30 year that has concentrated the industry so much that it would attract the interest of antitrust lawyers, if consumers weren?t such huge beneficiaries.
With the American-US Air (AAL) deal done, the top four carriers (along with United-Continental (UAL), Delta (DAL), and Southwest (LUV) will control 90% of the market. That is up from 60% only five years ago. The industry has fewer seats than in 1982; while inflation adjusted fares are down 40%. Analysts are referring to this as the industry?s new ?oligopoly advantage.?
Any surprise bump up in oil prices is met with a blizzard of higher fares, baggage fees, and fuel surcharges. I can't remember the last time I saw an empty seat on a plane, and I travel a lot. Lost luggage rates are near all time lows because so few now check in bags. Interest rates staying at zero don?t hurt either.
The real kicker here is that stock in an airline is, in effect, a free undated short volatility play on oil. If oil doesn?t move, airline stocks go up. You may have noticed that I have written at length on the rough balance that has emerged in the global oil markets, where rising Chinese demand is offset by increasing US production from fracking. The end result has been the lowest volatility in the oil market in years.
This is not a bad position to have when peace talks in Geneva with Iran threaten to collapse the price of oil. On top of that, you can add the huge economies offered by the new Boeing 787, known in the industry as the ?plastic fantastic, which uses 40% less fuel than existing models.
I picked United Continental Group (UAL) because it suffered from some integration problems from their recent merger, like a reservations system that wouldn?t work. That gives them the greatest snap back potential.
And even if the fuel savings turn out to be modest, a recovering US economy should boost profitability, given its recent maniacal pursuit of controlling costs. Some airlines have become so cost conscious that they are no longer painting their planes to gain fuel savings from carrying 100 pounds less weight! Just the missing pretzels alone should be worth a few cents a share in earnings.
This is not just a US development, but an international one. The International Air Transport Association (IATA) has just raised its forecast of member earnings from $7.6 billion in 2012 to $10.6 billion in 2013, a gain of 40%. The biggest earnings are based in Asia (China Southern Airlines, China Eastern Airlines, Air China), followed by those in the US, with $3.6 billion in profits.
Add all this together, and the conclusion is clear. The checklist is complete, the IFR clearance is in hand, and it is now time to push the throttles to the firewall for the airline stocks and get this bird off the ground.
And no, I didn't get free frequent flier points for writing this piece.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/04/United-Airplain.jpg191284Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-23 01:04:362014-01-23 01:04:36Airline Stocks are Cleared for Take Off
Featured Trade: (FRIDAY FEBRUARY 14 SYDNEY, AUSTRALIA STRATEGY LUNCH), (WHY THE WORLD HATES THE AUSSIE), (FXA), (EWA), (EWZ), (FXI), (REVISITING CHENIERE ENERGY), (LNG), (USO), (UNG)
CurrencyShares Australian Dollar Trust (FXA)
iShares MSCI Australia (EWA)
iShares MSCI Brazil Capped (EWZ)
iShares China Large-Cap (FXI)
Cheniere Energy, Inc. (LNG)
United States Oil (USO)
United States Natural Gas (UNG)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Sydney, Australia at 12:00 noon on Friday, February 14, 2014. An excellent meal will be followed by a wide ranging discussion and a minute 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 also hope to provide some insight into America?s opaque and confusing political system. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $199.
I?ll send you a PowerPoint presentation in advance to cover the broad range of subjects we may discuss.
The lunch will be held at an exclusive downtown waterfront restaurant the details of which will be emailed 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.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/01/Sydney-AU.jpg321433Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-22 01:05:472014-01-22 01:05:47Friday February 14 Sydney Australia Strategy Lunch
Discretion certainly can be the better part of valor. That was the feeling that came over me last weekend when I saw the Australian dollar (FXA) plunge to a new three year low against the buck.
I had been mulling over buying the Aussie around the $88 support level for the past couple of months. After all, with a synchronized global recovery in progress, and an international bull market in stocks underway, Australia is usually your first stop on the buy side.
Then the Australian Bureau of Statistics (ABARE) showed up to take away the punch bowl. It reported that December job losses came to 22,600, when the market had been expecting a gain of 7,000. That leaves total employment at 11.63 million and the unemployed at 722,000.
This is the equivalent to a US monthly nonfarm payroll flipping from a forecast +100,000 to -300,000. Yikes! It?s amazing that the Australian All Ordinaries stock index didn?t go to zero yesterday. Talk about a party pooper.
The technical picture couldn?t be more dire. A crucial support level at 88 cents that held all the way back to 2010 suddenly became a distant memory. A brief attempt to break the 50-day moving average to the upside at $90.50 failed miserably. Looking at the eight-year chart below, an undeniable double top is now in place at $105. The current downtrend has $85, and then $80, beckoning on the downside.
Further peeing on the parade from the greatest possible height has been the loose-lipped governor of the Reserve Bank of Australia, Glenn Stevens, who has been talking down the Aussie at every opportunity. In his latest foray, he declared large-scale currency intervention to be part of the central bank?s ?tool kit? to boost the economy. Translate this into plain English, and it means a lower Aussie soon.
You really have to ask why all is not well in the Land of Oz in the face of such unremittingly positive news elsewhere. Looking at the charts below, it is clear that Australia is currently fighting a currency war with Brazil, the other major supplier of natural resources to the world economy. That?s because a lower currency makes a country?s exports cheap in the international marketplace.
So far, Brazil is winning big time. The Real having cratered some 26% against the dollar over the past year, compared to only a 17% decline for the Aussie. Governor Stevens obviously is trying to play a game of catch up. But he has a long way to go.
There are other reasons for the weakness in the Ausie. It may have contracted emerging market disease, whereby investors shun small undeveloped economies in favor of large developed ones. A dependence on commodities is not exactly something you want to wear on your sleeve these days in this deflationary environment. Why have any hard assets in your portfolio as long as paper ones are going to the moon?
The more frightening question is whether the global economy has evolved to the point where it no longer needs Australian exports as much as it did in the past. I have been warning readers for some time that the Chinese economy, Australia?s largest customer, is moving from a commodity consuming export model to a domestic services oriented one.
You don?t need as much iron ore, coal, or uranium when a growing share of your added value is intellectual, and not physical. Stabilizing population growth means you can get away with less food too. This explains why commodity prices have been flat in the face of a Chinese GDP that is still growing at a 7.7% rate. This is all bad news for Australia.
These are all vexing, important questions deserving more first hand, in depth, on the ground research. I think I?ll start by checking out the bikinis at Sydney?s Bondi Beach in two weeks.
https://www.madhedgefundtrader.com/wp-content/uploads/2014/01/Women-in-Bikinis.jpg278407Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2014-01-22 01:04:322014-01-22 01:04:32Why the World Hates the Aussie
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.