Global Market Comments
March 12, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON),
(WHY COPPER IS CRASHING),
(CU), (FCX),
(BREAKFAST WITH FED GOVERNOR BOB MCTEER),
Pulling the Ripcord on GM
(BAC), (GS), (GM), (AIG)
First Trust ISE Global Copper Index (CU)
Freeport-McMoRan Copper & Gold Inc. (FCX)
Bank of America Corporation (BAC)
The Goldman Sachs Group, Inc. (GS)
American International Group, Inc. (AIG)
General Motors Company (GM)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in San Francisco on Friday, April 25, 2014. 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. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $179.
I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
When Dr. Copper (CU), the only commodity with a PhD in economics, suddenly collapses from a heart attack, risk takers everywhere have to sit up and take notice.
Since the 2011 top, the red metal has collapsed a shocking 38%. It has given back 10% just in the last two weeks. Will copper take down the rest of the financial markets with it?
I don?t think so.
So called because of its uncanny ability to predict the future of the global economy, copper is warning of dire things to come. The price drop suggests that the great Chinese economic miracle is coming to an end, or is at least facing a substantial slowdown, the government?s 7.5% GDP target for 2014 notwithstanding.
This gloomy view is further confirmed by the weakness in the Shanghai index ($SSEC), which has been trading like grim death all year. Will China permabear, Jim Chanos, finally get his dream come true?
It?s a little more complicated than that. Copper is no longer the metal it once was. Because of the lack of a consumer banking system in the Middle Kingdom, individuals are now hoarding 100 pound copper bars and posting them as collateral for loans.
China is, in effect, on a copper standard. Get any weakness of the kind we have seen this year, and lenders panic, dumping their collateral for cash, crushing spot prices.
The latest plunge has been fueled by rumors of an imminent Chinese banking crisis. The Middle Kingdom?s first corporate bond default in history, by a third tier solar company, further heightened fears. The implicit government guarantee that was believed to back this paper has suddenly gone missing in action.
The high frequency traders are now in the copper futures and spot markets in force, whipping around prices and creating unprecedented volatility. Notice how they seem to be running the movie on fast forward everywhere these days? Because of this, we could now be seeing an overshoot on the downside in copper.
The bottom line here is that copper is suffering from its own unique set of difficulties, which will have a negligible affect on other asset classes.
Watch Dr. Copper closely. At the first sign of any real bottom, you should load up on long dated calls for Freeport McMoRan (FCX), the world?s largest producer, which also has been similarly decimated. The gearing in the company is such that a 10% rise in the price of copper triggers a rapid 20% rise or more in (FCX).
I can wax one here about major structural changes in the Chinese economy that are underway, as the real problem. As the Middle Kingdom shifts from an export driven economy to a domestic demand one, there is less need for the red metal and more need for silicon and brains. But this isn?t something you can trade off of today.
So what is copper really to us? The longer-term charts show a prolonged bottoming process. If $2.90 fails, we could see a revisit to the five-year low at $2.50. That?s your load the boat price. During the global synchronized economic recovery that is underway, you want to view every panic sell off in a single asset class like this as a gift.
Now On Sale
No one can explain the most complex economic and monetary issues in a simpler, more homespun fashion than former governor of the Federal Reserve, Bob McTeer.
He is known for carrying around two yardsticks, one slightly longer than the other, to demonstrate to your average guy the monthly changes in employment.
Bob argues that the Fed is getting a bad rap today. Ben Bernanke?s quantitative easing was neither inflationary, nor caused the collapse of the dollar. This ?money printing effort? is not actually printing any money.
The $1.7 trillion QE1 was designed to buy mortgage backed securities to bring liquidity back to the market place. QE2 enabled the purchase of a further $600 billion in Treasury securities to prevent a double dip recession. On top of this, the Treasury piled the $700 billion TARP to recapitalize the major banks. Then came QE3. All four of these programs were wildly successful.
As a result, the Fed balance sheet has grown from a pre-crash $800 billion to $3.6 trillion. Normally this would be inflationary, but it is not this time, as all of the extra money is being tied up with excess reserves at the banks.
The proof of this is that the money supply, M2, is growing at a very modest rate, barely enough to accommodate the population growth. Without the Fed programs the monetary base would have fallen off a cliff.
The challenge going forward is for the Fed to unwind its balance sheet at the same rate that the banks start paring back excess reserve through more aggressive lending. Too slow, and the Fed risks inflation. Too fast, and it risks falling back into recession.
Although it appears that the dollar is dead in the water in the foreign exchange markets, it is in fact at the same level as it was before the financial crisis. All it has really done is given back its flight to safety bid. The dollar is really a function of our international balance of payments and global interest rate differentials.? Bob feels that the next big move in the greenback is down.
McTeer points out that the Fed has been a huge cash cow for the Treasury, and ultimately, the taxpayer. QE1 and QE2 took in $120 billion in profits over the last three years. The TARP funds paid a 5% preferred dividend and brought in tens of billions of dollars in profits from the banks (GS), (BAC), General Motors (GM), and AIG (AIG).
Bob views Obama?s $900 billion stimulus package as ?an attempt to shoot a hog with a shotgun?. The big problem is that businesses view such programs as temporary and act accordingly. Permanent changes to government policies get you more bang for the buck.
Bob, 73, was probably one of the last people in Texas to use a functioning outhouse. He grew up in rural Ranger, Georgia, the son of a truck stop operator, and his first brush with the real economy was pumping gas and picking cotton.
Somehow, he scored an economics degree from the University of Georgia, and went on to work at the Federal Reserve. He was named president of the Dallas Fed in 1991, and went on to pioneer the analysis of the impact of technology on the macro economy.
Bob is simple, but he is no lightweight. Today, he serves as a chancellor of Texas A&M University, with 100,000 students.
![McTeerRobert[1]](https://madhedgefundradio.com/wp-content/uploads/2013/05/McTeerRobert1.jpg)
Ouch. To get snake bit twice in two days hurts. But three times?
I thought that when the General Motors (GM) ignition recall was announced last week, it was a nice entry point on the long side. I was right for at least a whole day.
This morning news hit that there would be a congressional investigation of GM?s handling of the issue. Usually these are no big deal, go nowhere, and have little impact on the stock. But then we learned that prosecutors in New York State were planning a criminal investigation of the company, as are other states. That is a big deal.
This all happened against a backdrop of deteriorating economic news from China and endless, frightful rumors from the Ukraine. I sailed right into a perfect storm with this trade.
If you are active in the markets as I, this kind of out of the blue flock of black swans is inevitable. It is a good rule of thumb that when the wheels fall off, cut your capital loss to 3%. That?s why I issued my stop loss Trade Alert to bail on the position.
That way you live to fight another day, as I plan to do.
Sometimes They BiteGlobal Market Comments
March 11, 2014
Fiat Lux
Featured Trade:
(MAD HEDGE FUND TRADER KILLS IT WITH A 2014 12.6% RETURN),
(TLT), (SPY), (BAC), (GM), (EBAY),
(DAL), (GS), (XLV), (XLF), (GE),
(MARCH 12 GLOBAL STRATEGY WEBINAR),
(EUROPEAN STYLE HOMELAND SECURITY)
iShares 20+ Year Treasury Bond (TLT)
SPDR S&P 500 (SPY)
Bank of America Corporation (BAC)
General Motors Company (GM)
eBay Inc. (EBAY)
Delta Air Lines Inc. (DAL)
The Goldman Sachs Group, Inc. (GS)
Health Care Select Sector SPDR?? (XLV)
Financial Select Sector SPDR?? (XLF)
General Electric Company (GE)
The industry beating performance of the Mad Hedge Fund Trader?s Trade Alert Service has maintained its gob smacking pace from last year, picking up another 12.6% profit in the first ten trading weeks of 2014.
The Dow Average was up a feeble 1.4% during the same period, pegging my outperformance of the index at a stunning 11.2%. Since the beginning of 2013, I am up 80%, with a trailing 12-month return of 51%.? 2013 closed with a total return for followers of 67.45%.
The three-year return is now an amazing 135.1%, compared to a far more modest increase for the Dow Average during the same period of only 34%. That brings my averaged annualized return up to 41.6%. Not bad in this zero interest rate world. It?s better than a poke in the eye with a sharp stick.
This has been the profit since my groundbreaking trade mentoring service was launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, 95% of which have been profitable this year.
Not a day goes by without finding grateful emails thanking me for changing their lives. Stories abound of mortgages paid off, college educations financed, and aging parents supported. Quite a few use my award winning mentoring service to finally achieve financial independence and told their bosses to go jump off a bridge.
I won?t pass on the pictures they sent me. To read the plaudits yourself, please go to my testimonials page. They are all real.
The hot streak continues.
I managed to call the double top in the Treasury bond market (TLT), and picked up some easy money on the short side. Crucially, I was one of the first to catch the leadership change in the market, out of technology and health care (XLV) and into banks (XLF), (BAC), (GS) and autos (GM).
On top of this, I bought some long exposure in classic old-line deep cyclicals, like General Electric (GE) and (Delta Airlines (DAL). Finally, I ramped up my ?RISK ON? trading book by adding a new position in eBay (EBAY), jumping on Carl Icahn?s attempt to greenmail this spectacularly well run company (come on Carl, call a spade a spade!).
My ambitious macro view is allowing me to put the pedal to the metal on the risk side. I think that the final effect of one of the cruelest winters in history will be to shift economic growth from Q1 to Q2. That gives us every excuse to ignore every piece of bad data, and only focus on the good numbers.
This paves the way for a blowout Q2 US GDP number of over 4%. That is what the stock market is telling us now by going sideways or up almost every day.
It is a real ?heads, I win, tails, you lose? market. The indexes could continue with slow, grinding sideways ?time? corrections followed by sudden, frenetic pops to the upside all the way until the summer. My current strategy cashes in on this scenario, while also providing some downside protection so you can sleep at night.
My only loss so far this year was with some S&P 500 puts that I used to hedge downside exposure for my other long positions. We can?t all be perfect.
My esteemed colleague, Mad Day Trader Jim Parker, was no small part of this success. Since the market became technically and momentum driven, I have been confirming with him before sending out every Trade Alert. Together, our success rate is 100%.
What would you expect with a combined 85 years of market experience between the two of us? Followers are laughing all the way to the bank.
Don?t forget that Jim clocked an amazing 2013 of a staggering 374%. That is just for an eight-month year!
The coming year promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014.
The Trade Alerts should be coming hot and heavy. Please join me on the gravy train. You will never get a better chance than this to make money for your personal account.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, and 67.45% in 2013.
The service includes my Trade Alert Service and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. Upgrade to?Mad Hedge Fund Trader PRO?and you will also receive Jim Parker?s?Mad Day Trader?service.
To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the blue ?SUBSCRIBE NOW? button.
The Gunslinger on Your BehalfGlobal Market Comments
March 10, 2014
Fiat Lux
Featured Trade:
(THE MARKET LEADERSHIP CHANGE HAS BEGUN),
(XLK), (XLV), (AAPL), (XLF), (BAC), (GS), (JPM), (GM), (F)
(WATCH OUT! YOU PC IS WATCHING)
Technology Select Sector SPDR?? (XLK)
Health Care Select Sector SPDR?? (XLV)
Apple Inc. (AAPL)
Financial Select Sector SPDR?? (XLF)
Bank of America Corporation (BAC)
The Goldman Sachs Group, Inc. (GS)
JPMorgan Chase & Co. (JPM)
General Motors Company (GM)
Ford Motor Co. (F)
Owners of technology (XLK) and health care stocks (XLV) have certainly had a great year.
Except for the round of profit taking that did a quick hit and run in January, these two groups have been moving from strength to strength, punching through to multiyear highs.
That is, until last week.
Starting with the Ukraine induced plunge a week ago, these two leadership groups have started moving in a rather arthritic fashion, substantially underperforming the S&P 500 (SPY). It is all unfamiliar territory for these golden boys.
You also see this in the broader indexes, with NASDAQ starting to trail the main market for the first time in ages. This is why Mad Day Trader Jim Parker shot out Alerts to buy protective puts in the (QQQ) with a one week view.
Is the bull market over? Should you sell everything and immediately go into cash? Is it time to go hide under your bed?
I don?t think so.
All we are seeing is a long awaited leadership change in the market. Tech and health care will throttle back from their torrid pace. It doesn?t mean that these sectors are now to be given up for dead. You should wallpaper your spare bathroom with high tech share certificates (as I once did with my Japanese equity warrants after their crash). They just need a rest. This is why I skipped Apple (AAPL) in my latest round of ?RISK ON? Trade Alerts.
In the meantime, financial stocks (XLF) have moved to the fore to grab the baton after a two-month rest of their own. This is why I sent you Trade Alerts last week to buy Bank of America (BAC), Goldman Sachs (GS), and General Motors (GM).
A shift like this makes all the sense in the world. Bonds (TLT) were great performers in 2014 until a week ago, when they double topped on the charts at $109. That was the logic behind sending you my Trade Alert to sell short bonds.
When bonds fall, interest rates rise, some 20 basis points on the ten year Treasury bond in a mere five days. Who does well when rates rise? Banks, which can now charge more for their loans while the cost of funds, the deposit rates you earn, are still close to zero. That widens bank profit margins, increasing profits. The technical term for this, which you will hear about on TV, is the ?steepening of the yield curve.? Bottom line: buy bank stocks.
They could rise a lot. If Treasury yields back all the way up to 3.05% and the (TLT) revisits its $101 low, the bank shares could go on a real tear. Jim Parker?s medium term target for (BAC) is $23, up a robust 30% from here.
I already have written up a Trade Alert to pick up another bank, JP Morgan (JPM). But I will sit on it until I can catch a dip in the share price, even a piddling one.
And what about the autos? The message shouted out as loud and clear by the red-hot February nonfarm payroll print of 175,000 is that the economy is stronger than anyone thinks. This is an out there view, which I have been arguing vociferously since the summer.
The ferocious winter will no doubt cost retailers some clothing sales. No one is looking to buy a new winter coat in March. Year on year, Chicago has gone from six inches to an astounding seven feet of snow, and I?m told that everyone there is in an unspeakably foul mood, throwing empty bear cans at the TV set when the weather man appears.
This is not so for the auto industry. If buyers couldn?t find their local dealers under the snow, they will return during fairer climes with a check to take advantage of record low interest rates. At the end of the day, buying a car on dealer credit, or a lease, is a nice way to indirectly short the bond market, which we all know, is now in a new 30-year bear market.
Despite the endless blizzards that kept much of the east buried this year, the auto sales figures have held up surprisingly well. The industry is now running at a 15.7 million unit per year annualized rate, up from the 9 million unit trough seen in 2009.
It all sets up a nice upside surprise in carmaker profits after the spring thaw. You want to go out and purchase the entire sector, including General Motors (GM), Ford (F), and all of the subsidiary parts suppliers.
But Which One is On Sale?
Hey! You there, staring at this monitor. This is your PC talking to you. No, not you over there standing in the background. I?m talking to the guy sitting in front of me poking at my keys. Ouch! That one hurt!
So you thought no one was watching, did you? Let me straighten you out. About a month ago you clicked on a certain website, and I installed myself as a cookie on your computer, which is an innocuous little text file that you can?t see.
Since then, I have been tracking your every move, recording websites you clicked on, the pages you visited, and the stuff you ordered. I then used this handy little algorithm to build a profile of exactly who you are. I now know you better than your own mother. In fact, I know you better than you know yourself.
For example, I am aware that you make more than $250,000 a year, live in a posh zip code in San Francisco, belong to a fancy country club, and drive a Mercedes. You donate to Republican political causes, send your kids to a prestigious private school, and bill it all to an American Express Platinum Card. Did I leave anything out?
Because I know every detail of your life, down to your inside leg measurement, I am able to harness the power of this machine to more precisely service your every need. That includes directing advertising to you, which you have a high probability of clicking on.
The more you click on my ads, the higher prices I can realize for those ads. The ad campaigns you now see are unique to your own personal computer because they are tied to your IP address. My program, called ?behavioral targeting? is the next ?big thing? in online advertising. It?s all part of the brave new world.
I see you have been shopping for a new car. Check out the new Hyundai at http://www.hyundaiusa.com/ , which offers the same quality as your existing ride, at half the price. Your clicks this morning suggest you?re taking your ?significant other? out to dinner tonight. Might I suggest Gary Danko?s on Bay Street at http://www.garydanko.com/site/bio.html ? The rack of lamb is to die for there.
Your visits to http://www.travelocity.com/ and http://www.expedia.com/ tell me you?re planning a vacation. I bet you didn?t know you can find incredible deals in Las Vegas at http://www.visitlasvegas.com/vegas/index.jsp . Thinking about buying a condo there? They?ll even pay for the trip if you promise to check one out while you?re there.
Since we?re chatting here mano a mano, I noticed that that last pair of jeans you ordered from http://us.levi.com/home/index.jsp had a 42-inch waist, up from the 40?s in your last order. Better lay off those cheeseburgers. Pretty soon, they?ll be calling you ?tubby? or ?fatso?. Better visit http://www.weightwatchers.com/Index.aspx soon, or the legs on that chair might buckle out from under you.
Worried about privacy? Privacy, shmivacy. There hasn?t been privacy in this country since the first social security number was handed out in 1936. And don?t expect any relief from Congress. I doubt half those dummies even know how to turn on their own PC?s.
Don?t even think about trying to delete me. I?m a ?flash cookie?, an insidious little piece of code that reinstalls every time you try that. Think of me as a toenail fungus. Once you catch me, I?m almost impossible to get rid of.
I hope you don?t mind, but I?ve been passing your personal details around to some of my buddies at other websites. That?s why when you clicked on http://www.nfl.com/ you got deluged with product offers from your local team, the San Francisco 49ers. I?ve got friends at Google, Facebook, MySpace, and pretty much everywhere. Can I help it if I?m a popular guy? I bet the view from those 50 yard seats is great, isn?t it?
I noticed that your spending habits don?t exactly match with the income you reported on your last tax return. Do you think the IRS would like to know about that? I bet you didn?t know the agency offers a 10% reward for turning in tax cheats.
How did you like those triple X DVD?s you bought last week? Whoa! Hot, hot, hot! I hope your employer never finds out about those. It might not go down too well at your next performance review.
I thought it was lovely that you bought your spouse a two carat, yellow, vvs1, round cut diamond ring for $26,000 from http://www.bluenile.com/ for your 30th wedding anniversary. But who is Lolita, the Argentine firecracker, in Miami Beach? Does the old wifey know you sent her a $2,000 pair of diamond stud earrings? What?s it worth to you for me to keep mum on this? Maybe you should take a quick peak at http://www.divorcelawfirms.com/ and see what you?re in for?
Naw, I?m just pulling your leg. This is all just between friends, right? Think of it as a doctor/patient relationship. I?ll tell you what. See that leaderboard ad at the top of the page? Just click on that and we?ll call it even. Oooh that felt good! Click it again. Oh, baby! Not too many times. You?ll trigger my anti click fraud program.
Now you see that wide skyscraper add over on the right? Click on that too. Oh baby! Click it again! And there?s a little button ad at the bottom of the page. No, not that one. A little lower. What was that little cutie?s name in Miami again? Aaaaah.
