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Mad Hedge Fund Trader

How US Job Losses Will End

Newsletter

I was researching comparative Asian wage data the other day and was astounded with what I found. Textile workers earn $2.99 an hour in India (PIN), $1.84 in China (FXI), and $0.49 in Vietnam (VNM). This is an 18 fold increase in labor costs from ten cents an hour since Chinese industrialization launched in 1978.

This compares to the $8 an hour our much abused illegals get at sweat shops in Los Angeles, and $10 in some of the nicer places. What?s more, the Indian wage is up 17% in a year, meaning that inflation is casting a lengthening shadow over the sub continent?s economic miracle. A series of strikes and a wave of suicides have brought wage settlements with increases as high as 20% in China.

This is how the employment drain in the US is going to end. When foreign labor costs reach half of those at home, manufacturers quit exporting jobs because the cost advantages gained are not worth the headaches and risk involved in managing a foreign language work force, the shipping expense, political risk, import duties, and supply disruptions, just to get lower quality goods. Chinese wage growth at this rate takes them up to half our minimum wage in only five years.

This has already happened in South Korea (EWY), where wage costs are 60% of American ones. As a result, Korea?s GDP growth is half that seen in China. These numbers are also a powerful argument for investing in Vietnam, where wages are only 27% of those found in the Middle Kingdom, and where Chinese companies are increasingly doing their own offshoring. This is why I have pushed the Vietnam ETF (VNM) on many occasions. I know every time I do this I get torrents of emails bitterly complaining how difficult it is to do business there, and how the hardwood trees are still full of shrapnel left over from the war, and why I shouldn?t buy a 50 acre industrial park there.? But, the numbers don?t lie.

FXI 8-22-13

EWY 8-22-13

PIN 8-22-13

VNM 8-22-13

Vietnam Flag

https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Vietnam-Flag.jpg 287 446 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-23 01:05:552013-08-23 01:05:55How US Job Losses Will End
Mad Hedge Fund Trader

Options for the Beginner

Diary, Newsletter

I strongly urge readers of this letter to log on to Amazon and by a copy of Options for the Beginner and Beyond by W. Edward Olmstead. Options contracts offer investors a wonderful instrument for minimizing risk, while maximizing the upside, and I am going to recommend many more such strategies in the future.

So, if you want to have the slightest idea of what I am talking about, get yourself some grounding in this important field by reading this book. You don?t have to be a math genius to figure this stuff out, and the risk reward benefits are great.

Olmstead, a math professor at Northwestern University, starts out with a basic Options 101 course, going into the merits of puts and calls. He catalogues the exchanges where they are listed, and the vast number of products that can be traded, including stocks, bonds, commodities, currencies, and precious metals.

He goes into the mundane, but important details on the administration side of things, such as settlements. For the more technically inclined, he launches into options theory pricing, and goes into the origins and utility of the Black-Scholes equation. We learn about the arcane world of what traders call ?the Greeks?, the deltas, thetas, and vegas of individual positions. He then launches into basic option strategies, like call and put spreads, ratios, straddles, strangles, collars, and condors.

Don?t let these terms scare you off. It is really much easier than it sounds. In fact, you will be kicking yourself once you find out how easy it is. In order to buy the book at a discounted price and give yourself a genuine trading edge, just click here.

Options for the Beginner and Beyond

 

https://www.madhedgefundtrader.com/wp-content/uploads/2013/05/Options-for-the-Beginner-and-Beyond.jpg 401 289 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-23 01:04:522013-08-23 01:04:52Options for the Beginner
Mad Hedge Fund Trader

August 22, 2013

Diary, Newsletter, Summary

Global Market Comments
August 22, 2013
Fiat Lux

Featured Trade:
(WHY I SOLD OIL),
?(USO), (UNG), (UUP)
(SALUTING THE ?OLD BREED?)

United States Oil (USO)
United States Natural Gas (UNG)
PowerShares DB US Dollar Index Bullish (UUP)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-22 12:51:552013-08-22 12:51:55August 22, 2013
Mad Hedge Fund Trader

Why I Sold Oil

Newsletter

I think that oil peaked last week with the Egyptian Army?s ferocious and bloody attack on the Muslim Brotherhood. I hate to sound cynical here, but count the daily bodies in the street, which has been trending down sharply since Thursday?s, 1,000 plus tally. Fewer bodies mean lower oil prices.
This has most likely broken the back of the fundamentalist opposition movement for at least the time being, which has accounted for the $20 spike in oil prices over the last two months.

This returns us to the longer term fundamental trend for oil, which is sideways at best, and down at worst. The US is flooding the world?s oil markets with energy in all its many forms. The driver here is American fracking technology, which will continue to upend the traditional energy markets for decades to come. It?s just a matter of time before fracking goes mainstream in Europe, especially in the big coal countries of Germany, Poland, and England. Then they can thumb their noses at Russia, a major gas supplier over the last thirty years. China will follow.

In a crucial news item that wasn?t reported nationally, the California legislature voted down a measure to ban hydraulic fracturing in their state. It was defeated in a democratically controlled body. As the Golden State is the most anti energy state in the country, this gives the state a flashing green light to move forward against environmentalist opposition. There is a ton more of new supply coming. This is what the weakness in the price of natural gas is telling you (UNG).

We also received a new negative for oil this month, the collapse of the emerging market currencies, stock markets, and bonds, especially the Indian rupee. This reduces their international purchasing power in US dollar terms, thus raising the cost of oil in local currency terms. You see, oil is priced in dollars. As the emerging markets have seen the largest growth in demand for oil in recent years, this can only be bad for prices.

In terms of my own trading portfolio, I want to have a ?RISK OFF? position, like an oil short, to hedge my two existing ?RISK ON? positions in the Euro (FXE) and the yen (FXY) shorts. US stock markets could be weak into September, and they will take oil down with them.

The energy inventory figures released on Wednesday were another tell. Oil came in line with a 1.5 million barrel weekly draw down. But gasoline showed a precipitous 4 million barrel drop in supplies, meaning that more people are driving to their summer vacations than expected. Texas tea should have rallied at least $1 on the news. Instead it fell $1.50. It is an old trading nostrum that if a contract can?t rally on surprisingly positive developments, you sell the daylights out of it.

Below, you will find another chart that you should wake up and take notice of, the Powershares DB US Dollar Bullish Index Fund (UUP). Commodities traditionally are weak when the dollar is strong. Both the chart and the fundamentals suggest that we are close to a multiyear low for the greenback and are about to enter a prolonged period of dollar strength. This is also grim tidings for oil.

Finally, there is that last resort, the charts. Check out those for the (USO) and oil and it very much looks like we have a triple top in place. That is the straw that breaks the camel?s back. Time to sell.

The only way I am wrong on my oil call is if the Chinese economy is about to take off like a rocket. They are the marginal big swing player in this market. But there is absolutely no sign of that happening in the economic data. If anything, the collapse in emerging markets suggest that conditions in the Middle Kingdom are about to get worse before they get better.

USO 8-21-13

WTIC 8-21-13

NATGAS 8-21-13

UUP 8-22-13

Camel Ouch! That Hurt!

https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Camel.jpg 406 333 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-22 12:50:482013-08-22 12:50:48Why I Sold Oil
Mad Hedge Fund Trader

August 21, 2013

Diary, Newsletter, Summary

Global Market Comments
August 21, 2013
Fiat Lux

Featured Trade:
(WHY YOU SHOULD BUY THIS DIP),
?(SPX), (IWM), (INDU),
(THE BIPOLAR ECONOMY),
(TESTIMONIAL)

S&P 500 Index (SPX)
iShares Russell 2000 Index (IWM)
DJ Industrial Average (INDU)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-21 09:09:272013-08-21 09:09:27August 21, 2013
Mad Hedge Fund Trader

Why You should Buy This Dip

Newsletter

There?s nothing like coming home and getting slapped in the face with a fresh mackerel the second I step off the plane. That?s what happens when you travel from a continent that is universally positive about US stocks, to one that is largely negative.

Take a look at the chart below from my friends at Bespoke Research, showing that 66% of all investors are now bearish on stocks over the next 30 days, nearly a two year high. That takes us out to mid September, when Ben Bernanke gives us his decision on whether to start tapering and pare back quantitative easing, or not. I don?t think he will do it, but the majority of the market thinks he will.

The economic data do not justify it. Strip out the weekly noise and focus on the longer-term averages, and the picture becomes more clear. During the second half of 2012, monthly job gains averaged 180,000. In the first half of 2013 the number bumped up to 202,000. That is an improvement, but is far shy of the 400,000 in monthly gains seen at this point in past economic cycles.

You also have to consider Bernanke?s inordinate fear of doing a 1937 repeat, when the country fell into the second leg of the Great Depression due to premature easing. That means he will continue to err on the side of over stimulation. Add all this up, and you get no taper in September, December, or even in early 2014. When markets figure this out, they will rocket to new highs.

So why are stocks so weak now? Blame it on the summer doldrums, which is why I spent the last two months sunning my self in Europe. Watching the market action today, it is clear that the ?B? teams are still in charge on the trading desks. Write it off to the fact that the market has gone up for nine months straight and is begging for a rest. It is nothing more than that.

My bet is that we are in for another standard correction. So far, we have breached the 50-day moving average at 1,658, off 3.3% from the recent highs. The largest decline this year has been the 7.3% we saw in May. A 9.5% dump takes us down to 1,552, bang on the 200-day moving average. That?s where you load the boat on the long side for a yearend run to new highs.

Sorry for the delays in my recent posts. As soon as I got home, the hard drive on my iMac promptly blew up. This, no doubt, is thanks to the porters who dropped my luggage at the last 20 hotels I checked into. So I have been working from my six year old backup Windows PC, which I have largely forgotten to use.

What?s that delete button for? And where?s the damn finder?

Weekly Bespoke Mkt Poll

SPX 8-20-13

Fight-Fish Welcome Home!

https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Fight-Fish.jpg 257 530 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-21 09:08:412013-08-21 09:08:41Why You should Buy This Dip
Mad Hedge Fund Trader

The Bipolar Economy

Diary, Newsletter

Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits account for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact. Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive. It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Intel, Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too. Many of their business activities are contributing to foreign GDP?s, like China?s, more than they are here. Those with large domestic businesses, like retailers, earn less, but pay more in tax, as they lack the offshore entities in which to park them. The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace. Caveat emptor. Buyer beware.

What?s In the S&P 500?

Whats in the S&P Chart

Girl-Sad Has the Market Become Bipolar?

https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Girl-Sad.jpg 327 437 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-21 09:05:252013-08-21 09:05:25The Bipolar Economy
Mad Hedge Fund Trader

August 20,2013

Diary, Newsletter, Summary

Global Market Comments
August 20, 2013
Fiat Lux

Featured Trade:
(I?M BACK!)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-20 01:04:102013-08-20 01:04:10August 20,2013
Mad Hedge Fund Trader

I?m Back!

Diary, Newsletter

I sit here at Virgin Atlantic?s upper class lounge at London?s Heathrow airport, awaiting their transcontinental nonstop service to San Francisco, listening to Bach?s Sonata No.1 in G Minor on my headphones. I am returning from a two-month tour of Europe that was highly informative, exciting, and even mind expanding. The proof is the ten new pounds that I am packing under my belt.

John Thomas - Heathrow

Living in the US, all I hear about are America?s weaknesses and the strength?s of foreign countries, mostly China. Traveling abroad, one is barraged with admiration for our country?s strengths and endless mewling about their weaknesses. So to look at the United States objectively, it is necessary to spend a certain amount of time abroad. This I did in spades.

It was first class and five stars all the way. I?m talking palaces, presidential suites, and Michelin three star restaurants. My credit card is worn out, the magnetic strip a mere fragment of its former self, and shall be retired to stud when I get home. PayPal is laughing all the way to the bank. As for my travel blazer, it needs to be shot and buried, being far beyond the reach of even the most diligent dry cleaner.

My global strategy luncheons in London, Amsterdam, Berlin, Frankfurt, Portofino, Mykonos, and Zermatt were a blowout success. Several venues required rebooking to larger facilities to accommodate greater than anticipated numbers.

It appears that a 37% return in a year when everyone else is tearing their hair out is a real crowd draw. All went away with a broadened view of the world, and I picked up some first class intelligence. It was well worth the investment for all.

The adventures came fast and furious. I picked up a new fedora at Locke & Co., just down St. James Street from my old office at The Economist magazine, the firm that supplied Lord Nelson of Trafalgar and all the kings and queens of England with their fine hats. Tea at the Ritz is a people watching experience par excellence.

John Thomas - Fedora

The red light district in Amsterdam has gone tourist, with families perusing the bikini clad ladies of the evening in the bay windows, who are now mostly from Russia. After a major cleaning job, Rembrandt?s Night Watch looks even better than it did when I first saw it 45 years ago. The international flower market performed a logistical masterpiece that would have done the founders of the original Dutch East India Company proud.

Intl Flower Market

The city of Dresden was a cultural gem long outside my reach in the old communist East Germany. The shadow of the mass firebombing that killed most of the population in 1945 is ever present. Looking at the crown jewels of the Saxon kings, it is easy to understand from where the anti tax movement sprung.

Bell Person - Grand Hotel

It was an emotional moment for me riding my bicycle across the site of the former Berlin Wall. Where machine guns once threatened, a million flowers now bloom. My deluxe accommodations at the Hotel Adlon were the old wartime Gestapo headquarters. That is a vast improvement over the dilapidated student dormitory where I stayed in the sixties, which, remarkably, is still standing. Goering?s solidly built Air Ministry still exists just down the street, an Art Deco tour de force. Scouring the city?s vintage shops, I managed to score an Italian embroidered suede alpine jacket that fit perfectly for only ?8.

John Thomas - Berlin

My free afternoon in Frankfurt?s botanical gardens saw me curiously exploring such oddities as barrel cactus, cholla, and octillo, the kinds of flora we have in abundance in the deserts back home.

Portofino, on the Italian Riviera, was beautiful to look at, but was plagued by European summer vacations crowds that are typical for this time of year. One only hoped that the competing Russian oligarchs attempting to maneuver their mega yachts into the village?s tiny harbor didn?t break out into a shooting war. Watching a pod of dolphins race with the bow of our own ship made it all worth it.

John Thomas - Portofino

The worst nightmare of the trip was the check in at budget Meridian Airlines for the flight to Mykonos. It was me and 200 hard partying Italian kids. The seats were jammed so close together I nearly suffered a double amputation (see photo below). It was so disorganized I barely made the flight. Better to leave the Italians to food, fashion, and race cars, than to running airlines and cruise ships.

Airline Seats

With Italy in its third year of recession, the bargains in Milan were to die for. The children are outfitted for the next two years. I even bought clothes for people I didn?t like, and shipped them home in suitcases bought at 50% off. Only the 100 degree heat and the clouds of mosquitoes drove me away from a longer stay. There?s nothing like flaunting death in a taxi racing to the airport at 100 miles per hour tailgating the car in front by ten feet.

Mykonos was the first ?sit on the beach and do nothing? holiday I?ve enjoyed in many years. But I still got a lot of writing done between racing around the island on a beat up quadracycle and the girls dancing on the tables.

I finally made it to the top of the Matterhorn in Switzerland, all 14,800 feet of it. Knock that item off the bucket list. What I hadn?t bargained for was the rescue effort I got involved in on the way down. More on that in a future piece. Zermatt is a fantasy destination that I will keep returning to every year to climb as long as I live. Having just bagged my 45 year pin from the tourist bureau, can I shoot for 90?

I completed my journey by climbing the highest mountain in Wales, Mount Snowdon. The weather was perfect, rare for this part of the world. I took it as a good omen for the future. Scaling rocky crags, the view of the lakes and the Irish Sea was breathtaking. By then I was just plum worn out from traveling, and longed for my own bed and the morning edition of the San Francisco Chronicle, even one soaked by the sprinklers. California wine is looking pretty good right now, with the fall harvest fast upon us.

I return with a new lease on life, my batteries recharged, and chomping at the bit. It doesn?t hurt that my Trade Alert performance is tickling yet another all time high, up 92% since inception two and a half years ago. I?ll get some new Trade Alerts out soon to throw the hard core traders among you some red meat. It is going to be a very good year.

Many thanks for all your support. You, the readers, make it all worth it.

I?m on the plane now, two hours into the Atlantic. Below are the endless glaciers and snowfields of Greenland. I?ve made it all the way to Bach?s Partita No. II in D Minor. Iceland is in our rear view mirror. The stewardess is asking me to make room for my steak and cabernet. So that?s it for now.

https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/John-Thomas-Heathrow.jpg 375 500 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-20 01:03:072013-08-20 01:03:07I?m Back!
Mad Hedge Fund Trader

August 19, 2013

Diary, Newsletter, Summary

Global Market Comments
August 19, 2013
Fiat Lux

Featured Trade:
(HOW THE GOVERNMENT UNDERSTATES THE ECONOMY),
(HOW TO GET A FREE TRIP TO EUROPE)

 

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-08-19 01:05:392013-08-19 01:05:39August 19, 2013
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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.

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