Global Market Comments
September 6, 2013
Fiat Lux
Featured Trade:
(MAD HEDGE FUND TRADER HITS NEW ALL TIME HIGH)
(SAN FRANCISCO STRATEGY LUNCHEON POSTPONED TO NOVEMBER 1),
(THE TAX RATE FALLACY),
(THE COOLEST TOMBSTONE CONTEST)
The Trade Alert service of the Mad Hedge Fund Trader has posted a year-to-date gain of 40.53%, a new all time high. Performance since inception 33 months ago soared to 95.58%. This pegs the average annualized return at 34.75%.
Some 71% of all Trade Alerts since the beginning have been profitable. Carving out the closed 2013 trades alone, 41 out of 50 have made money, a success rate of 82%. It is a track record that most big hedge funds would kill for.
The performance spike brings to a close months of sideway action when the markets provided no clear trends. This summer seemed quieter than most. But I have had a hot hand since returning from my European Strategy Tour. Anticipating seasonal strength in the US dollar, I piled on short positions in the Japanese yen and the Euro. A long position in gold proved profitable. My short in the oil market has been volatile, and now sits close to my breakeven point.
The coming autumn promises to deliver a harvest of new trading opportunities. On the menu are the taper, a new Fed governor, a debt ceiling crisis, a possible war with Syria, and the death of the bull market in bonds. The Trade Alerts should be coming hot and heavy.
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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, November 1, 2013. 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 $191.
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 anyone starts lecturing you that the US has the highest tax rate in the industrialized world, just turn around, walk away, and pretend you never heard them. This person is either ignorant about this country?s taxation system, or is deliberately trying to deceive or mislead you.
According to a report released by the Internal Revenue Service, America?s tax collection agency, the top 400 individual tax returns filed in 2009 reported an average gross income of $358 million each. The average amount of tax paid by these individuals came to under 17%, less than half the maximum Federal rate of 39.5%, which kicks in on annual income over $388,350 (click here for the 2012 tax tables). This explains why Warren Buffet pays a much lower tax rate than his secretary. It really is true that in America, only the poor people pay taxes.
Look at any international comparison of taxes to GDP, and one can always find the United States at the bottom of the table. Low American taxes are one of the main reasons why I moved my company here from England 19 years ago, fleeing their hellacious then 15% VAT tax. Take a look at the Fortune 500, where one third of the largest companies pay no tax at all, and many that dominate the top of the list, like the oil majors, pay only token amounts. In 2010, General Electric (GE), one of the most profitable companies in the world, paid a 3% tax rate. However, if any politician wants to pander to voters during election time on a tax cutting platform he will only bluster on about ?tax rates?, not actual taxes paid.
What the US has that other countries lack is the 100,000 pages of the Internal Revenue Code. It is a 100 year accumulation of deductions, accelerated depreciation rates, tax credits, and other tax breaks that are the end product of intensive lobbying efforts and bribes by special interest groups, corporations, unions, and even religious groups. Take a look at the oil industry again. The oil depletion allowance permits drillers to deduct a substantial portion of the cost of a new well in the first year, while spreading the income over the extended life of the well. ?(Click here for its fascinating history, Oil Depletion Allowance.) When I first got into the oil and gas business a decade ago, after reading the relevant sections of the tax code, I couldn?t understand why everyone wasn?t drilling for Texas tea.
I have a very simple solution to the country?s budget deficit problem. Hit the reset button. Eliminate the Internal Revenue Code. Just set it on fire. Keep the existing progressive, hockey stick tax rates on income, but eliminate all deductions. And I mean everything; deductions for dependents, home mortgage interest, medical expenses, charitable contributions, the works. There are no sacred cows. My revised Form 1040 would have only three lines on it:
Income?????? ______________
Tax Rate??? ______________
Tax Due???? ______________
The budget deficit would disappear overnight. Government spending would shrink dramatically, because you could ditch most of the 100,000 who work for the IRS. Some 1.3 million auditors and CPA?s would have to hit the road in search of new work too. The amount of money that is wasted on tax collection in this country is truly staggering. This is not some pie in the sky concept. This is how taxation already works in most countries, and they seem to get along just fine.
In fact, the whole scheme might even pay for itself.
I Think This One Should Be Income, Here
To prove that The Diary of a Mad hedge Fund Trader only deals with the highest quality, top drawer clientele, I want to share the picture below sent in by a subscriber.
Global Market Comments
September 5, 2013
Fiat Lux
Featured Trade:
(OCTOBER 18 SAN FRANCISCO STRATEGY LUNCHEON)
(TAKING PROFITS ON MY EURO SHORT),
?(FXE), (EURO),
(POPULATION BOMB ECHOES),
(POT), (MOS), (AGU), (WEAT), (CORN), (SOYB), (RJA)
CurrencyShares Euro Trust (FXE)
Potash Corp. of Saskatchewan, Inc. (POT)
The Mosaic Company (MOS)
Agrium Inc. (AGU)
Teucrium Wheat (WEAT)
Teucrium Corn (CORN)
Teucrium Soybean (SOYB)
ELEMENTS Rogers Intl Commodity Agri ETN (RJA)
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, November 1, 2013. 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 $191.
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.
It looks like the (FXE) gave us the double top at $133 which I predicted in my August 28 webinar, which very conveniently, was the lower strike of my Currency Shares Euro Trust (FXE) September, 2013 $133-$135 bear put spread. We have since backed off $3, and lower levels beckon.
I originally wrote this Trade Alert on July 18 while on the express train from Berlin to Frankfurt. I had to wait until we stopped at a station before I could send it on my iPhone. My friends in the German government had just painted a picture of the European economy which approximated Hieronymus Bosch?s vision of hell. My later discussions with European central bankers and CEO?s confirmed the worse.
Since then the Euro has appreciated against the dollar almost everyday, slowly draining profits from my model-trading portfolio. Lugging this position in the baggage of my summer vacation was no fun. That abruptly ended last week when traders returning from vacation, well rested and feeling their oats, decided collectively to take another run at the beleaguered European currency.
As of this morning, the market priced our spread at $1.92, just eight cents short of its maximum potential profit. That leaves 77% of the profit for us. So I am going to take the money and run. This reduces our risk for the month of September, when we are threatened by Syria and the regional contagion that will follow, the debt ceiling crisis, the taper, the identity of Ben Bernanke?s replacement, and a giant asteroid destroying the earth.
Since I sold short the Euro, almost every continental economic data point has been positive. Just this morning, we learned that the August Eurozone PMI Index rose from 50.5 to 51.5, a two year high. The UK August Business Activities Index leapt from 60.2 to 60.5, a six and a half year peak, no doubt in part due to the wad of money I dropped there a few weeks ago. The trend is your friend here, and like a giant supertanker slowly turning, the information flow is gradually turning from red to green.
If anything, I am now inclined to start examining European equity markets, which may bounce back stronger than those in the US. On the short list will be Germany (EWG), which is already in a solid uptrend, and Italy (EWI) for a turnaround play. Greece (GREK) has already made its move, nearly tripling off the bottom.
On to the next trade.
Things Weren?t So Bad After All
Global Market Comments
September 4, 2013
Fiat Lux
Featured Trade:
(WHY I?M KEEPING MY OIL SHORT),
(USO), (SCO),
(A COW BASED ECONOMICS LESSON),
(ON THAT TESLA RECOMMENDATION), (TSLA)
United States Oil (USO)
ProShares UltraShort DJ-UBS Crude Oil (SCO)
Tesla Motors, Inc. (TSLA)
Let?s call this the weekend of love. On Friday morning, we were looking forward to a long weekend of missiles raining down on Syria and the regional conflagration that would follow. The price of oil reflected as much, with west Texas intermediate trading all the way up to $112.50.
Then the British Parliament voted against their country?s participation under any circumstances. President Obama then dropped a bombshell of his own, asking congress for a resolution approving military action. He made this request of the least productive congress in history, one that rarely approves anything, whose sole mission is to oppose and embarrass Obama in all circumstances. Flocks of doves were seen circling the capitol dome. The next print for oil was $106.
Obama?s move is entirely political and very clever. He has put the Republicans in the uncomfortable position have having to vote against military action, something they have been clamoring for over the last two years. The sole exception here is the libertarian wing of the party lead by Senator Rand Paul of Kentucky, who opposes all wars for cost reasons.
More importantly, constitutional law professor Obama is setting an important legal precedent here, requiring a congressional declaration of war on this, and all future, military actions. The United States has not declared war on anyone since it did so against Japan in December, 1941 in the wake of the Pearl Harbor surprise attack. Every war since then, and there have been more than 20, has been solely at the discretion under the cover of the War Powers Act. Of the last 23 years, America has been at war for 14 years without any official declaration. The president is not only asking for belt and braces support for an attack on Syria, but also placing the legal handcuffs on all future warlike presidents.
My short position in oil through my bear put spread on the United States Oil Fund (USO) has certainly given me a roller coaster that I had not bargained for. I sold it expecting that the turmoil in Egypt has peaked for the short term. That assessment turned out to be correct. Then we got confirmation of the poison gas attack, something you don?t want to hear about when you are short oil. Only Israel?s missile test today is preventing oil from falling further, fast. Welcome to the oil market.
After the weekend?s action, the oil market has entirely backed out the Syria gas attack. I was sure we were in for a quiet weekend, as there was no way that the US would attack with UN inspectors still in Syria. That would be rude beyond belief. I was definitely paid for my beliefs. My loss on my oil short was pared back from hair raising to moderate. Better news was the gains I scored in my yen and euro shorts, which both collapsed on the dovish news.
So what to do about the (USO) from here? I think that congress will eventually vote for an attack, providing Obama with the fig leaf he is demanding. Oil will spike again when the missiles eventually fly. But with the congressional sand now in the works, that could take weeks, or even months. In the meantime, my options position in the (USO) expires in 13 trading days. So at this point, I am inclined to hang on, run out the clock, and sing anti war ballads until then.
When we do get the next spike in prices, I will sell short again in double the size. Now that the summer is over, the actual supply/demand picture for oil is terrible (click here for ?Why I Sold Oil). Wall Street is holding a record long in the futures market, which will soon come to grief, once the news flow from the Middle East slows.
I am inclined to do so with outright puts only, instead of a put spread to maximize my short-term profits. I may also buy some of the ProShares UltraShort DJ-UBS Crude Oil ETF (SCO), a 200% short fund that profits from falling oil prices (click for the link for the website http://www.proshares.com/funds/sco.html ). I think that the final end game here is for Texas Tea to grind down to $92 over coming months, a prolonged move that an ETF is better disposed to profit from. A 20% drop from the top is certainly something worth taking a bite out of.
