Global Market Comments
January 24, 2013
Fiat Lux
Featured Trade:
(SPX 1,600, HERE WE COME!),
(SPX), (SPY), ($INDU), (TLT), (VIX), (USO)
(WHY THE YEN WILL NEVER RECOVER), (FXY), (YCS)
Take a look at the chart below for the S&P 500, and it is clear that we are gunning for an all time high between 1,550 and 1,600. With the debt ceiling crisis now cancelled, you really have to look hard to find any near term reasons to sell stocks, so we could hit those lofty numbers as early as March.
A perusal of the short-term charts certainly demands one to conclude that we are overbought. The Relative Strength Indicator has just hit 70%, normally a signal that we are reaching an interim top. However, the RSI can stay elevated for an extended period of time and trade as high as 80 before the downside risks show their ugly face. That could be months off.
In the meantime, we could see some sort of correction. But it is more likely to be a time correction, not a price one. That has the market moving sideways in an agonizing, tortuous, narrowing range on declining volume for a while before launching on another leg up.
This year?s rally occurred so quickly that a lot of money was left on the sidelines, especially with the largest managers. That is why we have seen no meaningful corrections so far. This condition could remain all the way out until April.
It is likely that traders are going to keep ramping up this market until the January month end book closing. That sets up a quiet February. The deep-in-the-money options that I have been recommending to readers are ideally suited for this falling volatility environment. They reach their maximum point of profitability, whether the market goes up, sideways, or down small.
You see confirmation of this analysis everywhere you look. Treasury bonds (TLT) can?t catch a bid, and are clearly threatening to break out above the 1.90% yield band that has prevailed for the past year. The Volatility Index (VIX) hit another new five year low today at $12.40. Oil (USO) just hit a multi month high. It all points to stock prices that will remain on an upward path for the foreseeable future.
I think I?ll buy more stocks and then go drive my new Tesla around the mountain.
A Tesla S-1 Performance
If anyone is expecting the Japanese yen to take back the losses it has suffered over the last two months, you can forget about it happening anytime soon, eventually, or in your lifetime.
Naysayers have been pointing to this week?s policy meeting at the Bank of Japan as proof that the yen has stumbled in the international race to the bottom, and that it is running up the white flag of surrender in the currency wars. They point to the rise in the beleaguered currency from a ?90.16 to the dollar Friday low, back to ?88.4 in the cash market, and a gain in the (FXY) from $108.20 to $110.70. The inverse ETF (YCS) has backed off from $55 to $52.60.
There were several reasons for the pause. BOJ governor, Masaaki Shirakawa, said he would delay any substantial monetary easing until 2014. Hold the presses! Prime Minister Shinzo Abe indicated that if the yen fall became too severe, it might have to be slowed. The US government started carping that the weak yen was giving Japan?s car exports an unfair advantage.
That all-electric Nissan Leaf that cost $38,000 in November can now be sold for $31,000, once the recent currency depreciation is factored in. That is a big difference, and was a cause of frequent trade wars in decades past. How do you think we ended up with a Corolla factory in Fremont, California?
There is something much more fundamental afoot. Japan has been far and away the world?s largest international direct investor for the last 20 years. Trillions of dollars have poured out of the country, snapping up energy resources, commodities, manufacturing facilities, commercial real estate, and yes, lots of golf courses.
When the interest and dividends thrown off by these holdings were brought back to Japan, dollars were sold and yen bought, some $100 billion worth a year. On top of this, you can add $40 billion in interest payments earned on $800 billion in US Treasury bonds held by the Japanese government. Total it all up, and it is not only enough to support the yen, but to send it to new highs continuously for the past two decades, no matter how dire the worsening fundamentals of the domestic Japanese economy.
So what happens next? Think of the Nissan Leaf trade in reverse. That American factory that cost $1 billion in 2012 will now set a Japanese investor back $1.2 billion. Ditto for the government?s purchase of US Treasuries. The Japanese won?t stop their foreign investment completely, but they are now being priced out of the market in many transactions, and it will slow appreciably. So does that repatriated interest and dividends. This will feed into a weaker yen over the long term.
Given more time, Japan?s other awful fundamentals will start to kick in as well. Those include a deplorable demographic outlook, a debt/GDP ratio of 240%, the hollowing out of Japanese industry as it decamped for China, and the new cold war with the Middle Kingdom.
I?ll tell you how recent developments will end. Prime Minister Abe will fire the BOJ governor Shirakawa or he will wait a couple of months for him to retire. That will be consistent with his pedal to the metal strategy for reviving the Japanese economy. Then, the aggressive monetary easing he campaigned and won the election on, will get moved from 2014 back up to 2013--early 2013. Like, tomorrow. Then it will be back to free-fall for the yen.
Use this temporary and long overdue weakness to add short positions in the Japanese yen. You can also pick up more of the short yen ETF here, the (YCS).
Take Away the Meatball and What Are You Left With?
Global Market Comments
January 23, 2013
Fiat Lux
Featured Trade:
(TRADE ALERT SERVICE BLASTS TO NEW ALL TIME HIGH),
(SPY), (IWM), (FCX), (AIG), (FXY), (YCS), (TLT)
(CATCHING UP WITH DOWNTON ABBEY)
The Trade Alert Service of the Mad Hedge Fund Trader posted a new all time high today, pushing its two-year return up to 66%. The Dow average booked a miniscule 12% gain during the same time period. The industry beating record was achieved on the back of a spectacular January, which so far had earned readers a mind blowing 10.92% profit.
Right after the January 2 opening, I shot out Trade Alerts urging readers to take maximum long positions in the S&P 500 (SPY) and the Russell 2000 small cap index (IWM). Later, I piled on longs in copper producer Freeport McMoRan (FCX) and American Insurance Group (AIG). I balanced these out with aggressive short positions in the Treasury bond market (TLT), and the Japanese yen (FXY), (YCS). Only my position in Apple (AAPL) has cost me money this year.
After grinding around just short of the previous top for four tedious and painful months, the breakout was certainly welcome news for many. Once I wracked up an unprecedented 25 consecutive profitable trades over the summer, things went wobbly. The Fed unleashed an early, surprise, pre election QE3. Then inventors stopped drinking the Apple (AAPL) Kool Aide en masse. The extent of the tax loss selling after the Obama win was also a bit of a shocker. Maybe I should take longer vacations.
Then the ?aha? moment came. I concluded at the end of November that the multiple political crises facing us were nothing more than hot air. This meant the risk markets were poised to launch multi month bull runs to new all time highs, and I positioned myself, and my followers, accordingly. In the end, that is exactly what we got.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service, daily newsletter, real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
I decided to flee the madness in London for a day and visit some old friends in the countryside, the 8th Earl and Countess of Carnarvon. The late 7th Earl was an early investor in my first hedge fund and I have kept in touch with the family ever since.
His grandfather, the 5th Earl gained fame and fortune from his co-discovery of King Tut?s tomb in Egypt?s Valley of the Kings in 1922. His early death, shortly thereafter, was the origin of ?The Mummy?s Curse? of depression era horror film fame. Many of his discoveries today make up the bulk of the Egyptian collection in New York?s Metropolitan Museum of Art, which the family sold to pay estate taxes.
Recently, the family has been renting out their 350 year old home, a 15-minute taxi ride south of Newbury, the spectacular Highclere Castle, for use as a film set. The period drama series that resulted, ?Downtown Abbey,? unexpectedly became a blockbuster in the US where viewers stupefied by endless low budget reality shows were starved for quality, thoughtful content and adult writing.
It also sent 100,000 visitors a year their way, as well as $25 million in ticket fees. This windfall enables them to maintain the house and the magnificent gardens in immaculate condition. The cash flow also allows them to ramp up the other family business, breeding racehorses for the queen. Portraits of past winners adorned almost every room.
After tea with my hosts and a personal tour of the estate, I picked up some tea towels for friends at home who are into this kind of thing. I also saw a display of some spectacular early Egyptian relics, which the family found bricked up behind a wall 60 years after the Met sale.
The series? third season has just begun and I can tell you now how I think it will play out. The politically incorrect and ultra liberal American mother-in-law, played by Shirley MacLain, has made an unannounced visit, and was about as welcome as a bull in a china shop. Matthew Crawley has bought a new car, so we can expect him to flirt with death in a crash in the near future. The current earl, Robert Crawley, appears to be better at hosting dinners than managing the estate, we we can count on another financial crisis.
There seems to be some sort of gay lovers triangle developing among the footmen. The former head footman, John Bates, now in prison for murder, will be exonerated, but killed in a jailhouse riot just before his release. Lady Edith Crawly is left standing at the altar, so she goes into politics to champion the suffragette movement, much to the horror of her family. The Irish son-in-law and former driver dies in the 1922 Irish rebellion.
Given the huge reception by the viewing public, we can count on this drama to extend to at least five seasons, when it will then be syndicated for the rest of our lives. That works fine for the real life Carnarvons, who can now reinvest in even more thoroughbreds. Who needs hedge funds?
Global Market Comments
January 22, 2013
Fiat Lux
Featured Trades:
(THE DEBT CEILING CRISIS IS CANCELLED),
(SPY), (IWM), (FCX), (AIG), (FXY), (YCS),(AAPL), (VIX)
(JANUARY 23 GLOBAL STRATEGY WEBINAR)
I am sitting here in front of a crackling hot fire at my lakeshore estate in Nevada?s Incline Village. It is a brilliantly clear day, with mallard ducks skimming the surface of Lake Tahoe, and the Canadian geese flying in formation overhead. Snow covered Mount Tallac, some 30 miles to the South, looks so close I feel I can almost grab it and take out a bite.
I am on my way to Washington DC for the inauguration, and had the jet touch down in nearby Truckee for a day of reading and rest. My staff greeted me like I was some kind of conquering hero. One of the perks of working for me is that they get a free subscription to my newsletter, and they all invest their 401k?s, IRA,?s pensions, and profit sharing plans accordingly. When they?re doing well, I feel it. My performance shows in those little chocolate truffles that get placed on my pillow at night.
In fact, it has been the hottest start to a year for me in a long time. The model- trading portfolio is up 8% so far in 2013, which is more than half of what I made during all of last year. With the way my positions are currently structured, I stand to make an additional 50 basis points a day until the next options expiration on February 15. All the market has to do until then is to trade up, sideways, or down small,and I get to keep it all. Right now, that is looking like a pretty good bet.
I completely nailed everything. On day one, I went aggressively long the S&P 500 (SPY) and the Russell 2000 (IWM). I averaged up with more equity positions, a financial, American Insurance Group (AIG), and copper producer Freeport McMoRan (FCX) as a China play. Sensing that it was pedal to the metal for a falling yen (FXY), (YCS), I put a major chink of the portfolio into a short position there. In effect, I am long US equities in Japanese yen.
On top of that, I have a massively short volatility position embedded in all of this, not a bad thing to have when the Volatility Index (VIX) is plumbing new six year lows at the 12% handle. Since then, the data has been released showing that the biggest cash flows into equity mutual in a decade came hot on the heels of my Trade Alerts. Things only went awry with Apple (AAPL), which continued to weaken beyond all belief, as if to prove that I was only human.
It looks like my numbers are going to get a further boost this week from no less a fan than the Republican Party. Former vice presidential candidate, Paul Ryan, from Wisconsin, has indicated that the coming debt ceiling crisis, due on March 31, will be postponed for three months.
Having covered Washington politics for 40 years, I can tell you that he is speaking in code. For ?postponed?, read ?cancelled?. I think they figured out it was a lame idea anyway. Certainly, the markets came to the conclusion two months ago that all of these media constructed ?crises? were a bunch of baloney. That is why I have been pounding the table with readers to pile on the long positions, and ?go commando? on their short positions. Risk markets can only go ballistic in response to this ?aha? moment.
All of this encourages me to stick with the strategy outlined in my 2013 Annual Asset Class Review (click here). Look for a hot first quarter, to be followed by two scary ones, and then a strong finish. This means that all good things will be coming to an end in the not too distant future. In fact, we have probably already started some sort of topping process in the markets that will take a couple of months to unfold. Then look out below.
I just got a call from the airport that the flight plan has been filed, clearance obtained, and the jet is fueled up. Got to go.
Life is good.
Nice Long!
Nice Short!
Party Pooper!
Life is Good!
Global Market Comments
January 18, 2013
Fiat Lux
Featured Trades:
(ATTENDING MY LAST ELECTRIC NISSAN LEAF RALLY)
(SPOILED FOR CHOICE)
It was a typical fall day in San Francisco, the fog wafting in and out through the Golden Gate Bridge. I took the opportunity to attend a company sponsored rally of Nissan Leaf drivers on the Marina Green.
These were the fanatics, the diehards, the truly devoted. These were people who were willing to bet big bucks on an untested, unproven new technology. These were the faithful who put up $5,000 years in advance on the chance that Nissan might actually be able to produce the car someday. In the Bay, there are at least a couple million of us. That?s why so much new, groundbreaking technology originates here.
I am considered of the eminence gris of this community, as I have been covering Nissan as a company for 40 years, and am friends with the current peripatetic Brazilian CEO, Carlos Ghosn. ?I was involved in the early design process of the Leaf, took delivery of one of the first American models, and have run up the most miles.
I strolled among the revelers, speaking to other owners and comparing notes. For the right-brained English teacher types who don?t know the difference between an amp, a volt, or a kilowatt, I answered some basic engineering questions. To admire their creativity, check out the pictures of their personalized license plate numbers, which I posted below.
One guy was there selling an aftermarket Leaf range extender he designed himself, which he claimed boosted the single charge travel distance from 80 miles to 150. The price was $4,000. You always see this sort of thing at Bay area events, people promoting something they built in their dorm room that is revolutionary. Other electric car drivers showed up, including those behind the wheels of BMW?s, Tesla?s, iMiev?s, and Fisker?s. Nissan provided all comers with a 440-volt fast charge for free.
Not only did I buy a car with a zero running cost. I also joined a social community. Someone has developed an iPhone app which lists all the people in your immediate area who will let you hook up to their home for a free charge. As a result, I have never seen one of these dead on the side of the road. But I have passed them doing 45 on the freeway, which means they are just about to run out of juice, and are employing desperate range extending tactics.
Leaf drivers are admired for their idealism, environmental consciousness, and grit by local residents. I never go anywhere without getting a thumbs up. When I first drove mine home, I told my neighbor with the solar roof panels, ?I?ve out greened you.? He grimaced. The state also treats us as royalty. Electric car owners are entitled to a coveted silver bumper sticker that allows them to drive in high occupancy vehicle lanes with a single driver 24/7. Only drivers of 100% battery electric and hydrogen fuel cell, and compressed natural gas powered cars are entitled to such a privilege. Prius drivers, eat your heart out.
