While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
July 15, 2013
Fiat Lux
Featured Trade:
(AUGUST 1 MYKONOS, GREECE STRATEGY LUNCHEON),
(WHAT?S GOING ON WITH THE VIX?), (VIX), (VXX),
(CONNECTING UP AMERICA),
(THE MYSTERY OF THE BRASHER DOUBLOON), (GLD)
VOLATILITY S&P 500 (VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
SPDR Gold Shares (GLD)
Come join John Thomas for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting on the Greek island of Mykonos in the Aegean Sea on Thursday, August 1, 2013. A three-course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $259.
The lunch will be held at major resort hotel on the south shore of the island, which can be found by steering a course of 120 degrees 99 nautical miles from the port of Piraeus. Just make sure you don?t run aground on the island of Andros on the way, as the tides can be treacherous. The pirates on Mykonos have already been dealt with. Moorings can me made available for private visiting yachts offshore. I will email more details with your purchase confirmation.
Bring your broad brimmed hat, sunglasses, and plenty of SPF 50 suntan lotion. You will need them. The Greek islands are cooking hot this time of the year. The dress is casual. Those not wishing to view the clothing optional beach can have a chair with its back to the sea. Accompanying spouses and significant others will be free to bill drinks to my personal account as my guest. Together we will plot the future of western civilization.
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.
After crawling off the mat at the 12% level, and rising all the way back up to 19%, traders are wondering if the Volatility Index (VIX) is finally coming back to life. Or is this just another dead cat bounce?
It wasn?t supposed to work that way. Falling markets should send investors scrambling to buy downside protection in the form of put options, which would automatically send the (VIX). Except when they don?t.
I spoke to over 30 market participants yesterday attempting to root out the cause of this seeming anomaly. All I got was shrugs or idle speculation. A (VXX) at this level, the ETF for the (VIX) assumes that the complacency now endemic in the market will continue for several more months. It is betting that the S&P 500 will continue moving sideways or up with no pullbacks greater that 2%. Oh, really?
It is also discounting a rise in the (SPX) to 1,750, based on a multiple expansion from 16 to 17, while corporate earnings are falling. This will see confirmation when Q3, 2013 earnings start to hit in October. Oh, really, again? It will do this in the face of economies that are dramatically slowing in both Europe and China. Oh, really, a third time?
I finally got through to some friends in the Chicago pits who explained what was going on. A sizeable portion of the trading community believes that we will see a rise in volatility someday, but not in the near future. So they have been buying September call options in the (VIX). To pay for these and hedge out their risk, they have been selling short calls in the front months of December and March at much higher implied volatilities.
Since the (VXX) focuses on only the front two months of the options calendar, it has taken an inordinate brunt of the selling. This is why the (VXX) has continued a rapid decent even on days when the (VIX) was stable and the Dow was down. Needless to say, it has been a huge money maker for the early participants.
How does this end? At some point we do get a serious sell off in the stock market, and the (VIX) rockets back up to 20%, or higher. That means that anyone who initiates this position now will get slaughtered. But the long term players will simply write those losses off against the substantial short dated premium they have taken in in the meantime.
As long as this dynamic is in place, there really is no limit to how far the (VXX) can fall. As traders roll from one expiring month to the next, they will continue to hammer volatility.
Markets Can Remain Irrational Longer Than You Can Remain Solvent
Until now, the country?s power grid has been divided into three unconnected, noncompetitive kingdoms (in the spirit of Game of Thrones), making transnational transmission impossible, leading to huge regional mispricing. While California and New York suffered from periodic brown outs and sky high prices, electricity was given away virtually for free in Texas.
A group of power companies is now proposing to build the $1 billion Tres Amigas superstation in Clovis, New Mexico that would connect all three grids. The plant would use advanced superconducting technology that will send five gigawatts of power down cables cooled at 300 degrees below zero. Construction is expected to reach completion in 2014.
The facility would solve a major headache of alternative energy planners, and will no doubt accelerate development. It would allow the enormous wind farms in the Lone Star State to ship energy to the power hungry coasts. Ditto for the mega solar projects proposed in the Southwest deserts, and the big geothermal plants being built in Nevada. With the Department of Energy having already sent tidal waves of government cash towards the sector, the timing couldn?t be better.
I?ll never forgot when my friend, Don Kagin, one of the world?s top dealers in rare coins, walked into the gym one day and announced that he made $1 million that morning.? I inquired ?How is that, pray tell??
He told me that he was an investor and technical consultant to a venture hoping to discover the long lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the California mines (for the full story click following link: ?http://www.sscentralamerica.com/). He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar denominated coins issued by the new republic.
Treasury secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer. The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Phillip Marlowe, attempts to recover the stolen coin. The book was made into a 1947 movie, ?The Brasher Doubloon,? starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million, and has made several round trips since then. The real mystery is who bought it last? Don wouldn?t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum. Who says the rich aren?t getting richer?
?Never again will the dollar be held hostage in the hands of speculators,? said President Richard Nixon when he took the US off the gold standard in 1971. The Dow Average posted its largest point gain in history the next day.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more