Page 1866 - Mad Hedge Fund Trader

The Government That Cried Wolf

Treasury Secretary, Jack Lew, is warning us that the government will run out of money on Monday. Maybe, by rearranging the deck chairs on the Titanic, he can continue crucial payments, like Social Security and veterans benefits, through October 16. After that, we are officially broke. Bills for what the government has already spent will go unpaid. Welcome to the deadbeat nation.

How have the Republicans responded? By having a senator read Dr. Seuss?s Green Eggs and Ham, a popular children?s book, into the Congressional Record. With news like this, you?d think stocks and other risk assets would be well on their way to zero. Investors have every reason to despair.

Except that they?re not.

Too many traders have seen this movie before. The markets don?t believe it for a second. The 10 year Treasury yield, the specific securities we are about to default on, are actually rising in price in the run up to this disaster, with yields falling a stunning 40 basis points in two weeks. Stocks continue to maintain incredibly lofty heights, a mere 2.4% down from their all time highs.

When the public pronouncements of politicians and the markets contradict each other, I?ll go with the markets every time. Washington has cried wolf once too often.

In the wake of the last debt ceiling crisis two years ago, stocks cratered by a gut churning 25% in two months. Then ensued one of the greatest bull runs of all time, with the S&P 500 (SPY) rising an amazing 640 points, or 60%.

In fact, selling short President Obama has proven highly expensive. Those who bailed in the aftermath of his two election wins missed out on enormous upside stock gains. Traders have since learned the new language of Washington DC: government shutdown means ?BUY.?

The Democrats know that time is on their side and are astutely playing their hand accordingly. They know that the last time the Republicans chained the entrance to the Statue of Liberty they took a big hit in the following midterm elections. So, an offer of a repeat performance is being welcomed by the left with open arms.

The Democrats also know that they are winning the demographics battle. Ever year they pick up 3 million new voters through no effort of their own. Some 2 million young voters turn 21 every year, and 80% of these vote Democratic, when they show up. Another 1 million newly naturalized legal immigrants join the voter rolls, 90% of them back Obama, and they all show up, since citizenship is such a hard fought prize.

That means Democrats will gain some substantial percentage of 12 million votes nationally by 2016. This explains why so many conservatives were honestly shocked by the 2012 Romney loss, fueling the Internet with endless conspiracy theories. Their party was using four-year-old voter data.

If Romney had run in 2008, he would have won. And who have they got to run against Hillary Clinton in the next election, who is leading in the polls with a 60% margin among Republican women?

I?m afraid that if the Republicans continue their current behavior, they will go the route of the Whig Party, which faded into history in 1856. This would be a sad thing, as I support the two party system.

So many across the political spectrum see the Tea Party antics as a giant waste of time, and disrespectful of our democracy. While the Democratic Party is moving towards the middle, the Republicans are moving further to the right.

The most egregious shenanigans in the House and the Senate committed by Republicans are all about proving ideological purity, so they can win primaries against even more conservative contenders, who then blow national elections. The final legacy of the Tea Party may well be that they delivered a Senate to the Democrats when it should have been Republican.

The movement towards an effective one party state would come with considerable costs. The flood of deregulation unleashed by Ronald Reagan in the early 1980?s is still paying huge dividends. I much prefer paying $500 than $4,000 for a trip to Tokyo for my kids. I like no longer having to deal with only AT&T to make my long distance calls, which are now mostly free. They used to cost a fortune. Having 1,000 channels to watch on TV certainly gives me more choices than the original three.

Too bad the deregulators didn?t quit when they were ahead. Only eight years after the repeal of the Glass-Steagall Act eliminated barriers between broking and investment banking, every major financial institution in the US was de facto bankrupt. They are still crawling out of the hole, thanks to a massive government bailout.

I?m sure by now I have lost half of my subscribers, the right leaning half, so I?ll move on before I lose the rest.

What?s the bottom line on all of this? The theatrics in Washington are presenting a mere speed bump in one of the greatest bull markets of all time. The move in the main stock indices is just about to become the fourth largest upward on the books, as it is on the verge of surpassing the tremendous 1942-1946 bull run.

Imagine that! The outlook for public listed companies in the US is now so outrageously positive that it is having a greater impact on share prices than winning WWII! Wow, and double wow! For more reasons why we are in the midst of the greatest bull market of out lifetimes, please click the titles to read ?Why US Stocks Are Dirt Cheap? and ?My 2013 Stock Market Outlook?.
So use the 3%-7% dip we get this time around to scale into your favorite long positions one more time. That is the only entry point the market has permitted since November. We may have to wait all the way until April, 2014 to find a better entry point than that.

That?s what I?m doing.

Shorting Obama Has Proved Expensive

Breakfast With Boone Pickens

Diary, Newsletter

Reformed oil man, repenting sinner, and borne again environmentalist, T. Boone Pickens, Jr. says that ?When we turn the US green, it will have the best economy ever.?

I met the spry, homespun billionaire at San Francisco?s Mark Hopkins on a leg of his self-financed national campaign to get America to kick its dangerous dependence on foreign oil imports. For the past 30 years, the US has had no energy policy because ?no one wanted to kick a sleeping dog.?

Production at Mexico?s main Cantarell field is collapsing, and will force that country to become a net importer in five years. Venezuela is shifting its exports of its sulfur-laden crude to China for political reasons, once refineries in the Middle Kingdom are completed to handle it.

Unfortunately, stable energy prices have put urgent alternative energy development on a back burner, with his preferred natural gas (UNG) taking the biggest hit. If the US doesn?t make the right investments now, our energy dependence will simply shift from one self-interested foreign supplier (Saudi Arabia) to another (China).

Wind and solar alone won?t work on still nights, and can?t power an 18-wheeler. Don?t count on the help of the big oil companies because they get 81% of their earnings from selling imported oil. The answer is in a diverse blend of multiple alternative energy supplies from American only sources.? Although Boone now has Obama?s ear, it?s a long learning process.

Boone says he has donated $700 million to charity, and argues that the 20,000 trees he has planted should offset the carbon footprint of his Gulfstream V private jet.

I worked with Boone to organize financing for a Mesa Petroleum Pac Man oil company takeover in the early eighties, when it was cheaper to drill for oil on the floor of the New York Stock Exchange than in the field. Now 85, he has not slowed down a nanosecond.

As Boone walked out the door, I shook hands with him and said ?I want to be like you when I grow up.? He smiled. When you meet a friend who is 85, you never know if you are going to see him again.

September 26, 2013 - Quote of the Day

Quote of the Day

?Kamikaze missions are rarely successful, least of all for the pilots,? said Robert Gibbs, former White House Press Secretary.

September 25, 2013 - MDT - Euro Pattern alert

MDT Alert

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.

Trade Alert - (SPY) September 25, 2013

Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more

September 25, 2013 - MDT - Midday Missive

MDT Alert

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.

September 25, 2013 - MDT Pro Tips A.M.

MDT Alert

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.

September 25, 2013

Diary, Newsletter, Summary

Global Market Comments
September 25, 2013
Fiat Lux

Featured Trade:
(MAD HEDGE FUND TRADER HITS THREE YEAR 100% GAIN),
(JOIN THE INVEST LIKE A MONSTER SAN FRANCISCO TRADING CONFERENCE),
(WHY I?M BUYING THE TREASURY BOND MARKET),
(TLT), (TBT)

iShares Barclays 20+ Year Treas Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)

Join the ?Invest Like a Monster? San Francisco Trading Conference

Diary, Newsletter

I am pleased to announce that I will be participating in the Invest Like a Monster Trading Conference in San Francisco during October 25-26. The two-day event brings together experts from across the financial landscape who will improve your understanding of markets by a quantum leap and measurably boost your own personal trading performance.

Tickets are available for a bargain $399. If you buy the premium $499 package you will be invited to the Friday 6:00 pm VIP cocktail reception, where you will meet luminaries from the trading world, such as Trademonster?s Jon and Pete Najarian, Guy Adami, Jeff Mackey, and of course, myself, John Thomas, the Mad Hedge Fund Trader. All in all, it is great value for the money, and I?ll personally throw in a ride on the City by the Bay?s storied cable cars for free.

Jon Najarian is the founder of OptionMonster, which offers clients a series of custom crafted computer algorithms that give a crucial edge when trading the market. Called Heat Seeker ?, it monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets.

To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes of data, every 30 minutes. His firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. Jon?s team then distills this ocean of data on his website into the top movers of the day. ?As with the NFL,? says Jon, ?you can?t defend against speed.?

The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peek at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.

Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as a pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.

Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.

In order to register for the conference, please click here. There you will find the conference agenda, bios of the speakers, and a picture of my own ugly mug. I look forward to seeing you there.

Cling! Cling!

Jon Najarian

Why I?m Buying the Treasury Bond Market

Newsletter

The Fed?s decision not to taper, and therefore keep interest rates lower for longer, gave a great flashing green light to the bond market. It has been off to the races ever since, with the iShares Barclays 20+ Year Treasury Bond Fund (TLT) blasting through resistance this morning to new two month high. As this is off a double bottom on the charts that has been unfolding since July, the move looks pretty solid.

With the imminent appointment of my friend, Janet Yellen, as the next chairman of the Federal Reserve, I think we may not see a real taper until well into 2014. I heard yesterday that the White House staff has been ordered to start talking her up, now that their favorite, Larry Summers, has been sent to an assisted living facility.

So bonds have more to run, easily taking the yield on ten year Treasuries from this morning?s 2.70% down to 2.50%. There, we may stall out and define the lower end of the new range for bond yields for quite some time.

I have been begging, pleading with, and cajoling readers for the past month to take profits in their short bond positions and sell their holding in the ProShares Ultra Short 20+ Year Treasury ETF (TBT). If they did, they are nicely positioned to buy it back the next time it hits $70, down from the recent $82 peak. That is roughly where we hit the 2.50% ten-year yield.

That could be the bond trader?s lot for the next six months, buying paper every time we hit a 3% yield, and going short at the 2.50% yield. They deserve nothing less. If they had real balls, they?d be stock traders.

Keep in mind that this is a counter trend trade, which are always dangerous. I am convinced that we are now 13 months into the Great Bear Market for bonds that could last another 20 years. Future capital flows will be defined by moving out of bonds into stocks probably until the end of the 2020?s, the so called ?Great Rotation.? So I am being careful here, keeping maturities short at a little more than three weeks, the size small, and the strikes distant.

This is not my best-timed trade of the year, and I am a little late to the party. I am resorting to finishing off the left over drinks abandoned by the early arrivals. As has lately so often been the case, prices turn on a dime, and then don?t let anyone in, as there are no pullbacks. This is a sign of a market dominated by professional momentum traders, not stay at home day traders.

So the potential profit on this trade is only a modest $630, or 0.63% for the model $100,000 trading portfolio. The risk is small, and therefore, so is the payoff. If this doesn?t appeal, or if the commissions end up eating too much of your potential profit, just walk away. Or, you could wait for better prices with a pullback in the (TLT) to get the better return. Or, just watch it play out in the paper portfolio as a training exercise.

The attraction of this position is that it gives us a participation in the unfolding, politically driven smack down in Washington over the debt ceiling crisis. It also establishes a ?RISK OFF? position, which I can use to counterbalance my existing ?RISK ON? positions.

It?s always nice to have a hedge on in case the wheels fall off the market.