?People think that Treasury bonds are riskless, but a 100 basis point rise in interest rates leads to an 18% capital loss,? said Andrew Neale, a portfolio manager at Fogel Neale Partners.
Global Trading Dispatch?s Trade Alert Service posted a new all-time high yesterday, clocking a 50.9% return since inception. The 2012 YTD return is now at 10.71%. That takes the average annualized return up to 30.1%, ranking it among the top five performing hedge funds in the world. Those happy subscribers who bought my service on May 23 have seen every one of my 11 trade recommendations turn profitable, reaping a 15.32% gain from my advice.
I really nailed the top of the market on April 2, piling on hefty short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) within a week. Predicting that the conflagration in Europe would get worse, my heavy short in the Euro (FXE), (EUO) was a total home run. I took in opportunistic profits trading the Japanese yen (FXY), (YCS) and the Treasury bond market (TLT) from the short side. I was then able to lock in these profits by covering all of my shorts within 60 seconds of the May 28 market bottom.
In June I caught almost the entire move up with a portfolio packed with ?RISK ON? trades. I picked up Apple (AAPL) at $530 for a rapid $50 gain. I seized the once in a lifetime opportunity to buy JP Morgan (JPM) at a 40% discount to book value, picking up shares at $31, correctly analyzing that the ?London Whale? problem was confined and solvable. My long position in Walt Disney (DIS) performed like the park?s ?Trip to the Moon? ride. While Hewlett Packard (HPQ) fell a disappointing 5% on me, I was able to add 140 basis points to my performance through time decay on an options position.
My satisfaction in all of this comes from the knowledge that thousands of followers are making money in the markets that never would otherwise. I am protecting them from getting ripped off by the sharks on Wall Street with their conflicted and indifferent research. I am expanding their understanding of not just financial markets, but the world at large. And I am doing this during some of the most difficult trading conditions in history.
Earlier this week, I added a short position in the (SPY), expecting that Ben Bernanke would fail to deliver QE3. That assessment proved correct, delivering my 11th consecutive profitable trade. The roster is below:
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011. 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.
Trade Alert Service Since Inception
My first morning in the Swiss mountain hamlet of Zermatt, home to the Matterhorn, I was awoken by an army platoon outside my door, fully armed with fixed bayonets.
No, I was not being arrested for past indiscretions in the idyllic Alpine paradise. My often-inflammatory opinions had not even triggered an international incident worthy of military action. It was in fact, the traditional religious holiday of Corpus Christie, and the entire town was conducting a parade past my hotel, brass band and all, at 6:00 am.
Was It Something I Said?
Back in town I stopped at the Chamber of Commerce to pick up my 40-year visitor?s loyalty pin. The pin entitles me to free concerts at the 18th century church and other such frills.
When I first arrived here, the town was overrun with American college students, backpacking around Europe on shoestring budgets, using their Eurail passes to sleep on overnight trains to save the cost of a Youth Hostel. Alas, the age has passed, and today they are gone. Even the Youth Hostel here now costs $50 a night.
The weak dollar means that the only young Americans you see are the children of ?the 1%? flaunting new Rolex watches and daddy?s American Express platinum card, acting as obnoxious as they can. The locals love the business.
The Strong Swiss Franc Forced Some Economies
Since the Matterhorn has some mystical hold over the Japanese as the world?s most perfect mountain, tour groups are here en masse. At one traditional Swiss restaurant I saw one very loud, drunken fellow stagger from table to table, annoying every guest.
I knew from hard earned experience that this red-faced guy was going to throw up any minute.? I asked the owner why he didn?t throw him out. He said that the miscreant was the tour guide, if he left, his 20 big spending customers would depart with him, and he couldn?t afford to lose the business.
Can I Make a Collect Call to the 16th Century?
Zermatt has been a transit point for those traveling between Northern and Southern Europe for thousands of years. During WWII refugees fleeing fascist Italy were guided to the edge of the glacier never seen again. Hundreds are still thought to be entombed in the many deep crevasses.
On a previous trip, search and rescue was sent out to retrieve a newly discovered body. After sifting through his pockets and dating the coins, authorities realized that the unfortunate victim had been there for at least 400 years.
I always avoid the cheesy souvenir shops, as most of their offerings are now made in China, and I already have enough Swiss Army knives to last a lifetime. Instead, I do my shopping at the local hardware store and supermarket, loading up on my favorite mustard, chocolate bars, and a few cowbells.
There is a huge construction boom underway in Zermatt, with more than 20 hotels and condo buildings under construction. I asked a local business leader why this was so, with the economy of Europe falling apart. He replied that whatever they were losing with Germans, French, Spanish, and Italians they were more than making up with Asians and Arabs. Many shops now offer their chocolate, cuckoo clocks, and T-shirts with Japanese signboards.
More on Zermatt later.
Place to Think Great Thoughts
?It?s a bit like looking for gold in a minefield,? said Fidelity International?s China Special Situation Fund manager, Anthony Bolton, amid widespread accounting fraud in the country.
Many apologies to the hundreds of listeners who were cut short during the broadcast of my biweekly strategy webinar on Wednesday, August 1. Despite the Herculean efforts of the staff, sometimes the technology doesn?t deliver as promised. This was one of those days.
For a start, getting the GoToMeeting software to work on an iMac is a bit like trying to shove a round peg in a square hole. While the scenery in Zermatt is spectacular, the local broadband is still stuck in the 19th century. I did a speed test and discovered, to my horror, that I was clocking 2 mb/second, compared to the blistering 100 mb/second that I get at home.
The satellite link connecting Europe with the US can go down at any time. On top of that, the London Olympics has been sucking up much of the continent?s bandwidth, slowing down everyone?s communications to the speed of molasses in winter.
There were some local issues that further complicated matters. It is the Swiss National Day, or the country?s equivalent to the Fourth of July. So everyone had the day off, and many spent the day surfing the net, further slowing speeds. Fireworks went off constantly, and the party next door started to spill over into my own chalet.
Right at 6:00 pm local time, the church bells started ringing, just as my webinar was getting started. I hope you were able to hear them in the background. Oh, and I think some local goats were chewing on my fiber optic cable. When the call came in that the audio was intermittent, I had little choice but to can the broadcast.
Please go to my website at www.madhedgefundtrader.com and log in. There you will find the PowerPoint for today?s webinar posted, along with all other past strategy webinars. I look forward to hearing from you again when I return to the 21st century next week and have US grade hardware and communications at hand. I?ll be broadcasting from a PC, so that the live Q&A chat window will be restored as well.
After my failed attempt, I headed to central Zermatt to join in the celebrations. I found the main street packed shoulder to shoulder with at least 10,000 revelers. Traditional Swiss music groups played tunes like Yankee Doodle and The Stars and Stripes Forever. Businesses had tables in front selling every imaginable kind of food. They were slinging out fondue, raclette, something called cholera, bratwurst, flamenkuche, and sushi as fast as they could make it. The beer and wine flowed freely, and people of every nationality were in an ebullient mood. I matched every stop at a food stand with two at the bakery tables. The waste line suffered.
As we approached 10:00 pm, the fireworks increased in crescendo. Then three huge signal fires were set on the surrounding mountain peaks, and the festivities moved into overdrive. They clearly do not have the same restrictions as at home, as every juvenile delinquent had an armload of skyrockets, roman candles, and firecrackers, which they put to use with reckless abandon.
Just as the town began its main display, a huge thundercloud barreled up from Italy. We witnessed an awesome duel, with enormous lightening strikes on the Matterhorn challenged by the immense booming of fireworks over the village. As we were deep in an Alpine valley, the reverberating echoes off of the surrounding mountain walls were superb. Finally, a torrential downpour sent everyone scampering for the cover of the overhanging eves of chalets.
In the meantime, good luck and good trading.
John Thomas
Zermatt, Switzerland
My Morning Commute
As I expected, the wildly optimistic expectations for further quantitative easing by the Federal Reserve at yesterday?s Open Market Committee meeting were not matched with substance. All we got was a continuation of existing modest programs and some minor tweaking of language.
Bernanke only managed to say that, ?further stimulus will be provided as needed.? The Fed left unchanged its statement that economic conditions would likely warrant holding the benchmark Fed funds rate near zero ?at least through late 2014.? It also said it would continue swapping $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action intended to lower long-term interest rates known as Operation Twist.
Apparently, the slowdown in GDP growth from 2% in Q1 to 1.5% in Q2 was not enough to spur the Fed to action. Nor was a slowdown in jobs growth from an average 226,000 jobs per month to 75,000. The earliest the Fed can now take further accommodative action is at their next meeting on September 12-13, just seven weeks before the presidential election.
The dollar rose smartly against the yen and the Euro. Equities closed at their lows for the day. They could have fallen dramatically further. But I think that traders are holding fire until their learn the results of the ECB meeting on Thursday. If we get more rhetoric instead of action, and the Friday nonfarm payroll continues weak, then we will have a hat trick of disappointments that could trigger a more gut wrench plunge in the indexes going into next week.
At the very least, we should challenge the bottom the of recent upward channel, taking us down 50 points from here. That should double the value of my existing position in the (SPY) puts.
Ben, Where Were You?
?The rule of thumb is to do your homework, do your analysis, and don?t give up prudent risk management for the sake of certain fads. Look for real valuations, and stay true to your time frames,? said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman.
Taking the express train from Paris to Frankfurt, I was playing around with the map function on my iPhone 4s. It was really cool watching the blue dot marking my location zip across the map at 200 miles per hour.
When I zoomed in on my location, I realized that I recognized many of the names. Soissons, Chateau, Thierry, and Belleau Wood were all names that I recalled from my grandfather?s US Army discharge papers from WWI. That?s where he suffered a mustard gas attack that inflicted total blindness for 5 years and put him in a bad mood for the next 50. The train was traveling along the frontline trenches of the Western Front.
I wondered what my grandfather would say to me today, 45 years after his passing. His parents sent him from his native Sicily to New York City to avoid the Italian draft, which then needed recruits to expand its empire in Libya and Ethiopia. But when 1917 came, he joined the American army?s famed Rainbow Division to gain US citizenship and quickly found himself in the trenches.
I am sure he would be amazed by the technology that emerged nearly 100 years into the future; bullet trains, cell phones, and laptop computers that give immediate access to all knowledge. He was a true renaissance man, spoke five languages, and was well versed in the classics, so he would have appreciated the utility of such devices.
However, he would have been horrified that I was traveling to Germany to speak with the hated ?Bosch?, who committed atrocities against Belgium children, whose submarines sank unarmed civilian ships, and who were no better than lowly ?Huns?. That, however, is precisely where I was going, to advise the German government, the CEO?s of top corporations, and officials from the Bundesbank on how to extricate themselves from their current financial and political predicaments.
Check Out My Frankfurt Digs
When I arrived at Frankfurt station, my origins as a German blue-collar factory worker made themselves abundantly clear. I headed straight for a fast food stand and ordered a bratwurst mit brutchen und kartofelsalat mit eine grosse bier. When I was 16, I spent a summer working at the Sarotti chocolate factory in West Berlin, and the preferences I picked up live with me today. Some of my co-workers had been Russian POW?s in Siberia released only a few years before, and the stories they told me were bone chilling.
When the list of those who wished to hear my views became impossibly long, I finally said to one friend, ?Why don?t we just get everyone together and have one big party.? And that?s exactly what he did. Crammed into the top floor of one of Frankfurt?s highest skyscrapers were 100 of the cream of the German establishment who came to hear my thoughts on the world at large.
I told them that Europe has two choices: it can move backward or forward. If it returns to the past, the European Community and its currency will break up, forcing each country to compete individually against the US and China. This would cut GDP growth by half and lead to a permanent decline in standards of living. Germany would lose all of its banks as they go under en masse from the burden of bad European debts. Eventually, you would end up with a Germany that is angry, broke, and nuclear, and nobody wants that.
Inventory is Not Flying Off the Shelf in Europe
The only choice, then, is to move forward. Europe is really half a country, or a pretend country. It has a common currency, but not the institutions to ensure its survival, like a US style Treasury Department and a dual mandate central bank with teeth. The present system as it stands is guaranteed to fail. But it took a Herculean effort to get this far 13 years ago, with every party expending their last centime of political capital. So here we stand. After a long hiatus, it is now time to move forward.
It?s up to Germany to bail out the weaker economies of Southern Europe. For a start, they have the money to do so. Much of this was earned exporting German products there. Last year exports exceeded $1 trillion, or about 20% of GDP. Complain all you want about Mediterranean borrowing, but a very large part of it was used to buy Mercedes, Volkswagens, BMW?s, and Audi?s. That?s a lot of money to put at risk by allowing their economies to implode.
Research Can Be So Tedious
But bailouts don?t come free, and the quid pro quo for riding to the rescue would be to give Germany control of European monetary policy. The president of the ECB doesn?t even need to be a German. A Belgian would do, as long as he pursues German style anti-inflationary policies.
There are plenty of historical precedents for such arrangements. The US put up the money for the creation of the United Nations in 1945, and kept for itself a permanent seat on the Security Council. The US funded World Bank is always run by an American. The originally US financed International Monetary Fund has traditionally been managed by a European. The current president is former French Finance minister Christine Lagarde. But its headquarters are in Washington DC.
Pulling this off isn?t going to be easy. When the United States wrenched these concessions out of 13 states in 1787, only 5% of the population was allowed to vote?white, property owning males. Good luck trying to achieve that in a loose confederation of 27 states, with 17 in the monetary union that backs the Euro. Some politicians may have to actually earn their pay for a change. I expect this to be a five-year work out, at the very least.
The net net for all of this is that the Euro will get a lot cheaper before we hear the end of this. Parity against the greenback by next year is within reach, and a revisit to the old low of 88 cents is not impossible. Such a bargain currency would give Europe a huge economic advantage on the world stage and might even provide the grease to make an ultimate solution possible. Then we will have a real United States of Europe to be admired, but also feared as a real competitor.
With that, I headed off to a late dinner near the grand Frankfurt Opera House with several of the more senior guests. My host explained that the impressive baroque building was symbolic in Germany in many ways. While it looks ancient and imposing, it in fact was new, rebuilt with modern reinforced steel and concrete on the rubble of WWII.
Powered by beer, Rhine wine, and ultimately schnapps, I made it until midnight and then caught a taxi back to my palace, wondering if I had missed anything that evening. I also wondered if my grandfather would have been proud of me.
?The consumer in the United States has basically disappeared. There are no jobs, no wage increases, and therefore no spending,? said Bill Gross of bond giant, PIMCO.
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. Read more