Page 2167 - Mad Hedge Fund Trader

December 8, 2009

Global Market Comments
December 8, 2009

Featured Trades: (RISK), (GOLD), (GLD),
(DGP), (HBD.TO), (MEXICAN GOLD PESO), (DOLLAR)

1) Reflections on Risk ? The behavior of the global markets on Friday was a great ?tell? on the current state of risk taking.? We finally got the one data point that we have been hoping for, even praying for, for two years, nonfarm payroll job losses near zero. The stock market should have soared, but the Dow eaked out only a miserly 22 point gain. The markets that should go down on this news got absolutely slaughtered, like bonds, gold, silver, platinum, crude, commodities, and foreign currencies. This tells you that the current risk/reward in the markets totally sucks right now. I believe that Mr. Market does whatever he must to shortchange the most people. And with almost all positions right now, you are facing a ?heads, Mr. Market wins; tails, you lose? dilemma. This is why I have been out of the market since October, except for my physical precious metals, which are too expensive to turn over. Furthermore, all of the markets that have the greatest long term fundamentals suffered the most ferocious falls, like gold?s $80 hickey, because they have become the most overbought, thanks to those late to the party, the performance chasers and momentum players. This all leaves me more convinced than ever that I am making the right long term strategic call. Buy hard assets, but not at frothy peaks. Shun paper of all kinds, including stocks and bonds, especially US Treasuries, the world?s most overvalued asset.

TBT4.png picture by madhedge

2) With gold?s whopping great $80, 6.6% pull back from Thursday?s all time high, I have been deluged by readers asking if this was the peak, if this was the final blow off top, and if gold is finished as an asset class. My answers are no, never, and not on your life. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad overnight. When I pull a dollar bill out of my wallet, it?s as limp as ever. The relentless whir of the printing presses still keeps me awake at night; even though, according to Mapquest, I live 2,804.08 miles from Washington DC. I see the three day plunge as a gift. If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. Start scaling in around the Dubai low of $1,135, and add on further declines down to $1,040. That?s where the Reserve Bank of India started the recent love fest for the barbaric relic with its 200 ton purchase in November. Then the next time that snarky guy at the country club starts boasting again about the killing he made in gold futures, the UPS delivery guy chortles about his gold mining stocks, and your cleaning lady quits because of the fortune she made in Mexican 50 peso gold coins, you?ll at least be able to shoot back with your own witty response. If the institutional world devotes just 5% of their asset to a weighting in the yellow metal, as many have recently promised, it has to fly to at least $2,300, or higher. By the way, you can pick up those gold pesos by visiting Millennium Metals by clicking here . ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP). If you don?t believe a single word of this, or want to protect your existing holdings from a more prolonged move South, visit the Horizons BetaPro Comex Gold Bullion Bear ETF (HBD.TO), a 200% leveraged short position in the yellow metal.

3) If you are counting on more than a trading rally in the dollar, you are betting against the trend, and I mean the really long term trend. The chart below shows the purchasing power of the dollar since the Revolutionary War, and it has been mostly a downhill slide since day one.? Monetary historians remind us that winning the War for Independence broke the country, and it took 50 years to dig out of the hole. The brilliance of Alexander Hamilton, who graces the face of our $10 bill, was how he kept the financial system running with the US in a state of bankruptcy. I?m sure that Ben Bernanke mumbles Hamilton?s biography in his sleep by now. No, I have not been trading the market that long, but some of my ancestors who intimately knew our scandal prone first Treasury Secretary have. The decline in the value of the buck greatly accelerated after we went off the gold standard in 1933 and discovered the wonderful world of fiat currencies.?? Better to take your pay in Euros, American Eagle gold coins, bushels of wheat, or barrels of crude.?

QUOTE OF THE DAY

?We are going to have to work harder as a country,? said Jeff Imelt, CEO of General Electric.

The Mad Hedge Fund Trader Interviews Ed Merner of the Atlantis Japan Growth Fund on Hedge Fund Radio

Podcasts

My guest on Hedge Fund Radio this week is Ed Merner, CEO of the Atlantis Japan Growth Fund (LSE-AJG), who has long been rated the number one stock picker in the Land of the Rising Sun. Ed?s fund, which trades on the London Stock Exchange, is up a stunning 54% from the March bottom.

When the ink was barely dry on the US Japan peace treaty in 1950, Ed?s father uprooted his family from rural Truckee, California, and moved them to Tokyo Japan. That gave him a front row seat to the economic miracle that followed in the fifties and sixties.

Ed started managing money in Japan just a few years before me, in 1970. He toiled away as a portfolio manager at Schroeder?s & Co. in Tokyo for 25 years and then launched his own firm in 1995. Ed, who is a fascinating individual and a genuine nice guy, will discuss the long term opportunities for investing in Japan and Korea.

Hedge Fund Radio is a weekly program featuring one-on-one interviews with the titans of the hedge fund industry. The show is hosted by legendary hedge fund manager John Thomas, one of the most seasoned players in the industry. It is broadcast live on station KGOL 1180 AM in Houston, Texas as part of the BizRadio?? network to 100,000 local listeners, and will be streamed online to a further 100,000 national and international listeners.

The show is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the show, please go to www.bizradio.com or click here, click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.? For that added insight into the future of the markets tune in, or catch the show in my Hedge Fund Radio archives.

December 4, 2009

Diary

Global Market Comments
December 4, 2009

Featured Trades: (SILVER), (GOLD), (ABX), (CDE), (SLW), (HL), (HEDGE FUND RADIO), (JAPAN)

NOTE TO SUBSCRIBERS: I?m taking a research day on Monday, December 7, so the next letter will be published on Tuesday, December 8.

1) Those transfixed by gold blasting through the $1,200 level have been missing the real action in silver. The white metal has soared 86% to $19.50 since the beginning of the year, compared to a more modest 56% move for the barbaric relic, an outperformance of almost two to one. I have been a raging bull on silver all year, and on May 7, grabbed you by the lapels and shook you senseless if you didn?t buy at $12.70 (click here for earlier report ). It is nothing less than owning gold with a turbocharger. Silver gives you a nice double play. Its qualities as a precious metal are giving it a major boost from the flight from the dollar, one of this year?s certainties.? It is also an industrial commodity, which unlike gold, is consumed, and therefore gives you a call on the recovering economy. If you don?t think this move is real, check out the shares of the silver producers. Coeur D Alene Mines (CDE) has rocketed by 357% this year, while Silver Wheaton (SLW) is up 350% and Hecla Mining (HL) has soared by 395%.? If you want to get set up on buying silver futures, e-mail me at madhedgefundtrader@yahoo.com and I?ll tell you how to do it. To accumulate .999 fine Silver Eagles or silver bullion for the tightest spreads over spot, visit www.mileniummetals.net by clicking here. How long will it take to get to the old high of $50? William Herbert Hunt, who engineered the 1980 squeeze with his brother Nelson with a 100 million ounce long position that last took it that high, could tell you, but only from the grave.

SilverAmericanEagle-2.png picture by madhedge

2) I just want to pass on the torrent of? rumors that came flooding back to me inspired by my GOLD SPECIAL ISSUE two days ago (click here for the full report). The major gold producers, led by Peter Munk?s Barrick Gold (ABX), very publicly and with great fanfare took off their hedges and ceased all forward sales, turning themselves instantly into leveraged long gold funds. Now they are deliberately withholding spot supplies from the market in a brazen move to squeeze prices higher. Then the black swan flew in from Dubai (click here for the full story), confirming everyone?s worst fears about the incompetence of all governments, and delivering the parabolic move that took the barbaric relic up a gob smacking $80 in a week to an all time high of $1,220. Whether this is actually true is anybody?s guess, but the market certainly buys it. The yellow metal is starting to look overheated by me, but I?m just an old fart looking forward to his first social security check. I like buying the steak and selling the sizzle, after I?ve ripped a few chunks of red meat out for myself, of course. But who knows, gold could keep flying until year end, and my government check will probably bounce anyway.

3) Given the barrels of ink spilled about the Dubai?s troubles, (click here for full report). I thought I?d update readers about the Emirate?s largest US asset, which I recently visited.? One can?t help but be overwhelmed by a sense of history walking by the Las Vegas City Center; without a doubt one of the worst commercial real estate disasters in human history. The glitzy, ultra modern, Cesar Pelli designed, 16.8 million square foot, 63 acre complex occupies the quarter mile on the city?s fabled Strip between the Bellagio and the Monte Carlo Hotels, and will unquestionably become one of the Wonders of the World, if it is ever finished. It includes the Mandarin Oriental, Aria, Veer, and Harmon Hotels, offering 4,000 rooms and 2,600 condos. The 57 story Vdara condo-hotel opened just this week, despite the fact that many original investors have sued to recover their deposits.?? They will be adorned by two casinos, a convention center, a new theater for the Cirque du Soleil, an gargantuan shopping mall, and parking for 6,900. The finished project will employ 12,000. But strikes and overruns sent costs soaring to $8.5 billion, and the project is now hopelessly behind schedule. Equity in the mammoth project is now widely believed to be worth zero. I saw a total of one worker in a cherry picker working on the project with a screwdriver. The other guy going up in an elevator turned out to be a lender contemplating a jump off the top. Kirk Kerkorian wanted to build the ultimate Sin City destination resort when his MGM-Mirage partnered with Dubai World. The relationship has soured, with Dubai World filing a suit against its partner for negligence and mismanagement, which it later withdrew. Who is going to stay in all these rooms? Those who financed trips to Vegas with home equity loans or subprime credit cards definitely are not coming back. If the project grinds to a halt, it will leave a gigantic eyesore at the heart of the city?s tourist area, becoming a monument to excess in a city of excesses. Unfortunately, what happens in Vegas doesn?t always stay in Vegas, as a financial collapse would send shivers through the industry globally.

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4) My guest on Hedge Fund Radio this week is Ed Merner, CEO of the Atlantis Japan Growth Fund (LSE-AJG), who has long been rated the number one stock picker in the Land of the Rising Sun. Ed?s fund, which trades on the London Stock Exchange, is up a stunning 54% from the March bottom. When the ink was barely dry on the US Japan peace treaty in 1950, Ed?s father uprooted his family from rural Truckee, California, and moved them to Tokyo Japan. That gave him a front row seat to the economic miracle that followed in the fifties and sixties. Ed started managing money in Japan just a few years before me, in 1970. He toiled away as a portfolio manager at Schroeder?s & Co. in Tokyo for 25 years and then launched his own firm in 1995. Ed, who is a fascinating individual and a genuine nice guy, will discuss the long term opportunities for investing in Japan and Korea. Hedge Fund Radio is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the live show, please go to www.bizradio.com or click here , then click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?
? For archives of past Hedge Fund Radio shows, please go to my website by clicking here .

ATLANTIS JAPAN GROWTH FUND

QUOTE OF THE DAY

?There are people who can?t get used to the idea that the country is being run by a black guy living in public housing. Obama is only half black, so I guess that makes him our ?starter Negro,? said political commentator Will Durst.

December 3, 2009

Diary

Global Market Comments
December 3, 2009

Featured Trades: (DUBAI), (EEM), (EDZ), (JOB OFFER),
(HEDGE FUND RADIO)

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1) Who did Dubai's emir, Mohammed bin Rashid Al Maktoum, think he was kidding? He launched one of the biggest construction booms in history, erecting the Burj Dubai, which at 161 stories is the world's tallest building. He built artificial islands in the Persian Gulf with lofty names like 'The World' that are so big they are visible from space. He bought the legendary Queen Elizabeth II, a ship that holds many fond memories of transatlantic crossings for me, to convert into a floating hotel at unimaginable expense. The spending didn't stop there. His spending binge went global, taking a partnership role in the Las Vegas City Center, which became the worst commercial real estate project since the Tower of Babel. The problem is that all of these acquisitions were done on credit, with only a fig leaf of equity, and the wind is now blowing with hurricane force. Dubai property values have slid 50% in a year, and the plunge shows no sign of abating. No surprise then that development arm Dubai World has defaulted on $59 billion in debt. The spendthrift emir spent way too much time on horse racing and not enough on research. Sure, turning Dubai into the next Hong Kong was a laudable goal, but did anyone think this through? While the former crown colony is backed by the sweating masses of China, tiny Emirate is surrounded on two sides by 2,000 miles of sand and on the other two by the not so friendly maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar salad has more oil than Dubai. Haven't they heard of peak oil? I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea. Now that Dubai's debt has been correctly marked down to junk the big question is who else this hubris gone wild is going to take down. The shareholders of the UK's Standard Chartered Bank and HKSB, the lead lenders, are going to take a body blow, and a rash of hickies will spread among the many syndicate members. Greece and Ireland could be next, as the premiums for their credit default swaps have skyrocketed. Things could get ugly in Dubai when the country's 360,000 migrant Indian workers find out they aren't going to get paid. How do you say 'domino theory' in Arabic?

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HEY PAL, WANT TO BUY A CHEAP CONDO?

2) As the markets get increasingly elevated and overpriced, I am widening my search for cheap disaster insurance. Today I'm looking at a hedge for those with substantial emerging markets exposure, which pretty much should be everyone who reads this letter. Take a look at the Direxion Daily Emerging Markets Bear 3X Shares (EDZ) (click here for details), which is a triple inverse ETF on the emerging stock markets. In theory, a 10% drop in the emerging markets would produce a 30% gain in the ETF. In reality, the trip can be much more rocky. To say these markets have simply gone up is a gross understatement. The major components of the EDZ include short positions in shares from China, which has risen this year by 94%, India, up 95%, Brazil, up 116%, and Russia up a mind boggling 183%. No surprise then that the EDZ has had its face ripped off, down a gut churning 92%. You can buy $33,000 of EDZ to imperfectly hedge $100,000 worth of emerging market longs, or scale in here at $5 with a view to a quick double early next year when the inevitable profit taking hits. I'll throw in a cautionary warning that if we enter a prolonged period of grind sideways, the EDZ could very well get dragged down to zero by its internal cost of carry. In flight school they always teach you to wear a reserve parachute when engaging in high level aerobatics. Best to apply this philosophy to your portfolio.

3) You can now access the archived shows of Hedge Fund Radio on my website by clicking here . Hedge Fund Radio is a weekly program featuring one-on-one interviews with the titans of the hedge fund industry. The show is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the live show, please go to www.bizradio.com or click here , then click on 'Listen Live!', and click on 'Houston 1110 AM KTEK.'

QUOTE OF THE DAY

'Until you get small business back on their feet, you're knocking out about 20% of GDP' said Camden Fine, CEO of Independent Community Bankers of America.

JOB OFFER OF THE DAY

Precious metals trader and dealer, Millennium Metals, is looking to hire an experienced professional to manage their gold, silver, and platinum retail business. The firm is looking to grow its share in the national market for coins and bullion. In depth knowledge of precious metals and industry experience a plus. You can work either at our headquarters in Green Bay, Wisconsin or from home anywhere in the US. Please email your resume directly to Rick Renard at cpdrp@aol.com , and mark the subject bar with 'resume'

December 2, 2009

Diary

Global Market Comments
December 2, 2009

ANOTHER SPECIAL GOLD ISSUE

Featured Trades: (GOLD), (GLD)
(HARD ASSETS INVESTMENT CONFERENCE)

1) Welcome to the new gold standard! There was a time that to own gold you had to be a 'gold bug' and believe in the myriad urban legends that percolated in the underground. Fort Knox is either empty, or full of gold plated steel bars. The Treasury cut back on the minting of new gold coins because it had to ship the bulk of our reserves to China to cover the trade deficit. The US government is going to ban private gold ownership again. The Feds have unwittingly fanned the flames of paranoia, with the Patriot Act forcing all American gold and jewelry dealers to register with the Treasury Dept. But adherents to the yellow metal are considered raving nut cases and conspiracy theorists no more. Emerging market central banks, pension funds, hedge funds, mutual funds, and millions of individuals around the world have all simultaneously decided to keep a certain percentage of their assets in the barbaric relic. They are either making a bet on an extended super cycle in favor of all hard assets, or looking for insurance against a wave of hyperinflation that Washington's policies threaten.?? Enthusiasts are no longer burying pillow cases of coins in the back yard, but instead are pouring into an ever expanding legion of ETF's, mining shares, bullion, and futures contracts. The SPDR Gold Shares (GLD), with $37 billion of the yellow metal, is now the world's sixth largest owner of gold. Some economists are now arguing that if you take world GDP and divide it by the value of the gold above ground today, an historic mean ratio would put the yellow metal at $5,300 an ounce. That makes the current spot price look like the deal of the century, and my target of the old inflation adjusted high of $2,300 positively conservative. To sign up for an excellent free weekly research product on precious metals, please click here for the Millennium Metals website.

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2) I thought I'd visit the front trenches of the gold boom by dropping in on the Hard Assets Investment Conference in San Francisco. I planned on spending one hour, but stayed eight. It proved incredibly fertile ground, not just for gold bugs, but also of enthusiasts for silver, platinum, uranium, rare earths, and base metals. A nearly football field sized conference hall was filled with booths from over 100 participating companies. Of course the coin dealers were out in force, flogging maple leaves, silver eagles, and krugerands. The gold miners alone had reps from Africa, Canada, Peru, Brazil, Argentina, Guyana, Mongolia, the Congo, and Burkino Faso.?? I gravitated to the tables manned by grizzled old mining engineers with dirt under their fingernails who gave me the hard data on yields, processes, and costs that I was looking for. I pawed ore samples and core drillings of every possible description. The newsletter publishers also had a large presence. It turns out that there is no environmental movement without rare earths, and we are entering the golden age of nuclear power. One guy even offered to drink the runoff from pure yellow cake to make his point. The financial leverage of the junior miners is spectacular if the price of the barbaric relic keeps going up. I even learned about the fascinating world of collectable gold nuggets. By the end of the day my back finally gave out, and I went cross-eyed poring over a topographic map of lithium deposits in Chile's Atacama Desert. I'll delve into each of these areas in detail in the coming weeks, once I have had a chance to sort through the wheat from the chaff. The early preview: the price of everything is going up. The next conference on May 10-11 at New York Marriot should be a real whopper.

QUOTE OF THE DAY

'Central Banks are sewing gold into their lapels,' said Philip Gotthelf, president of Equidex, a foreign exchange dealer

The Mad Hedge Fund Trader Interviews Bill Fleckenstein about 2010 on Hedge Fund Radio

Podcasts

I have worshipped legendary hedge fund manager, Bill Fleckenstein, as the trading God that he is, for decades. So I thought it was time to catch up with the noted bear to get his take on the New Year.

The sky high expectations for 2010 now endemic will disappoint, with the year ending substantially lower than we are now. In a stroke of genius, Fleck, as he is known to his friends, closed his short-only fund in March ahead of the coming onslaught of stimulus he saw.

When the Dow popped above 10,000, Fleck took out his ?Dow 10,000? hat and symbolically placed it on top of the six foot tall stuffed grizzly he keeps in his office. The same idiots who sold the bottom in March are now buying the top, and some fantastic short selling opportunities are setting up. He is in no rush, though, as it is tough to short against zero interest rates.

This could be the year when serious money is once again made on the short side. His favorite targets will be technology companies, where double ordering of components is now rampant, as Kool-Aid drinking managers rush to replenish depleted inventories. Research in Motion (RIMM) is a train wreck where he already has a big, successful short position. Retailers like high end department stores with weak balance sheets, such as Nordstrom (JWN), are also in his cross hairs, as are restaurant chains like IHOP (DIN).

?Anything with a bad balance sheet will get clubbed,? said Bill, with the subtlety of a 20 pound sledge hammer.

Big banks are one big fantasy in a world of make believe, but are really more of a macro call here. With the government changing the rules every day, he?ll stay away.

Long Treasury bonds are a bubble waiting to burst, and the TBT is a home run staring you in the face.

He can understand why the low end in residential real estate is holding up, since the government is offering a tax free bribe of $8,000 to all comers. But the high end is in serious trouble, and it is raining McMansions in tony neighborhoods everywhere. The nightmare won?t end until the banks foreclose on everything and then puke it all out, putting in the real bottom. This could be a long time off. He doesn?t see any way commercial real estate can avoid disaster. Commercial REITS are a screaming sell, which are falling off a cliff but haven?t felt any pain because they haven?t hit bottom yet.

The current stock market bubble could continue for a few months, with Congress passing more stimulus projects to save their own skins in November. The bell will ring that the top is in when foreigners take away our printing presses by boycotting Treasury auctions, sending stocks, bonds, and the buck into a simultaneous tailspin. That will be the time to get aggressive.

What Fleck does like is gold and silver. To meet the big increase in demand, either production or prices have to go up, and he votes for the latter. Fleck congenitally despises all fiat paper currencies, but hold a gun to his head and he?ll tell you to buy the Canadian dollar (FCX), where a wealth of energy, metal, and food exports will enable the looney to outperform the others.

Buy wheat. Traders were transfixed by last year?s huge American crop and cratered prices, when in reality, 40% of the wheat producing areas of the world are suffering prolonged droughts, and $8/bushel is not out of the question. Heavy autumn rains caused much of that to rot in the field, and now a horrific winter auguring for even higher prices.

For more on Fleck?s views, go to his insightful and informative blog called the ?Daily Rap? by clicking here at https://www.fleckensteincapital.com/index.aspx , which is literally worth its weight in gold. You can also catch Bill?s weekly multi market review at MSN by clicking here at http://articles.moneycentral.msn.com/Commentary/ByAuthor/BillFleckenstein.aspx .

Hedge Fund Radio is a weekly program featuring one-on-one interviews with the titans of the hedge fund industry. The show is hosted by legendary hedge fund manager John Thomas, one of the most seasoned players in the industry. It is broadcast live on station KGOL 1180 AM in Houston, Texas as part of the BizRadio? network to 100,000 local listeners, and will be streamed online to a further 100,000 national and international listeners.

The show is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the show, please go to www.bizradio.com or? click here, click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.? For that added insight into the future of the markets tune in, or catch the show in my Hedge Fund Radio archives.

November 25, 2009

Diary

Global Market Comments
November 25, 2009

Featured Trades: (HEDGE FUND RADIO),
(PLATINUM), (PGM), (PTM)

1) On Hedge Fund Radio this week I?ll be interviewing the legendary hedge fund manager, Bill Fleckenstein, who will give us his 2010 view of stocks, bonds, commodities, currencies, and of course gold. ?Fleck? is a 25 year industry veteran holding almost as many out of consensus views as me. Premium subscribers are invited to submit questions to me in advance at www.madhedgefundtrader@yahoo.com. To learn more about Bill, Please go to his daily blog by clicking here , and to his? Microsoft News Money Column by clicking here . The show will be broadcast live on station KTEK 1110 AM in Houston, Texas as part of the BizRadio?? network to 100,000 local listeners, and will be streamed online to a further 100,000 national and international listeners. The show will broadcast on Saturday, November 28 at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the show, please go to www.bizradio.com or click here , click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?

2) Since you?ve been romancing gold, you should check out platinum, her younger, racier, and better looking sister, who wears the thong and the low riders. The white metal has risen by 67% this year compared to the more sedentary 44% appreciation seen in gold. While gold has made a hard fought new all time high, the Pt has to rise a further 50% from here just to match its 2008 high of $2,200, suggesting that some catch up play is in order. I have always been puzzled by the fact that platinum is 30 times more rare than gold, but at $1,500 an ounce, trades at a mere 30% premium to the barbaric metal. You have to refine a staggering 10 tons of ore to come up with a single ounce of platinum. The bulk of the world?s 210 tons in annual production comes from only four large mines, 80% of it in South Africa, and another 10% in the old Soviet Union. All of these mines peaked in the seventies and eighties, and have been on a downward slide since then. That overdependence could lead to sudden and dramatic price spikes if any of these are taken out by unexpected floods, strikes, or political unrest. While no gold is consumed, 50% of platinum production is soaked up by industrial demand, mostly by the auto industry for catalytic converters. Only last week, no lesser authority than Jim Lentz, the CEO of Toyota Motors Sales, USA, told me he expects the American car market to recover from the current 10 million units to 15-16 million units by 2015. That?s a lot of catalytic converters. Jewelry demand for platinum, 95% of which comes from Japan, is also strong, as the global pandemic of gold fever spreads to other precious metals. You can trade Platinum futures on the New York Mercantile Exchange, where a margin requirement of only $6,075 for one contract gets you exposure to 50 ounces of platinum worth $75,000, giving you 12:1 leverage. Email me at madhedgefundtrader@yahoo.com if you want to learn how to do this. For those who like to get physical, the US mint issues Platinum eagles from 1997-2008 in nominal denominations of $100 (one ounce), $50 (?? ounce), $25 (1/4 ounce) and $10 (1/10th ounce) denominations. Stock traders should look at the ETF?s (PGM) and (PTM).

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3) I guess it?s a sign of the times when the comedy show, Saturday Night Live, pokes fun at America?s trade deficit with China. In an imaginary press conference, President Hu Jintao told Obama he was not allowed to pay off the US debt to the Middle Kingdom by giving them the 750,000 clunkers he bought with last summer?s stimulus program. He then asked how many jobs his program has actually created, and Obama had to give the sorry answer that it was none. China?s president then asked how the $1 trillion health care plan for 31 million uninsured Americans was going to cut the deficit, while China?s 1.3 billion went without coverage. I won?t tell you what happened next, except that China?s president complained he wasn?t being taken out to dinner and a movie first. Where is the Federal Communications Commission when you need them? Have America?s economic policies become the laughing stock of the world? I never thought I?d see the day when out budget and current account deficits became a target for popular culture, but here we are. Better take another look at the TBT.

4) The Mad Hedge Fund Trader is taking a break to have Turkey with the family. I ate an entire pumpkin pie last night just to give my digestive system notice that some heavy lifting was on its way. The next letter will be published on Tuesday, December 1. I am the oldest of seven of the most fractious and divided siblings on the planet. No doubt by brother will show up in his new Bentley Turbo R, flaunting his outrageous bonus check from Goldman Sachs. My born again Christian sister will be bemoaning Sarah Palin?s drubbing at the polls last year. The gay rights activist sister will be arguing the case for same sex marriage. A third sister does humanitarian work visiting the many American women held in Middle Eastern jails. Don?t even think about pulling out of Iraq! Sister no. 4, who is making a killing in commodities in Australia, and is up to her eyeballs in iron ore, will be missing. My poor youngest sister took it on the nose in the subprime derivatives market, and is holding on for a comeback. She is the only member of the family I was not able to convince to sell her house in 2005 to duck the coming real estate collapse because she thought the nirvana would last forever. My two Arabic speaking nephews in Army Intelligence will again delight in telling me that they can?t talk about their work or they?d have to kill me. Another nephew will be back from his third tour in Iraq with the Marine First Division without a scratch, God willing. My oldest son won?t be able to make it because they don?t have a Thanksgiving break in China, and he is trading shares like a demon anyway. We all be thankful that my yougest son wasn?t arrested in the latest round of rioting at the University of California at Berkeley. Reading the riot act will be my spritely, but hardnosed mother, who at 82 can still prop herself up on a cane well enough to knock down 14 out of 15 skeet with a shotgun, although we have had to move her down from a 12 to a 410 gage because of her advanced age and brittle bones. Suffice to say, that we?ll be talking a lot about the weather. I?ll be rejoining you next week. That i
s, if I survive.

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QUOTE OF THE DAY

?I think we?re headed towards VAT taxes. It?s only a question of how long it takes for them to wake up and figure it out. You can?t tax the wealthy enough to close the budget deficit we have,? said Leon Cooperman of hedge fund Omega Advisors.

November 24, 2009

Diary

Global Market Comments
November 24, 2009

Featured Trades: (PCY), (LQD), (TM),
(TM), (BEN BERNANKE)

1) I spent an evening chewing the fat with James Lentz, the president of Toyota Motor Sales, USA, (TM) who let loose some incredibly insightful views on the long term future of the global economy. I have been following Toyota for 35 years, hobnobbing with senior management, touring their factories in Japan, and driving their marvelously engineered products. It is far and away one of the best run multinationals, with awesome research resources, spending $9 billion a year on R&D, but are also one of the most secretive organizations on the planet. If the CIA only kept its secrets so well! Peak oil is going to hit in 2017-2020, making gasoline prohibitively expensive. Toyota is racing to get as many hybrids out there as possible by then, converting a Mississippi factory from Highlanders to the hugely popular Prius. In Japan there is a backlog of 200,000 orders for these cars, and Toyota makes a profit on every one. The plug in version of this car will be fleet tested in the US next year, and sold to the public from 2012. But hybrids, which reduce emissions by 70%, compared to conventional cars, are just a transitional solution until the technology for hydrocarbon free alternatives, like electric only and fuel cells, mature in the 2020?s. The US car market will come in at 10 million units this year, but will rebound to 15-16 million units by 2015. At 9.3 years, the average age of the American car fleet is the oldest on record, and replacement demand will be huge. New car based consumer societies are also emerging in Argentina, Mexico, Thailand, and Indonesia. The American car industry, accounting for 4% of GDP and 10% of total employment, isn?t going away, as many fear. However, it will evolve beyond current recognition. Toyota is certainly putting its money where its mouth is, with an $18.2 billion investment in 14 American factories, directly employing 34,000, and indirectly another 380,000. Long term, I love this stock. James has worked for Japan?s largest car maker for 26 years, but still can only order one beer in that impossible pictographic language. By the time the evening was out, I made sure he could order a second, and a third, in Japanese.?

2) Last September, I suggested emerging market sovereign debt ETF?s as safe, high yielding investments in which to hide out in case the equity markets swoon again (click here for the link). Well, the stock market hasn?t swooned yet, so let?s see how they performed. The Invesco PowerShares Emerging Market Sovereign Debt ETF (PCY), which has 40% of its assets in Latin American bonds and 31% in Asia, rose by a modest 3% before pulling back to unchanged. The two year old fund now boasts $340 million in market cap and pays a handy 6.20% dividend. This beats the daylights out of the one basis point you currently earn for cash, the 3.40% yield on 10 year Treasuries, and still exceeds the 5.38% dividend on the iShares Investment Grade Bond ETN (LQD), which buys predominantly single ?A? US corporates. The big difference here is that PCY has a much rosier future of credit upgrades to look forward to. It turns out that many emerging markets have little or no debt, because until recently, investors thought their credit quality was too poor. No doubt a history of defaults in Brazil and Argentina in the seventies and eighties is at the back of their minds. With US government bond issuance going through the roof, the shoe is now on the other foot. A price appreciation of 125% over the past year tells you this is not exactly an undiscovered concept. Still, it is something to keep on your ?buy on dips? list.

I?m safer than US paper, and pay a higher dividend too!

3) I managed to catch up with David Wessel, the Wall Street Journal economics editor, who has just published?? In Fed We Trust: Ben Bernanke?s War on the Great Panic. I doubted David could tell me anything more about the former Princeton professor I didn?t already know. I couldn?t have been more wrong, as David gave me some fascinating insights into the inner soul of our much vaunted chairman of the Federal Reserve.?? Bernanke was the smartest kid in rural Dillon, South Carolina, who, through a series of improbable accidents, ended up at Harvard. He built his career on studying the Great Depression, then the closest thing to paleontology economics had to offer, a field focused so distantly on the past that it was irrelevant. Bernanke took over the Fed when Greenspan was considered a rock star, inhaling his libertarian, free market, Ayn Rand inspired philosophy in great giant gulps. Within a year the landscape was suddenly overrun with T-Rex?s and Brontesauri. He tried to stop the panic 150 different ways, 125 of which were terrible ideas, the remaining 25 saving us from the Great Depression II. This is why unemployment is now only 10.2%, instead of 25%. The Fed governor is naturally a very shy and withdrawing person, and would have been quite happy limiting his political career to the local school board. But to rebuild confidence, he took his campaign to the masses, attending town hall meetings and meeting the public like a campaigning first term congressman. The price of his success has been large, with the Fed balance sheet exploding from $800 million to $2 trillion, solely on his signature. The true cost of the financial crisis won?t be known for a decade. Now that having pulled back from the brink, the biggest risk is that we grow complacent, and let desperately needed reforms of the system slide. How Bernanke unwinds this bubble will define his legacy. Too soon, and we go back into a real depression. Too late, and hyperinflation hits. That?s when we see how smart Bernanke really is.

QUOTE OF THE DAY

?The whole US market is pretty much low quality these days,? said Richard Bernstein, of Bernstein Capital Management.

The Mad Hedge Fund Trader Interviews Rick Renard of Millennium Metals on Hedge Fund Radio

Podcasts

This show features noted precious metal coin and bullion collector and dealer, Rick Renard, of Millennium Metals.

Hedge Fund Radio is a weekly program featuring one-on-one interviews with the titans of the hedge fund industry. The show is hosted by legendary hedge fund manager John Thomas, one of the most seasoned players in the industry. It is broadcast live on station KGOL 1180 AM in Houston, Texas as part of the BizRadio?? network to 100,000 local listeners, and will be streamed online to a further 100,000 national and international listeners.

The show is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For pilots and the military, that is 17:00 Zulu time. For the online link to the show, please go to www.bizradio.com or click here, click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.? For that added insight into the future of the markets tune in, or catch the show in my Hedge Fund Radio archives.

November 20, 2009

Diary

Global Market Comments
November 20, 2009

Featured Trades: (LUMBER), (TBT), (ZIMBABWEAN DOLLARS), (GOLD), (SILVER)
(HEDGE FUND RADIO)

1) Sometimes I think I?m the only guy who follows lumber futures. But they are a great ?tell? on the direction of wide swaths of the economy. Today, I?m not alone. Chart watchers have gone apoplectic because they think the five year downtrend for this most unloved of commodities was broken yesterday with an impressive limit up move (see my April call to buy this aromatic commodity by clicking here ). The move is telling us that either (a) new home construction is slowly reviving, (b) the Chinese have stepped up their buying of natural resources, (c) hard asset investors are rotating into the laggards after running up everything else, (d) the economy is recovering faster than we realize, or (e) all of the above. Better take a look at top lumber producers Weyerhaeuser (WY) and Louisiana Pacific (LPX), or the Timber ETF (CUT). If you want to know how to get involved in the futures, please email me at madhedgefundtrader@yahoo.com.

2) I want to thank the many readers who have been mailing in gold and silver coins in appreciation of my efforts to get them in at the beginning of the year at $800/ ounce for gold and $10/ounce for silver. Gold hit a new high today of $1,155, while silver tickled $18,75. The guys who leveraged up made an absolute killing, and they have numbers like $1,300, $2,300, and $5,000 dancing in their dreams. Hardly a day goes by without the mailman knocking on the door, a heavy but compact package in hand, smiling and winking while I sign. I also want to thank the reader who I got into the TBT in January. He had never heard of the thing, the ETF that bets on falling Treasury bond prices, but managed to ride this bucking bronco from the high thirties to $60 before pulling the ripcord. He sent me $300 trillion Zimbabwean dollars in cash in three crisp new $100 trillion banknotes hot of the printing press. He gave that amount because that is what it now costs to buy a cup of coffee in the hopelessly mismanaged African country. I see the TBT is back down to $45 handle again. Hmmm, looking at Obama?s latest deficit spending plans, I wonder if it is time to take another bite out of the apple?

3) There will be no letter on Monday, as I will be speaking at the San Francisco Hard Assets Investment Conference. No doubt things will be hopping this year. They say they have fascinating metal called ?gold? which magically levitates without the aid of hidden wires and pulley?s. I can?t wait to learn all about it. I?ll be reporting back. MHFT

QUOTES OF THE DAY

?The real problem is that the subprime foreclosure crisis is mutating faster than our ability to keep ahead of it. You have not just a second wave, but a third wave coming, as well,? said Howard Glasser of the Glasser Group, a real estate consultant.

?Forget the stock market. I am putting everything into whisky, gold, and ammo,? said a reader of the Diary of the Mad Hedge Fund Trader to me yesterday.