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Time to Take Another Ride with General Motors

It is safe to say that all of the bad news is finally in the price at General Motors (GM).

In the wake of the latest batch of recalls, the total number of cars slated for mandatory repairs now equals virtually all of the company?s production of the last five years.

Woe to the outside supplier who provided those faulty, but cheap ignition switches to the beleaguered company! Penny wise, but 100 million pounds foolish!

What is more important is that ace mediator, Kenneth Feinberg, has finally come up with a number to offer the grieving families of the 17 who were senselessly killed driving GM?s deathtraps of yore. A fatality is now worth $1 million, and the company is offering as little as $20,000 for lesser accidents.

GM should put these numbers on their new car stickers.

In all honesty, this is just a ?feel good? gesture. The company that is actually responsible for these deaths went bankrupt in 2009, and the management long since sent into retirement to practice their gold swings. The new GM bears no legal liability whatsoever.

However, the company needs to preserve the value of its brand. The GM logo still goes out with every vehicle the firm manufactures. So, it will do the right thing for the victims.

Even if you apply these numbers to the much higher number of deaths claimed by plaintiffs? lawyers, more than 88, the total liability will not be enough to put a substantial dent in GM?s earnings. It is really just sofa change for them.

Many of the higher figures include drunk-driving deaths and fatalities of those driving at high speed without seatbelts. But every law school graduate out there is gunning for a piece of the action.

Don?t you just love America!

So all of this bad news is really good news in disguise. This will enable GM shares to catch up with those at Ford and Toyota, which have been on a tear this year. The industry seems poised to reach annual production of 17 million in 2014, an eight-year high. This will be great for profits for everyone.

I knew as much a few weeks ago, when I learned of massive insider buying of stock at GM all the way down to the middle management level. As has so often been the case this year, I waited for a dip that never came.

Now that the upside breakout is undeniable, I have to jump in. A share price appreciation up into the mid $40?s is in the cards.

The shares are starting from such a low base that even if a 5%-10% correction comes, the August, 2015 $32-$34 in-the-money bull call spread should be able to weather the selling. This strike combination particularly benefits from huge chart support at the 200 day moving average.

It doesn?t hurt that during the entire ignition crisis, GM?s market share actually rose. This was no doubt due to the heavy discount and attractive financing that was offered. What they?re losing in margin, they?re making up on volume.

Things are not so good that I am going to run out and buy a GM tomorrow. I am happy with my Tesla Model S-1, thank you very much.

GM 5-12-15

CorvetteTime to Take Another Ride with GM

An Evening with ?Government Motors?

Yesterday, the auto industry announced blowout sales figures for February which came in at an eye popping SAAR of 17 million units. We are now within a hairs breadth of the peak last during the salad days of 2001-2002.

It all provides more evidence the ultra bull scenario for the rest of 2015, which has the economy growing a 3% annualized rate during the final three quarters of the year. The stock market should follow, especially the shares of General Motors (GM), which are clearly breaking out to the upside, targeting the low $40?s.

It looks like the controversial ignition disaster is now fully priced into the shares. The only remaining question is which low level subordinate will go to jail over this. The cost to the firm will be a pittance.

Technically, the current GM is not liable for these transgressions. That belongs to the old, bankrupt GM. But I expect the company will do the right thing and settle with the aggrieved plaintiffs to maintain the image of their brand, if nothing else.

So I though it would be timely to review my last interview of the CEO of General Motors, Dan Akerson, who, sadly, recently retired for health reasons. He was replaced by the new litigation target du jour, GM child, Mary T. Barra.

Long-term readers of this letter are well aware of my antipathy towards General Motors (GM). For decades, the company turned a deaf ear to customer complaints about shoddy, uncompetitive products, arcane management practices, entitled dealers, and a totally inward looking view of the world that was rapidly globalizing.

It was like watching a close friend kill himself through chronic alcoholism.

During this time, Japan?s share of the US car market rose from 1% to 42%. The only surprise when the inevitable bankruptcy came was that it took so long. This was traumatic for me personally, since for the first 30 years of my life General Motors was the largest company in the world.

Their elegant headquarters building in Detroit was widely viewed as the high temple of capitalism. I was raised to believe that what was good for GM was good for the country. Oops!

I opposed the bailout because it interfered with creative destruction, something America does better than anyone else, and gives us a huge competitive advantage in the international marketplace. Probably 10% of the listed companies in Japan are zombies that should have been killed off 20 years ago. Without GM a large part of the US car industry would have moved to California and gone hybrid or electric.

When an opportunity arose to spend a few hours with the new CEO, Dan Akerson, I gratefully accepted. After all, he wasn?t responsible for past sins, and I thought I might gain some insights into the new GM.

Besides, he was a native of the Golden State and a graduate in nuclear engineering from the Naval Academy at Annapolis and the London School of Economics. How bad could he be?
When I shook hands, I remarked that his lapel pin looked like the hood ornament on my dad?s old car, a Buick Oldsmobile. He noticeably winced. So to give the guy a break, I asked him about the company?s outlook.
Last year was the best in the 105-year history of the company. It is now the world?s largest car company, with the biggest market share. The 40-mpg Chevy Cruze is the number one selling sub compact in the US. GM competed in no less than 117 countries, and was a leader in the fastest growing emerging market, China.

I asked how a private equity guy from the Carlyle Group was fitting in on the GM board. He responded that all of the Big Three Detroit automakers were being run by ?non-car guys? now, and they generated profits for the first time in 20 years.

However, it was not without its culture clashes. When he publicly admitted that he believed in global warming, he was severely chastised by other board members. He wasn?t following the official playbook.
When I started carping about the bailout, he cut me right off at the knees. Liquidation would have been a deathblow for the Midwestern economy, killing 1 million jobs, and saddling the government with $23 billion in pension fund obligations.

It also would have deprived the Treasury Department of $135 billion in annual tax revenues. It was inevitable that in the last election year the company became a political punching bag. Akerson said that he was still a Republican, but just.
GM?s Chevy Volt is so efficient, running off a 16kWh lithium ion battery charge for the first 25-50 miles that many are still driving around with the original tank of gas they were delivered with a year ago.

Extreme crash testing by the government and the bad press that followed forced a relaunch of the brand. Despite this, I often get emails from readers saying they love the car.
The summer production halt says more about GM?s more efficient inventory management than it does about the hybrid car. GM?s recent investment in California based Envia Systems should succeed in increasing battery energy densities threefold.

However the Volt is just a bridge technology to the Holy Grail, hydrogen fuel cell powered cars, which will start to go mainstream in four years. These cars burn hydrogen, emit water, and cost about $300,000 a unit to produce now. By 2017, GM hopes to make it available as a $30,000 option for the Chevy Aveo.
Another bridge technology will be natural gas powered conventional piston engines. These take advantage of the new glut of this simple molecule and its 80% price discount per BTU compared to gasoline.

The company announced a dual gas tank pickup truck that can use either gasoline or compressed gas. Cheap compressors that enable home gas refueling are also on the horizon. Fleet sales will be the initial target.
Massive overcapacity in Europe will continue to be a huge headache for the global industry. There are just too many carmakers there, with Germany, England, Italy, France, and Sweden each carrying multiple manufacturers.

Governments would rather bail them out to save jobs and protect entrenched unions than allow market forces to work their magic. GM lost $700 million on its European operations last year, and Akerson doesn?t see that improving now that the continent is clearly moving into recession.
I asked if GM stock was cheap, given the dismal performance since the IPO. It is still just above the $33/share launch price. Now that the government has unloaded its shareholding the way for further appreciation should be clear.

Also, the old bondholders once owned substantial numbers of shares and were selling into every rally, holding back the stock price. That overhead supply now appears to be gone.
Akerson said that a cultural change had been crucial in the revival of the new GM. Last year, the Feds announced an increase in mileage standards from 25 to 55 mpg by 2025. Instead of lawyering up for a prolonged fight to dilute or eliminate the new rules, as it might have done in the past, it is working with the appropriate agencies to meet these targets.
Finally, I asked Akerson what went through his head when the top job at GM was offered him at the height of the crisis. Were they crazy, insane, delusional, or all the above? He confessed that it offered him the management challenge of a generation and that he had to rise to it.

Spoken like a true Annapolis man.

GM 3-3-15

 

Shifting GM from This?.

 

To This?.

 

And This

 

 

2014 Trade Alert Review

When is the Mad Hedge Fund Trader a genius, and when is he a complete moron?

That is the question readers have to ask themselves whenever their smart phones ping, and a new Trade Alert appears on their screens.

I have to confess that I wonder myself sometimes.

So I thought I would run my 2014 numbers to find out when I was a hero, and when I was a goat.

The good news is that I was a hero most of the time, and a goat only occasionally. Here is the cumulative profit and loss for the 75 Trade Alerts that I closed during calendar 2014, listed by asset class.

Profit by Asset Class

Foreign Exchange 15.12%
Equities 12.52%
Fixed Income 7.28%
Energy 1.4%
Volatility -1.68%

Total 37.64%

Foreign exchange trading was my big winner for 2014, accounting for nearly half of my profits. My most successful trade of the year was in my short position in the Euro (FXE), (EUO).

I piled on a double position at the end of July, just as it became apparent that the beleaguered European currency was about to break out of a multi month sideway move into a pronounced new downtrend.

I then kept rolling the strikes down every month. Those who bought the short Euro 2X ETF (EUO) made even more.

The fundamentals for the Euro were bad and steadily worsening. It helped that I was there for two months during the summer and could clearly see how grotesquely overvalued the currency was. $20 for a cappuccino? Mama mia!

Nothing beats on the ground, first hand research.

Stocks generated another third of my profits last year and also accounted for my largest number of Trade Alerts.

I correctly identified technology and biotech as the lead sectors for the year, weaving in and out of Apple (AAPL) and Gilead Sciences (GILD) on many occasions. I also nailed the recovery of the US auto industry (GM), (F).

I safely stayed away from the energy sector until the very end of the year, when oil hit the $50 handle. I also prudently avoided commodities like the plague.

Unfortunately, I was wrong on the bond market for the entire year. That didn?t stop me from making money on the short side on price spikes, with fixed income chipping a healthy 7.28% into the kitty.

It was only at the end of the year, when the prices accelerated their northward trend that they started to cost me money. My saving grace was that I kept positions small throughout, doubling up on a single occasion and then coming right back out.

My one trade in the energy sector for the year was on the short side, in natural gas (UNG), selling the simple molecule at the $5.50 level. With gas now plumbing the depths at $2.90, I should have followed up with more Trade Alerts. But hey, a 1.4% gain is better than a poke in the eye with a sharp stick.

In which asset class was I wrong every single time? Both of the volatility (VIX) trades I did in 2014 lost money, for a total of -1.68%. I got caught in one of many downdrafts that saw volatility hugging the floor for most of the year, giving it to me in the shorts with the (VXX).

All in all, it was a pretty good year.

What was my best trade of 2014? I made 2.75% with a short position in the S&P 500 in July, during one of the market?s periodic 5% corrections.

And my worst trade of 2014? I got hit with a 6.63% speeding ticket with a long position in the same index. But I lived to fight another day.

After a rocky start, 2015 promises to be another great year. That is, provided you ignore my advice on volatility.

FXE 12-31-14

SPY 12-31-14

TLT 12-31-14

WTIC 12-31-14

VIX 12-31-14

Here is a complete list of every trade I closed last year, sorted by asset class, from best to worse.

Date

Position

Asset Class

Long/short

?

?

?

?

?

?

7/25/14

(SPY) 8/$202.50 - $202.50 put spread

equities

long

?

?

?

?

?

2.75%

10/16/14

(GILD) 11/$80-$85 call spread

equities

long

?

?

?

?

?

2.57%

5/19/14

(TLT) 7/$116-$119 put spread

fixed income

long

?

?

?

?

?

2.48%

4/4/14

(IWM) 8/$113 puts

equities

long

?

?

?

?

?

2.38%

7/10/14

(AAPL) 8/$85-$90 call spread

equities

long

?

?

?

?

?

2.30%

2/3/14

(TLT) 6/$106 puts

equities

long

?

?

?

?

?

2.27%

9/19/14

(IWM) 11/$117-$120 put spread

equities

long

?

?

?

?

?

2.26%

10/7/14

(FXE) 11/$127-$129 put spread

foreign exchange

long

?

?

?

?

?

2.22%

9/26/14

(IWM) 11/$116-$119 put spread

equities

long

?

?

?

?

?

2.21%

4/17/14

(TLT) 5/$114-$117 put spread

fixed income

long

?

?

?

?

?

2.10%

8/7/14

(FXE) 9/$133-$135 put spread

foreign exchange

long

?

?

?

?

?

2.07%

10/2/14

(BAC) 11/$15-$16 call spread

equities

long

?

?

?

?

?

2.04%

4/9/14

(SPY) 5/$191-$194 put spread

equities

long

?

?

?

?

?

2.02%

10/15/14

(DAL) 11/$25-$27 call spread

equities

long

?

?

?

?

?

1.89%

9/25/14

(FXE) 11/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.86%

6/6/14

(JPM) 7/$52.50-$55.00 call spread

equities

long

?

?

?

?

?

1.81%

4/4/14

(SPY) 5/$193-$196 put spread

equities

long

?

?

?

?

?

1.81%

3/14/14

(TLT) 4/$111-$114 put spread

fixed income

long

?

?

?

?

?

1.68%

10/17/14

(AAPL) 11/$87.50-$92.50 call spread

equities

long

?

?

?

?

?

1.56%

10/15/14

(SPY) 11/$168-$173 call spread

equities

long

?

?

?

?

?

1.51%

7/3/14

(FXE) 8/$138 put spread

foreign exchange

long

?

?

?

?

?

1.51%

10/9/14

(FXE) 11/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.48%

9/19/14

(FXE) 10/$128-$130 put spread

foreign exchange

long

?

?

?

?

?

1.45%

10/22/14

(SPY) 11/$179-$183 call spread

equities

long

?

?

?

?

?

1.44%

5/29/14

(TLT) 7/$118-$121 put spread

fixed income

long

?

?

?

?

?

1.44%

2/24/14

(UNG) 7/$26 puts

energy

long

?

?

?

?

?

1.40%

2/24/14

(BAC) 3/$15-$16 call spread

equities

long

?

?

?

?

?

1.39%

6/23/14

(SPY) 7/$202 put spread

equities

long

?

?

?

?

?

1.37%

9/29/14

(SPY) 10/$202-$205 Put spread

equities

long

?

?

?

?

?

1.29%

5/20/14

(AAPL) 7/$540 $570 call spread

equities

long

?

?

?

?

?

1.22%

9/26/14

(SPY) 10/$202-$205 Put spread

equities

long

?

?

?

?

?

1.22%

5/22/14

(GOOGL) 7/$480-$520 call spread

equities

long

?

?

?

?

?

1.16%

5/19/14

(FXY) 7/$98-$101 put spread

foreign exchange

long

?

?

?

?

?

1.14%

1/15/14

(T) 2/$35-$37 put spread

equities

long

?

?

?

?

?

1.08%

3/3/14

(TLT) 3/$111-$114 put spread

fixed income

long

?

?

?

?

?

1.07%

1/28/14

(AAPL) 2/$460-$490 call spread

equities

long

?

?

?

?

?

1.06%

4/24/14

(SPY) 5/$192-$195 put spread

equities

long

?

?

?

?

?

1.05%

6/6/14

(CAT) 7/$97.50-$100 call spread

equities

long

?

?

?

?

?

1.04%

7/23/14

(FXE) 8/$134-$136 put spread

foreign exchange

long

?

?

?

?

?

0.99%

8/18/14

(FXE) 9/$133-$135 put spread

foreign exchange

long

?

?

?

?

?

0.94%

11/4/14

(BAC) 12/$15-$16 call spread

equities

long

?

?

?

?

?

0.88%

4/9/14

(SPY) 6/$193-$196 put spread

equities

long

?

?

?

?

?

0.88%

7/25/14

(SPY) 8/$202.50 -205 put spread

equities

long

?

?

?

?

?

0.88%

6/6/14

(MSFT) 7/$38-$40 call spread

equities

long

?

?

?

?

?

0.87%

10/23/14

(FXY) 11/$92-$95 puts spread

foreign exchange

long

?

?

?

?

?

0.86%

7/23/14

(TLT) 8/$117-$120 put spread

fixed income

long

?

?

?

?

?

0.81%

3/5/14

(DAL) 4/$30-$32 Call spread

equities

long

?

?

?

?

?

0.76%

4/10/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.76%

1/30/14

(UNG) 7/$23 puts

equities

long

?

?

?

?

?

0.66%

4/1/14

(FXY) 5/$96-$99 put spread

foreign currency

long

?

?

?

?

?

0.60%

1/15/14

(TLT) 2/$108-$111 put spread

equities

long

?

?

?

?

?

0.47%

3/6/14

(EBAY) 4/$52.50- $55 call spread

equities

long

?

?

?

?

?

0.24%

10/14/14

(TBT) short Treasury Bond ETF

fixed income

long

?

?

?

?

?

0.22%

3/28/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.20%

7/17/14

(TBT) short Treasury Bond ETF

fixed income

long

?

?

?

?

?

0.08%

3/26/14

(VXX) long volatility ETN

equities

long

?

?

?

?

?

0.06%

7/8/14

(TLT) 8/$115-$118 put spread

fixed income

long

?

?

?

?

?

-0.18%

4/28/14

(SPY) 5/$189-$192 put spread

equities

long

?

?

?

?

?

-0.45%

3/5/14

(GE) 4/$24-$25 call spread

equities

long

?

?

?

?

?

-0.73%

4/28/14

(VXX) long volatility ETN

volatility

long

?

?

?

?

?

-0.81%

4/24/14

(TLT) 5/$113-$116 put spread

fixed income

long

?

?

?

?

?

-0.87%

4/28/14

(VXX) long volatility ETN

volatility

long

?

?

?

?

?

-0.87%

6/6/14

(IBM) 7/$180-$185 call spread

equities

long

?

?

?

?

?

-1.27%

9/30/14

(SPY) 11/$185-$190 call spread

equities

long

?

?

?

?

?

-1.51%

10/9/14

(TLT) 11/$122-$125 put spread

fixed income

long

?

?

?

?

?

-1.55%

9/24/14

(TSLA) 11/$200 call spread

equities

long

?

?

?

?

?

-1.62%

2/27/14

(SPY) 3/$189-$192 put spread

equities

long

?

?

?

?

?

-1.67%

3/6/14

(BAC) 4/$16 calls

equities

long

?

?

?

?

?

-2.01%

10/14/14

(SPY) 10/$180-$184 call spread

equities

short

?

?

?

?

?

-2.13%

11/14/14

(BABA) 12/$100-$105 call spread

equities

short

?

?

?

?

?

-2.38%

10/20/14

(SPY) 11/$197-$202 call spread

equities

short

?

?

?

?

?

-2.72%

7/3/14

(GM) 8/$33-$35 call spread

equities

long

?

?

?

?

?

-2.91%

3/7/14

(GM) 4/$34-$36 call spread

equities

long

?

?

?

?

?

-2.96%

11/25/14

(SCTY) 12/47.50-$52.50 call spread

equities

long

?

?

?

?

?

-3.63%

10/20/14

(SPY) 11/$197-$202 call spread

equities

short

?

?

?

?

?

-4.22%

4/14/14

(SPY) 5/$188-$191 put spread

equities

long

?

?

?

?

?

-6.63%

 

John Thomas - BeachWhat a Year!

Is the Turnaround at Hand, and Ten Stocks to Buy at the Bottom?

War threatens in the Ukraine. Iraq is blowing up. Rebels are turning our own, highly advanced weapons against us. Israel invades Gaza. Ebola virus has hit the US. Oh, and two hurricanes are hitting Hawaii for the first time in 22 years.

Should I panic and sell everything I own? Is it time to stockpile canned food, water and ammo? Is the world about to end?

I think not.

In fact the opposite is coming true. The best entry point for risk assets in a year is setting up. If you missed 2014 so far, here is a chance to do it all over again.

It is an old trading nostrum that you should buy when there is blood in the streets. I had a friend who reliably bought every coup d? etat in Thailand during the seventies and eighties, and he made a fortune, retiring to one of the country?s idyllic islands off the coast of Phuket. In fact, I think he bought the whole island.

Now we have blood in multiple streets in multiple places, thankfully, this time, it is not ours.

I had Mad Day Trader, Jim Parker, do some technical work for me. He tracked the S&P 500/30 year Treasury spread for the past 30 years and produced the charts below. This is an indicator of overboughtness of one market compared to another that reliably peaks every decade.

And guess what? It is peaking. This tells you that any mean reversion is about to unleash an onslaught of bond selling and stock buying.

There is a whole raft of other positive things going on. Several good stocks have double bottomed off of ?stupid cheap? levels, like IBM (IBM), Ebay (EBAY), General Motors (GM), Tupperware (TUP), and Yum Brands (YUM). Both the Russian ruble and stock market are bouncing hard today.

There is another fascinating thing happening in the oil markets. This is the first time in history where a new Middle Eastern war caused oil price to collapse instead of skyrocket. This is all a testament to the new American independence in energy.

Hint: this is great news for US stocks.

If you asked me a month ago what would be my dream scenario for the rest of the year, I would have said an 8% correction in August to load the boat for a big yearend rally. Heavens to Betsy and wholly moley, but that appears to be what we are getting.

It puts followers of my Trade Alert service in a particularly strong position. As of today, they are up 24% during 2014 in a market that is down -0.3%. Replay the year again, and that gets followers up 50% or more by the end of December.

Here is my own shopping list of what to buy when we hit the final bottom, which is probably only a few percent away:

Longs

JP Morgan (JPM)
Apple (AAPL)
Google (GOOG)
General Motors (GM)
Freeport McMoRan (FCX)
Corn (CORN)
Russell 2000 (IWM)
S&P 500 (SPY)

Shorts

Euro (FXE), (EUO)
Yen (FXE), (YCS)

S&P 500 Future

S&P Weekly

RSX 8-8-14

GM 8-8-14

IBM 8-8-14

Bullets

Gun-Ammunition-War RoomNo, Not This Time

The Time to Dump the Euro is Here

The blockbuster nonfarm payroll on Friday, coming in at a heady 288,000 has certainly removed any doubt that the US economy will reaccelerate in the fall. Earlier months were substantially revised up.

Monthly job growth of 200,000 plus now seems to be the new norm, after five consecutive months of such prints.

The headline unemployment rate plunged to 6.1%, a new six year low. American H2 GDP growth of 4% or more now seems to be firmly back on the table.

The gob smacking data has left many hedge fund managers confused, befuddled, and questioning the meaning of life. Loads have been playing the short bond, short equity trade all year, to the unmitigated grief of their investors.

Is smart now the new dumb?

As for me, I have been on the long equity side for almost the entire year, except for a few fleeting moments of mental degradation here and there. After spending most of June unwinding a sizeable US equity position into the rally, I now have little choice but to slap some new positions back on.

Still, there is a way to stay invested in the market and sleep at night. That is to focus on sectors and companies that, so far, have been left at the station during the 2014 bull market.

This is why I charged into a long in General Motors (GM) on Friday, the stock, until now, weighed down by past management?s unfortunate proclivity for killing off their customers.

The housing stocks (ITB), inhabitants of the doghouse for the past year, also look pretty interesting here. May pending home sales came in at a robust 6.1%, the best in four years, while pending home sales (contracts signed) leapt a positively eye popping 18.1%, a six year apex.

Revival of a moribund housing market is another piece of the puzzle that gets us to 4% GDP growth this year.

Bonds seemed to sniff out the great things coming by rolling over two days ahead of the June payroll news, diving some two points. Did they have advance notice, or are bond guys just smarter than we dullards in the equity world (true!)?

Rising US interest rates, a byproduct of a strengthening economy, will certainly lead to one thing: a more virile Uncle Buck and a sagging Euro. Interest rate differentials are the primary driver of foreign exchange movements.

So, you always want to be long the currency with rising rates (ours), and short the one with falling rates (theirs). So I am happy to sell short the beleaguered European currency here.

We saw the multi month selloff in the Euro going into the European Central Bank?s announcement of interest rate cuts and quantitative easing last month. Since then we have seen a classic ?buy the rumor, sell the news? short covering rally that has taken the euro up a counterintuitive two points.

The second move is just about to run out of steam.

Weakening data from the European economy, which is trailing that of the US, Japan, Australia, and even China, suggests that the Euro zone will see more easing before it experiences a tightening.

In proposing the Currency Shares Euro Trust (FXE) August, 2014 $136-$138 in-the-money bear put spread, I have been devious in the selection of my strikes. The near $136 put strike that I am shorting here against the long $138 put is exactly 50% of the move down from the double top at the March and May highs.

It also helps that the (FXE) was firmly rejected from the 50 day moving average on the charts.

We are getting a further assist from the calendar, which is giving us an unusually short monthly expiration on August 15. Most of Europe will be closed until then, not a bad time to be short Euro volatility.

I was also in a rush to get these out before the long July 4 weekend sucks out what little premium is left in the options market.

For those who don?t have options coursing through their veins, the ProShares Ultra Short Euro ETF (EUO) makes an ideal second choice. This 2X leveraged fund rises when the Euro falls, not by two times, but enough to make it worth the trouble. Or you can just sell short the 1X Currency Shares Euro Trust ETF (FXE).

Finally, if you are looking for another way to slumber like a baby with your long equity position, you can use a short position in the Euro to partially hedge your stock portfolio as well. US stock market weakness generally triggers a strong dollar and a weak Euro, as financial assets rush into a flight to safety mode.

EMPLOY 6-1-14

FXE 7-2-14

EUO 7-2-14

USD 7-2-14

BurgersThe Time to Dump the Euro is Here

 

GM 7-3-14

Euro SymbolThe Time to Dump the Euro is Here

Pulling the Ripcord on GM

Ouch. To get snake bit twice in two days hurts. But three times?

I thought that when the General Motors (GM) ignition recall was announced last week, it was a nice entry point on the long side. I was right for at least a whole day.

This morning news hit that there would be a congressional investigation of GM?s handling of the issue. Usually these are no big deal, go nowhere, and have little impact on the stock. But then we learned that prosecutors in New York State were planning a criminal investigation of the company, as are other states. That is a big deal.

This all happened against a backdrop of deteriorating economic news from China and endless, frightful rumors from the Ukraine. I sailed right into a perfect storm with this trade.

If you are active in the markets as I, this kind of out of the blue flock of black swans is inevitable. It is a good rule of thumb that when the wheels fall off, cut your capital loss to 3%. That?s why I issued my stop loss Trade Alert to bail on the position.

That way you live to fight another day, as I plan to do.

GM 3-11-14

John ThomasSometimes They Bite

The Market Leadership Change Has Begun

Owners of technology (XLK) and health care stocks (XLV) have certainly had a great year.

Except for the round of profit taking that did a quick hit and run in January, these two groups have been moving from strength to strength, punching through to multiyear highs.

That is, until last week.

Starting with the Ukraine induced plunge a week ago, these two leadership groups have started moving in a rather arthritic fashion, substantially underperforming the S&P 500 (SPY). It is all unfamiliar territory for these golden boys.

You also see this in the broader indexes, with NASDAQ starting to trail the main market for the first time in ages. This is why Mad Day Trader Jim Parker shot out Alerts to buy protective puts in the (QQQ) with a one week view.

Is the bull market over? Should you sell everything and immediately go into cash? Is it time to go hide under your bed?

I don?t think so.

All we are seeing is a long awaited leadership change in the market. Tech and health care will throttle back from their torrid pace. It doesn?t mean that these sectors are now to be given up for dead. You should wallpaper your spare bathroom with high tech share certificates (as I once did with my Japanese equity warrants after their crash). They just need a rest. This is why I skipped Apple (AAPL) in my latest round of ?RISK ON? Trade Alerts.

In the meantime, financial stocks (XLF) have moved to the fore to grab the baton after a two-month rest of their own. This is why I sent you Trade Alerts last week to buy Bank of America (BAC), Goldman Sachs (GS), and General Motors (GM).

A shift like this makes all the sense in the world. Bonds (TLT) were great performers in 2014 until a week ago, when they double topped on the charts at $109. That was the logic behind sending you my Trade Alert to sell short bonds.

When bonds fall, interest rates rise, some 20 basis points on the ten year Treasury bond in a mere five days. Who does well when rates rise? Banks, which can now charge more for their loans while the cost of funds, the deposit rates you earn, are still close to zero. That widens bank profit margins, increasing profits. The technical term for this, which you will hear about on TV, is the ?steepening of the yield curve.? Bottom line: buy bank stocks.

They could rise a lot. If Treasury yields back all the way up to 3.05% and the (TLT) revisits its $101 low, the bank shares could go on a real tear. Jim Parker?s medium term target for (BAC) is $23, up a robust 30% from here.

I already have written up a Trade Alert to pick up another bank, JP Morgan (JPM). But I will sit on it until I can catch a dip in the share price, even a piddling one.

And what about the autos? The message shouted out as loud and clear by the red-hot February nonfarm payroll print of 175,000 is that the economy is stronger than anyone thinks. This is an out there view, which I have been arguing vociferously since the summer.

The ferocious winter will no doubt cost retailers some clothing sales. No one is looking to buy a new winter coat in March. Year on year, Chicago has gone from six inches to an astounding seven feet of snow, and I?m told that everyone there is in an unspeakably foul mood, throwing empty bear cans at the TV set when the weather man appears.

This is not so for the auto industry. If buyers couldn?t find their local dealers under the snow, they will return during fairer climes with a check to take advantage of record low interest rates. At the end of the day, buying a car on dealer credit, or a lease, is a nice way to indirectly short the bond market, which we all know, is now in a new 30-year bear market.

Despite the endless blizzards that kept much of the east buried this year, the auto sales figures have held up surprisingly well. The industry is now running at a 15.7 million unit per year annualized rate, up from the 9 million unit trough seen in 2009.

It all sets up a nice upside surprise in carmaker profits after the spring thaw. You want to go out and purchase the entire sector, including General Motors (GM), Ford (F), and all of the subsidiary parts suppliers.

BAC 3-7-14

GM 3-7-14

TTM 3-7-14

Cars - Snow CoveredBut Which One is On Sale?

An Evening With ?Government Motors?

Long-term readers of this letter are well aware of my antipathy towards General Motors (GM). For decades, the company turned a deaf ear to customer complaints about shoddy, uncompetitive products, arcane management practices, entitled dealers, and a totally inward looking view of the world that was rapidly globalizing. It was like watching a close friend kill himself through chronic alcoholism.

During this time, Japan?s share of the US car market rose from 1% to 42%. The only surprise when the inevitable bankruptcy came was that it took so long. This was traumatic for me personally, since for the first 30 years of my life General Motors was the largest company in the world. Their elegant headquarters building in Detroit was widely viewed as the high temple of capitalism. I was raised to believe that what was good for GM was good for the country. Oops!

I opposed the bailout because it interfered with creative destruction, something America does better than anyone else, and gives us a huge competitive advantage in the international marketplace. Probably 10% of the listed companies in Japan are zombies that should have been killed off 20 years ago. Without GM a large part of the US car industry would have moved to California and gone hybrid or electric.

When an opportunity arose to spend a few hours with the new CEO, Dan Akerson, I gratefully accepted. After all, he wasn?t responsible for past sins, and I thought I might gain some insights into the new GM. Besides, he was a native of the Golden State and a graduate in nuclear engineering from the Naval Academy at Annapolis and the London School of Economics. How bad could he be?

When I shook hands, I remarked that his lapel pin looked like the hood ornament on my dad?s old car, a Buick Oldsmobile. He noticeably winced. So to give the guy a break, I asked him about the company?s outlook.

Last year was the best in the 104-year history of the company. It is now the world?s largest car company, with the biggest market share. The 40-mpg Chevy Cruze is the number one selling sub compact in the US. GM competed in no less than 117 countries, and was a leader in the fastest growing emerging market, China.

I asked how a private equity guy from the Carlyle Group was fitting in on the GM board. He responded that all of the Big Three Detroit automakers were being run by ?non-car guys? now, and they generated profits for the first time in 20 years. However, it was not without its culture clashes. When he publicly admitted that he believed in global warming, he was severely chastised by other board members. He wasn?t following the official playbook.

When I started carping about the bailout, he cut me right off at the knees. Liquidation would have been a deathblow for the Midwestern economy, killing 1 million jobs, and saddling the government with $23 billion in pension fund obligations. It also would have deprived the Treasury Department of $135 billion in annual tax revenues. It was inevitable that in the last election year the company became a political punching bag. Akerson said that he was still a Republican, but just.

GM?s Chevy Volt is so efficient, running off a 16kWh lithium ion battery charge for the first 25-50 miles, that many are still driving around with the original tank of gas they were delivered with a year ago. Extreme crash testing by the government and the bad press that followed forced a relaunch of the brand. Despite this, I often get emails from readers saying they love the car.

The summer production halt says more about GM?s more efficient inventory management than it does about the hybrid car. GM?s recent investment in California based Envia Systems should succeed in increasing battery energy densities threefold.

However the Volt is just a bridge technology to the Holy Grail, hydrogen fuel cell powered cars, which will start to go mainstream in four years. These cars burn hydrogen, emit water, and cost about $300,000 a unit to produce now. By 2017, GM hopes to make it available as a $30,000 option for the Chevy Aveo.

Another bridge technology will be natural gas powered conventional piston engines. These take advantage of the new glut of this simple molecule and its 80% price discount per BTU compared to gasoline. The company announced a dual gas tank pickup truck that can use either gasoline or compressed gas. Cheap compressors that enable home gas refueling are also on the horizon. Fleet sales will be the initial target.

Massive overcapacity in Europe will continue to be a huge headache for the global industry. There are just too many carmakers there, with Germany, England, Italy, France, and Sweden each carrying multiple manufacturers. Governments would rather bail them out to save jobs and protect entrenched unions than allow market forces to work their magic. GM lost $700 million on its European operations last year, and Akerson doesn?t see that improving now that the continent is clearly moving into recession.

I asked if GM stock was cheap, given the dismal performance since the IPO. It is still just above the $33/share launch price. Now that the government has unloaded its shareholding the way for further appreciation should be clear. Also, the old bondholders still owned substantial numbers of shares and were selling into every rally. That is hardly a ringing endorsement.

Akerson said that a cultural change had been crucial in the revival of the new GM. Last year, the Feds announced an increase in mileage standards from 25 to 55 mpg by 2025. Instead of lawyering up for a prolonged fight to dilute or eliminate the new rules, as it might have done in the past, it is working with the appropriate agencies to meet these targets.

Finally, I asked Akerson what went through his head when the top job at GM was offered him at the height of the crisis. Were they crazy, insane, delusional, or all the above? He confessed that it offered him the management challenge of a generation and that he had to rise to it.

Spoken like a true Annapolis man.

GM 8-29-13

 

Shifting GM from This?.

To This?.

And This

The Problem With GM

Like a heroin addict who just can?t wean himself off of the good stuff, General Motors is going back into subprime lending to finance new auto sales. Although the much-diminished company has made great strides at reforming its errant ways, they still do not understand their fundamental problem.

My dad was a lifetime GM customer, religiously buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize all the way home to California.

Thirty years ago, I told him he was doing GM no favors buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better-made German and Japanese vehicles. This was right after the State of California forced automakers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, ?I didn?t fight the Japanese for four years so I could buy their cars? (He was a Marine at Guadalcanal).

GM?s problem is that my Dad passed away 11 years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are less than million left. The majority of those don?t drive anymore.

All of them loved Detroit because it built great Jeeps, Sherman tanks, and halftracks that brought them home from harm?s way. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM?s problems really accelerated with the passing of the ?Greatest Generation.?

During the last 35 years, when Japan?s share of the US car market climbed from 1% to 40%, I begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. They answer was always the same: ?Nobody can tell GM how to build cars.? A more inbred culture you could not imagine. Whenever you see management constantly agreeing with each other on everything, run a mile. Maybe someone should have told them.

Today, the company?s only real hope is that young, upwardly mobile Chinese continue to buy their low end cars in large numbers. Over the last decade, GM has boosted the number of dealerships in the capital city from seven to 27, while closing hundreds of rural dealerships in the US. The problem is that the next time you need a tune up for you Caddy, you may have to drive to Beijing to get it, and the owners manual will be in Mandarin.

GM 6-19-13

car

Tesla Takes Off the Gloves

Tesla (TSLA) CEO, Elon Musk, has taken off the gloves and is offering an innovative new hybrid lease that promises to bring in thousands of new buyers of his revolutionary, all electric S-1 sedan.

The package eliminates the downside risk that concerned prospective customers about the resale value of their cars down the road. Under the program, Tesla will buy back your car at 50% of the purchase price after 36-39 months. This equates to a rate of depreciation that is on par with other premium, high-end vehicles, like Mercedes, Porsche, and Jaguar.

Assuming that you buy the 85 kWh, 270 miles range S-1 for $79,900, this works out to a monthly payment of $1,025, also in line with the market. Tesla people tell me that since the plan was announced, 90% of the buyers have opted for the lease option. Many are actual cash buyers who are placing the maximum $50,000 down with the intention to pay off the $30,000 balance in six months, just to get the free put option on the vehicle.

Tesla is also moving full steam ahead with its national supercharger network, which will enable electric car owners to drive coast to coast. Only 45 minutes is required to obtain a full charge. Just last night, my S-1 upgraded itself online and I was presented with new superchargers in Gilroy and Bakersfield, California. I can now make it down to San Diego.

Elon has promised to take his family on such an expedition as soon as the infrastructure is in place some time next year. I am considering my own trip from San Francisco to Chicago, which according to MapQuest, I could do in 30 hours. After all, it will be free, less the investment of my own time at the wheel, and the wear and tear on the tires.

When I was a teenager during the 1960?s, I hitchhiked from the West to the East coast more than 30 times. I used to race my younger brother from Los Angeles to New York, who finally won with a record time of 49 hours. I met a lot of strange people in those days. Once, I was picked up in Texas by a nervous, chain-smoking woman driving a souped up Dodge Dart fleeing a violent husband, seeking refuge in California. She drove like a bat out of hell the entire way, and we made the Golden State in record time. It?s funny, the things you remember.

A drive across the Great American Desert can have a cleansing, almost rejuvenating effect, as long as you don?t mind the country western music on the radio. The last time I did this was during the eighties, when I drove my ?sister to graduate school at Texas A&M. That little foray found me line dancing with a bunch of drunken Aggies in a College Station bar. How is it that everything surreal that happens to me always occurs in Texas?

But I digress. Tesla has quit making the 40 kWh, 130-mile range version of the S-1, as virtually all demand was for the long range model. The waiting list is now down to two months, which is why they took the next step on the marketing front. The four-wheel drive Model X is still on schedule for 2014, and I am number 645 on the waiting list for that vehicle. I have already wired my Lake Take house for 220 volt recharging. Who cares what the price is!

When I stop at traffic lights in the city, I still get applause and thumbs up from cheering groups of pedestrians. And then there are those little notes tucked under the windshield wipers from admiring young women asking for rides. That, alone, is worth the $100k. The State of California has already sent me my $2,500 Clean Vehicle Rebate, and I plan to claim my $7,500 Qualified Plug-in Electric Drive Motor Vehicle Credit (form 8936) on my federal tax return this year.

I have received a lot of emails about the weekend Barron?s article panning Tesla. Elon says he can drop the cost of his batteries from $400 to $200 in five years, making his planned mass market $40,000, 200 mile range ?Gen III? Tesla profitable. General Motors (GM) says he can?t. Given the recent track record of the two companies, I am more inclined to back Elon.

Let me tell you what is really going on here. The automobile establishment absolutely hates Tesla, because Musk has proven everything they said was impossible. Tesla doesn?t advertise, as its innovative, low cost business model sells all of its cars online. This is why they are banned in Texas, which hasn?t the slightest interest in seeing non-oil forms of transportation succeed.

Tesla also doesn?t advertise. Open the pages of Barron?s, and you will find ads extolling the virtues of General Motors, Ford, (F), and Chrysler, but not one from the disruptive Tesla. It?s the same with the financial industry. Barron?s often publishes damning expos?s on tiny companies you have never heard of, but extolls the great wisdom and foresight of PIMCO, Fidelity, and Morgan Stanley, their largest advertisers. That is the free market, capitalist world we live in.

Tesla Gen III Tesla

JT with Tesla

Tesla

Tesla Fuel Economy Made in America