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Tag Archive for: (SPY)

Mad Hedge Fund Trader

Why I?m Selling Short the Market

Newsletter

Let me give you my thinking here. I am a long-term bull, expecting the S&P 500 to be up 10% or more to over 2,000 by yearend, and possibly 20,000 by 2030. But yearend is a long time off (even though every year seems to go by faster). We have just had a massive 11 point pop in the (SPY) during my two week trip to Australia. So a period of digestion is called for.

My (BAC) $15-$16 bull call spread is now naked long, so a little bit of downside protection is justified. Keep in mind that this is only a partial hedge, not a full one. But the additional potential profit from this SPDR S&P 500 March, 2014 $189-$192 bear put spread does lower the breakeven price of the (BAC) position by a respectable 46 cents.

The present dynamics of the market favor this trade. All of the action is now in speculative, momentum driven names like Tesla (TSLA), Netflix (NFLX), Facebook (FB), Priceline (PCLN), and Yelp (YELP), which are not even in the (SPY) index. The big leadership names, like financials (XLF) and energy (XLE) are pretty much dead in the water. As long as this is the case, don?t expect any big moves in the (SPY).

And with a short dated March 21 expiration, we only have 15 trading days where we need to be right on this.

As a rule of thumb, don?t chase this spread trade if the price has already moved more than 2% by the time you get the Trade Alert. Just put in a limit order and if it gets done, great. If not, wait for the next Trade Alert. There will be plenty of fish in the sea.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the trade to come to you. The middle market is the halfway point between the bid and the offered prices that you see on your screen with your online broker.

The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don?t execute the legs individually or you will end up losing much of your profit. Keep in mind that these are ballpark prices only. Spread pricing can be very volatile especially on expiration months farther out.

SPY 2-27-14

TSLA 2-27-14

NFLX 2-27-14

FB 2-27

XLF 2-27-14

XLE 2-27-14

roller_coaster_monks

https://www.madhedgefundtrader.com/wp-content/uploads/2012/07/monks.jpg 186 183 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-02-28 01:04:312014-02-28 01:04:31Why I?m Selling Short the Market
Mad Hedge Fund Trader

Dividend Hike Could Send Bank of America Flying

Newsletter

Bank of America (BAC) certainly was the chief whipping boy of the financial crisis. Since 2008, it has paid out more than $50 billion in fines and lawsuit settlements for every transgression under the sun.

After getting a bail out from the US Treasury, it was forced to cut its dividend payment to a token one cent. Do any Google search on the company and you are inundated with a flood of bad news.

All that is now ancient history. The entire banking industry is now moving into the sweet spot in the economic cycle. This is because rising interest rates mean that they will be able to charge more for leans, while their cost of funds (deposits and equity) remains low. This rising spread falls straight to the bottom line.

With the 30 year bull market in bonds now at an end, substantially higher rates in the near future are now included in virtually every economic forecast out there. Since the beginning of 2014 the ten-year Treasury yield has rocketed from 3.05% to as high as 2.58%, pummeling bank shares.

What happens next? They go from 2.58% back up to 3.05%, then a lot more. Bank shares will ride on the back of this bull.

The jungle telegraph is now ringing with the prospect of a dividend hike by the company, from a penny to five cents. The implications of such a move are broad.

For a start, the company would have to get the permission of the Federal Reserve to do so. If it pulls this off, it is only because of renewed confidence by the government in the improved financial condition of the country. After several capital raises and the liquidation of the wreckage of the 2008 crash, US banks are now the healthiest in history, with balance sheets of bedrock stability.

If (BAC) can get this first dividend hike through, more will follow. To get the dividend yield on the shares up to industry standard of 2.5%, the company really needs to raise its dividend to 40 cents. If certainly has the cash flow to do this. In 2013, (BAC) reported net income of $11.4 billion, more than four times to amount needed to cover such a payout.

Needless to say, this is all great news for the share price. The prospective return of increasing amounts of capital to shareholders should suck in new and wider classes of shareholders. It won?t be just about hedge fund punters anymore.

Take a look at the charts below, and it is clear that such a move is setting up. (BAC) is reaching the end of a classic triangle formation, which traditionally resolves itself to the upside. You can find more dry powder in the chart for the Financials Select Sector SPDR ETF (XLF), which clearly rejected a complete breakdown at long term trend support in early February.

Finally, take a gander at the chart for the S&P 500. New life from the financials will be the adrenaline shot this market needs to break it out of its current low volume sideways consolidation, taking it to new highs.

This is why I popped out the trade alert to buy the (BAC) March $15-$16 call spread on Monday. Thanks to the denial of service attack on our email provider, AWeber Communications, it has taken me until now to get this update out.

It is all another reason to sign up for the Mad Hedge Fund Trader?s text alert service, which readers around the world received within an incredible ten seconds of the original issue of the Trade Alert. I saw it work its magic when I was in Australia, and it is a sight to behold.

BAC 2-24-14

XLF 2-24-17

SPY 2-25-14

Bank of America

https://www.madhedgefundtrader.com/wp-content/uploads/2014/02/Bank-of-America.jpg 287 521 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-02-27 09:30:472014-02-27 09:30:47Dividend Hike Could Send Bank of America Flying
Mad Hedge Fund Trader

What the Markets Will Do from Here

Newsletter

For the last couple of nights, I have left my iPhone logged into the Argentina peso market, one of several troubled currencies igniting the emerging market contagion. Whenever the peso losses another handle to the US dollar, an alarm goes off. That gives me a head start on how American markets will behave the next day.

I have not been getting a lot of sleep lately. My poor phone has recently been sounding off like a winning slot machine at a Las Vegas casino.

Take a look at the long-term chart for the peso, and it?s clear that some traders have not gotten any sleep for five years, when the peso cratered 50% against the greenback. An imploding currency, soaring national debt, and sliding economy promise to send it lower.

Incompetent leadership doesn?t help either. You know that things are bad when your ships get seized by creditors when they land at foreign ports.

When I wrote my all asset class forecast for 2014, there was only one thing I knew for sure: this year would be harder than last. That has been my best prediction for 2014 so far.

The guaranteed shorts, those for the Japanese yen (FXY) and the Treasury bond market (TLT), have been rocketing to the upside since the opening bell rang on January 2. The no brainer longs, like financials (XLF) and consumer discretionaries (XLY), have been plummeting.

The heart wrenching 4.3% correction we saw for the S&P 500 (SPY), and the 5% hit for the Dow average this month, the worst weekly draw down in two years, has predictably brought the Armageddon crowd out of the closet once again. All of a sudden, a 10% correction best case, and Dow 3,000 worst case, are on the table once again. Do they have a leg to stand on?

Not really.

To achieve these big numbers on the downside, your really need a global systemic financial crisis. There isn?t one remotely on the horizon. Yes, there are difficulties in Argentina, the Ukraine, and Turkey. But they are locally confined.

Together, these countries account for less than 1% of global GDP. If they disappeared completely, they would barely make a blip in world GDP. They certainly are not important enough to panic you into emptying your ATM at the local mall on your next lunch break.

You also need excessive leverage. But that has been banned by prime brokers since the 2008 crash. An aggressive long today is 20% net long, not 200% as in the bad old days of yore. Nothing systemic there.

Sure, we aren?t getting the juice that we used to from the Federal Reserve. It is likely that they will further reduce the taper from $75 billion to $65 billion of bond buying per month at their 1:00 PM Wednesday press release.

If there were a one in a million chance that this would trigger a real market meltdown, my friend, Fed governor Janet Yellen, would run that release through the shredder as fast as you could say ?Go Bears?, sending markets flying.

Others are accusing a looming financial crisis in China as another culprit. Yes, the economic data has been soggy of late, to be sure. However, that is just the continuation of a four year old trend. You can safely forget about that one.

No country in history ever suffered a financial crisis with $4 trillion in foreign exchange reserves on hand, including over $1 trillion in US Treasury bonds close to all time highs in value. In fact many of the emerging markets said to be in trouble also boast large reserves, the product of running massive trade surpluses with a hyper consuming West for the past decade.

So if we can?t blame emerging markets or the taper for the downside, then what is causing the January swoon? You can blame it all on the hedge funds.

I have seen this time and again. Whenever too many people crowd into one end of a canoe, it rolls over. When the majority of funds have identical positions, they are guaranteed to fail. That is why we have had a looking glass market performance since the beginning of this year.

Except that this time we got a turbocharger. The peaking of concentration in the most popular trades perfectly coincided with the big New Year reallocation trade, taking prices to greater extremes. Much of the selling you are seeing down here is from latecomers who bought stock only three weeks ago and are now puking them out.

Of course, I saw all of this coming a country mile off. This is why I cut my net long from 100% 10 days ago to only 10%. It is why I am maintaining a year to date performance of +5.13%, compared to a Dow that is down -5%. It is one of my best gains relative to the index over a short period ever.

The same is true of my colleague, Mad Day Trader, Jim Parker. He is almost all in cash and is also well up on the year. He stuck his toe in the water with a small position in some calls on the (TBT) last week, but it got bit off by a shark almost immediately. So he quickly stopped out, as is his way. Of course, we have been comparing notes and sharing input throughout the selling. It appears that great minds think alike.

Jim?s proprietary in-house analysis predicts that the (SPX) will bottom out just above 1,730, the market close on the November 15 options expiration. If correct, that would give us a total start to finish correction of only 6.7%, which is in line with every other correction for the past two years. But the bottoming process could last a few weeks, and provide several more gut churning dumps. Fasten your seat belt.

When will this end? Watch for the parallel confirming cross market trends. The Treasury bond market is a big one, which appears to be peaking already, right at its 200 day moving average and the top of a six month trading range.? Announcement of the next taper could spark the selloff we need there. The Japanese yen is also important. A top here could signal a return to the carry trade and ?RISK ON?.

Since Emerging markets were the instigator of the crisis, look there as well for the first signs of a turnaround. Scrutinize the chart below, and you gain some heart.? It shows that we are a scant 70 cents from setting up a potential multiyear triple bottom at $37, and worst-case $36.

More specifically, you want to see Turkey (TUR), another instigator of this crisis, recoil from $39. Expect it to bounce hard there, as long as the world is really not ending.

Then it will be off to the races once more. I?ll be keeping my powder dry until then. Watch this space.

USD per 1 ARSThe Argentine Peso Against the US Dollar

 

spy 1-24-14QQQ 1-27-14

XLF 1-24-14

EEM 1-27-14

TUR 1-27-14

Gunpowder barrelTime To Keep Your Powder Dry

https://www.madhedgefundtrader.com/wp-content/uploads/2014/01/Gunpowder-barrel.jpg 382 381 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2014-01-28 09:25:562014-01-28 09:25:56What the Markets Will Do from Here
Mad Hedge Fund Trader

My Market Take for the Rest of 2014

Newsletter

I can?t believe how fast the year has gone by. It seems like only yesterday that I was riding the transcontinental railroad from Chicago to San Francisco, writing my 2013 All Asset Class Review. Now 2014 is at our doorstep.

As usual, the market has got it all wrong. There is not going to be a taper by the Federal Reserve next week. If there is, it will be only $5-$10 billion, which means that $70-$75 billion a month in Fed bond buying continues. Either way it is a win-win.

However, managers are eternally loath to trade against an unknown, hence the weakness we are seeing this week. I think that we have entered another one of those sideways corrections that has been a hallmark of the market all year, and that there is a reasonable chance that we saw the low of the entire move down this morning at 1,780 in the S&P 500.

That sets up a dead, range trading market into the Fed decision next Wednesday afternoon. Once their Solomon like choice is out, it will be off to the races for the markets once again, probably all the way until 2014.

However, we are heading in the Christmas holidays, when volume and volatility shrivel to a shadow of its former selves, with daily ranges often falling within 50 Dow points. So it is important to have a large short volatility element to your portfolio.

That way, you will make money on every flat day, of which there should be many. That?s why I have 70% of my current model-trading portfolio invested in call spreads.

My current holding in the (SPY) has me profitable at all points above $175.68. If we move below that, any losses should be more than offset by profits thrown off by the rest of the portfolio. The same is true for my call spread in the financial ETF (XLF).

The Japanese yen is clearly in free fall, probing new lows almost every day. That should take the (FXY) to $95, and explains my triple weight 30% holding in the area. Bonds (TLT) just can?t get a break, failing to rally over $105 for the third time. Lower levels beckon, making my bear put spread look pretty good, my second one this month.

With a dramatically weakening yen, you have to add to Japanese equities, which will benefit hugely. That?s why I doubled up on my position in Masayoshi Son?s Softbank (SFTBY) this morning. The day they announce the Ailibaba IPO, probably early next year, these shares should be up 10%-20%.

To summarize, this portfolio is perfectly set up for the following: ?A sideways move for four more trading days, then an upside breakout after the Fed decision, then going to sleep inside a slow grind up over Christmas and New Years.

The grand finale should come on January 2, the first trading day of 2014, when I expect the value of the portfolio to pop a full 5% or more. This will be delivered by a massive new wave of capital into the markets, which for calendar and legal reasons couldn?t be invested until this day.

What will they buy? Everything that worked last year. After all, that?s why these managers were hired. Why not start the New Year with a bang, and then spend the rest of the year trading against that profit.

It certainly worked this year.

PerfChart

MHFT Trading Book

SPY 12-12-13

TLT 12-12-13

FXY 12-12-13

AAPL 12-12-13

SFTBY 12-12-13

Zephyr

JT & conductor

JT at workHas It Been That Long?

https://www.madhedgefundtrader.com/wp-content/uploads/2013/01/Zephyr.jpg 342 451 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-12-13 01:05:282013-12-13 01:05:28My Market Take for the Rest of 2014
Mad Hedge Fund Trader

The Flash Crash Risk is Rising

Diary, Newsletter

Those who lived through the cataclysmic ?flash crash? that occurred precisely at 2:45 pm EST on May 6, 2010, have been dreading a replay ever since. Their worst nightmares may soon be realized.

That is when the Dow Index (INDU) dropped a gob smacking 650 points in minutes, wiping out nearly $1 trillion in market capitalization. On that day, some ETF?s saw intraday declines of an eye popping 75% before recovering. A flurry of litigation ensued where many sought to break trades as much as 99% down from the last indication, some successfully.

The true reasons for the crash are still a matter of contentious debate. Many see a smoking gun in the hands of the high frequency traders who account for so much of the daily trading volume. But I happen to know that many of these guys pulled the plugs on their machines and went flat as soon as the big move started.

I think that it was the obvious result of too many people following similar models in markets with declining liquidity. The ease of instant execution through the Internet was another contributing factor. It also could be a symptom of no growth economies and lost decades in the stock market. The increasing short-term orientation of many money managers also played a hand.

Mathematicians who follow chaos theory and ?long tail events? known as ?black swans? argue that the flash crash was not only inevitable, it was predictable. They are also saying that the next one could be far worse.

Since then we have suffered several mini flash crashes. These include the recent $200 collapse in gold, a $5 plunge in silver, a five-cent gyration in the Euro, and a ten-cent gap in the Swiss franc. Notice that these ?flash? events only happen on the downside, and that we don?t have flash melt ups.

In many respects, traders and portfolio managers dodged a bullet on that fateful day. What if it had happened going into the close? Then assets would have been marked to market less $1 trillion, and the Asian openings that followed hours later would have been horrific. This could have triggered a series of rolling flash crashes around the world from time zone to time zone that would have caused several trillion more in losses. Those losses eventually did happen, but they were spread over several more months at a liquidation rate that could be absorbed by the markets.

Regulators claim that they have reduced the risks of a flash crash through the enforcement of daily trading limits across a broader range of financial instruments. I am not so sure. During a real panic, preventing people from unloading risk is almost an impossible feat. I know because I have lived through many of them.

In the meantime, the S&P 500 continues its inexorable rise well above the exact point at which the last flash crash started, at 1,160. We are now 55% above that last flash point. Avoid, like the plague, shorting leveraged naked puts on anything. It is the best way to wipe out your entire equity that I know of.

Like me, you are probably too old to start life over again with a job at McDonald?s, and they probably would take you anyway.

SPY 1-7-12

You Tube

https://www.madhedgefundtrader.com/wp-content/uploads/2013/11/You-Tube.jpg 396 507 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-11-21 11:45:492013-11-21 11:45:49The Flash Crash Risk is Rising
Mad Hedge Fund Trader

The Market Takes a Break

Newsletter

I often use my own profit and loss statement as a leading market indicator. Whenever I am blessed with a windfall profit, it is frequently time to sell. On those rare occasions when I take a big hit, it is invariably time to buy.

This is one of those times.

Since November 1, the Trade Alert service of the Mad Hedge Fund Trader has earned a white-hot 12.12%, taking my year to date return up to 56.62%. The last 19 consecutive Trade Alerts have been profitable.

Performance bursts like this occur, not because I have suddenly gotten a lot smarter. If anything, my advanced age assures that I am headed in the opposite direction on that front. It is far more likely that upward spikes in my P&L happen because the market is getting overheated, at least for the short term.

So I think that it is time to take my foot off the accelerator, cut back and neutralize my model trading portfolio, and sit down and smell the turkey. In any case, with 43 Trade Alerts going out this month, I am running the risk of overtrading.

It is very impressive to see how fast the options markets are crushing implied volatility. This means the market doesn?t think much is going to happen over the next few weeks. The stock market has been up for the last seven weeks in a row, a rare event. Portfolio managers are bathing in once unimagined riches and have visions of bonus checks dancing in their eyes.

This is all a nice set up for 3%-4% Thanksgiving mini correction. The market is now wildly overbought on a short-term basis, and I can?t be the only one exhausted from the sheer volume and intensity of the recent market action.

That is why I knocked out two short positions today in the form of the SPDR S&P 500 (SPY) December, 2013 $183-$186 bear put spread and a the Russell 2000 iShares (IWM) December $113-$116 bear put spread. It?s not a huge bearish bet, just a modest one. And these both take advantage of the fact that market volatility will probably die a slow death going into the holidays.

I am going to hang on to my other long positions, since they are so far in the money that the safety cushion to my breakeven point is large.

Apple (AAPL) is moving into its peak earnings period. Citibank (C) is surfing the wave of money pouring into long neglected financials. Ditto for the Industrials ETF (XLI). The Japanese yen (FXY) will probably break to new lows for the year in coming weeks, so I am looking to add on any strength. Bonds (TLT) are trading like the life has been sucked out of them, so the short side is the correct posture there.

Whatever pause in the market action we get will be a brief one. Take a look at the chart below put together by my friends at Business Insider. Despite all the bubble talk by the clueless media, we are in fact still at the bottom of the range for the S&P 500 forward 12-month PE ratios for the past 15 years.

Assume that corporate earnings rise 10% a year for the next four years. Then assume that earnings multiples also rise by 10% a year, taking us back up to the 22 times found at the top of the 15 year multiple range. That gets the (SPX) up to 3,732 by the end of 2017, a near double from today?s 1,790.

Not only has 2013 been a great year, so will 2014, 2015, 2016, and 2017. We are in the midst of a new Golden Age of equity investment.

That?s why I wrote ?Why US Stocks Are Dirt Cheap? on August 6.

That?s why the stock market is melting up.

That?s why I?m up 56.63% on the year.

That?s why followers of the Mad Hedge Fund Trader?s Trade Alert service are ecstatic.

That?s why new subscribers are pouring in by the thousands.

Case closed, and please pass me the cranberry sauce and gravy.

Markets Chart of the Day

Bathtub-Girl-MoneyIt?s Bonus Time for Money Managers

https://www.madhedgefundtrader.com/wp-content/uploads/2013/11/Bathtub-Girl-Money.jpg 259 575 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-11-20 01:05:282013-11-20 01:05:28The Market Takes a Break
Mad Hedge Fund Trader

Watching the Cash Roll In

Diary, Newsletter

Today, many followers of the Mad Hedge Fund Trader?s Trade Alert service have up to eight November option spreads expiring at their maximum potential profit.

My strategy of taking advantage of the short November expiration calendar and betting that the markets stay in narrow ranges turned out to be wildly successful. At this stage I am batting eight for eight. If these all work, then I will have issued 15 consecutive profitable Trade Alerts since October, something most hedge fund managers would die for at this time of the year.

I have already taken profits on five of my November positions, but judging from the email traffic, many of you are hanging on to the bitter end and have asked me how to handle these.

It?s really easy. You don?t have to do anything. Nada, Squat.

Trading in the underlying ceases today, Friday, November 15 at 4:00 PM EST. The contracts legally expire on Saturday night, November 16. The cash profit is then credited to your account on Monday, November 18, the margin freed up, and the position disappears into thin air.

Only the (SPY) November 2013 $180-$183 bear put spread is giving us a run for our money. As I write this, the (SPY) is trading at$179.27, and we are a mere 73 cents in the money on the $180 puts that we are short.

If the (SPY) closes on Friday over $180, then you will be short 100 shares for every contract of the November $180 puts that you are short. Your long position in the November, $183 puts expired on Friday, so you will be naked short. This is not a position you want to have.

It is always best to cover this at the opening on Monday morning to limit your losses and keep your risk from running away. You may also not have sufficient margin to run a naked short, so If you don?t liquidate, your broker will, probably at a worse price.

Don?t try to trade a leveraged short (SPY) position in a bull market. It?s probably beyond your pay grade, and I doubt you?ll sleep at night.

I?m betting that the (SPY) will close on Friday below $180, so I am hanging on to my position. With only one single day to expiration, it is a coin toss what will happen. But with the markets this sluggish, if I am wrong, it will only be by pennies. Quite honestly, being up 56% on the year I don?t mind taking a gamble here.

 

I know all of this sounds very complicated to the beginners among you. Don?t worry, this all becomes second nature after you?ve done the first few thousand of these.

If you have any doubts, call your broker and they will tell you what to do, especially the part about you needing to do a thousand more trades.? Here, an ounce of prevention is worth a pound of cure. Then it?s on to the next trade.

In the meantime, take your winnings and plan your winter Caribbean holiday with your significant other. Or plan a ski vacation at Incline Village in Nevada. They?ve already had two nice dumps of snow. If you do, drop me a line and I?ll take you out for coffee at Starbucks.

Well done, traders!

Expiring TA Nov. Opt.

SPY 11-14-13

BusinessJohnThomasProfileMap2-2Well Done Traders!

https://www.madhedgefundtrader.com/wp-content/uploads/2013/11/Expiring-TA-Nov.-Opt..jpg 772 555 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2013-11-15 01:05:072013-11-15 01:05:07Watching the Cash Roll In
Mad Hedge Fund Trader

Mad Hedge Fund Trader Blasts to new All Time High

Diary, Newsletter

The Trade Alert service of the Mad Hedge Fund Trader has posted a new all time high in performance, taking in 46.05% so far in 2013. The three-year return is an eye popping 101.7%, taking the averaged annualized return to 35%. That compares to a far more modest increase for the Dow Average during the same period of 19%.

This has been the profit since the groundbreaking trade mentoring service was launched 35 months ago. These numbers place me at the absolute apex of all hedge fund managers, where the year to date gains have been a far more pedestrian 3%.

These numbers come off the back of a blistering week in the market where I added 5% in value to my model-trading portfolio. I called the top in the bond market on Monday, shorted the Treasury bond ETF (TLT), and bought the short Treasury ETF (TBT). Prices then collapsed, taking the ten-year Treasury bond yield from 2.47% to 2.63%.

I then pegged the top of the Euro (FXE) against the dollar, betting that the European Central Bank would have to cut interest rates to head off another recession. Since then, the beleaguered continental currency has plunged from $1.3700 to $1.3350 to the buck.

I then bet that the stock market would enter another tedious sideways correction going into the Thanksgiving holidays. I bought an in the money put spread on the S&P 500, and then bracketed the index through buying an in the money call spread.

Carving out the 2013 trades alone, 57 out of 71 have made money, a success rate of 80%. It is a track record that most big hedge funds would kill for.

This performance was only made possible by correctly calling the near term direction of stocks, bonds, foreign currencies, energy, precious metals and the agricultural products. It all sounds easy, until you try it.

My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. He caught a spike up in the volatility index (VIX) by both lapels. He also was a major player on the short side in bonds.

The coming winter promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere in 2014. The Trade Alerts should be coming hot and heavy.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service and my daily newsletter, the Diary of a Mad Hedge Fund Trader. You also get a real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars, order?Global Trading Dispatch PRO?adds Jim Parker?s?Mad Day Trader?service.

To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? or "Mad Hedge Fund Trader PRO" box on the right, and click on the blue ?SUBSCRIBE NOW? button.

TA Performance YTD

FXE 11-1-13

TLT 11-1-13

TBT 11-1-13

SPY 11-1-13

Jim ParkerMad Day Trader Jim Parker

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My Take on Obamacare

Diary, Newsletter

So much BS is flying about over the Obamacare issue that I can?t resist the temptation to put in my two cents worth.

There was no chance this was going to work on day one, and I warned senior administration officials as much on many different occasions. Even the Massachusetts health care plan only saw 100 sign ups in the first month, and it was supported by both parties.

The fatal flaw? They believed the website developer, which anyone who runs on online business, such as myself, will tell you, is a great way to ruin your life.

The truly shocking revelation is that the lead development contract was handed out to a Canadian company. Hey, we out here in Silicon Valley have web development companies! One wonders why the government didn?t hand the whole project over to Google.

While the administration has applauded the millions who rushed to sign up in the early days, I believe that the headline we will see in six months or a year is that almost of them were already sick and uninsured, with diabetes, hypertension, or even cancer. Why the rush?

The government is essentially attempting to create 50 Amazon?s overnight with the many state insurance exchanges. It took Amazon, itself, 20 years to create just one Amazon, and that?s with my old friend, the brilliant Jeff Bezos, calling the shots and taking huge risks.

Having worked with the US military for 40 years, I can tell you that the government never throws anything away, not old tanks, old fighters, old weapons, and yes, old software. I can?t tell you how many times I jumped into a Navy or Marine cockpit, looked at the instrument panel, and said to myself ?You?ve got to be kidding. This thing belongs in a museum.?

For example, the B-52 Stratofortress intercontinental bomber, which was first designed in 1946 and built in 1952, is not scheduled for retirement until 2050, when it will be nearly 100 years old. Thank goodness for preventative maintenance!

So it is no surprise then to hear that the root of Obamacare?s software problems lies with its inter platform communication. ?Some of the software is brand new, some is 10 years old, and some 20 years old, and custom written by programmers who are probably dead by now. But it all has to talk to each other to function. Good luck with that!

Health care accounts for 12% of our GDP, or about $2 trillion, and employs about 18 million people. That amount of money generates gargantuan fees for lobbyists to maintain the gravy train for the private companies who run the system. This is an industry that has been sheltered from competition until now, which is why costs have been running away for 30 years.

As a result, virtually all information about Obamacare disseminated by the media is inaccurate.? You see kids being interviewed on the street asked how much more they will have to spend on Obamacare compared to no coverage at all, and the figure comes to about $2,500 a year.

This is for kids who make $30,000-$40,000 a year. It is a big hit to be sure. But no one asks what will happen if they get hit by a car, or fall off their skateboards. That?s because there is only one answer: go to county hospital, and then file for bankruptcy. Still, most will end up paying the first year fine, which is $85.

This week?s talking point, manufactured by political consultants working in ill lit rooms for unknown companies funded by anonymous donors, is about the millions of cancellation letters that have been sent out by insurance companies individual alarmed private policyholders. I have read a few of these letters.

It turns out that the insured in question had bargain basement policies that really didn?t cover them for anything. They don?t find this out until they try to make a claim, which then gets denied. By setting new, higher standards to fit in the round holes of the public exchanges, the government is forcing the providers to raise the quality of care or quit the business, which they are doing in droves. Somehow, Obama was supposed to know they were going to do this when the law was written five years ago.

The policyholders don?t know this because they have never read their own policies, and are unaware of what the government plan offers. They are having to comparative shop for health care for the first time in their lives, and they don?t like it. Most just paid up for the annual price increases without question.

The alternative, of course, is to then go out and get an Obamacare policy, which offers more care at a cheaper price than these cancelled policies. Yes, it is true that polices in rural constituencies may cost more. But that?s as it should be. It always costs more to provide service in the middle of nowhere than it a city.

There has been a lot of hand wringing about the higher cost of Obamacare policies. Everyone I have talked to here in California is seeing a savings of about 50%. A part time schoolteacher friend of mine was just given notice that her Blue Cross policy was doubling from $200 to $400 a month. She then went to https://www.healthcare.gov and got a better, more comprehensive policy for $220 a month.

Finally, I have had no insurance for six years. I loyally paid $500 a month into Blue Cross for one of their high-end policies for 20 years. When I shifted coverage from one of my companies to another to get a tax benefit, I was told I had to file as a new applicant. What was my new rate? $3,500 a month. So I asked to restore my old coverage. Blue Cross said no, because I had pre existing conditions. What was my pre existing condition? I was then a 55-year-old white male.

So I called around to find out what my health care actually cost. A broken leg ran $50,000, while a heart attack was $250,000. But if I paid cash, they would cut the bill by half. So I told Blue Cross to get lost. My total health care costs have run about $500 a year since then, mostly for bandaging my sore feet from 50 miles a week of mountainous backpacking and an annual commercial pilot?s physical. I reckon that I am one heart attack ahead of the game by now.

Now Obamacare is requiring me to get health insurance once again. If I don?t sign up, the fine is 1% of my gross income in the first year, and 2.5% in the second. Oops! Don?t want to go there! I?d end up buying the government a new hospital every year. So I signed up for Obamacare. Their lowest level ?Bronze? plan will cost me $235 a month. That I can handle.

The Affordable Health Care Act will probably bring more positive changes to the US economy since the slaves were freed in 1863. As with Thomas Edison?s introduction of electricity, Steve Job?s personal computer, and Tim Berners-Lee?s World Wide Web, its impact will be so broad that it is impossible to predict the ultimate impact.

For sure, it will allow US companies to get out of the health care business once and for all, which has left them at a globally competitive disadvantage for decades. This is why Fortune 500 CEO?s have been conspicuously mum on the issue.

You can bet that the next time your firm has a bad quarter, they will cancel your Cadillac plan to cut costs, boost profits, give you the https://www.healthcare.gov website address, and say ?Good Luck? (click here to see if you can open it. You should).

In any case, the premiums on company provided plans costing more than $10,000 a year are now taxable as ordinary income. I know from my own experience that investment bank and oil major plans cost over $25,000. So goodbye to another tax free benefit.

There will be other momentous changes. Innovation and streamlining of the health care industry is accelerating at an exponential pace as companies, spurred on by competition for the first time, rise to the challenge. We, as the consumers will only benefit, with lower costs for a higher quality product.

The new plan will create 2 million new jobs, and add 0.5% a year to US GDP growth. That assumes that the same number of people are used to provide care that we currently see, or one health care provider for every 15 people.

The great misperception about Obamacare is that it is government provided health care. It has not taken over the hospitals and required doctors to go to work for it, as has been the case in Europe. The government is only facilitating the exchanges, much as it has already done for the stock and commodity exchanges through the SEC and the CFTC, and then paying for the poorest participants.

If you took the name ?Obama? out of Obamacare, you would think that it was a program designed by the Republican Party. Free market capitalism, competition, and open exchanges are supposed to be what they are all about. Obama is only giving them what they have been asking for during the last 30 years, and was already implemented by a Republican governor in Massachusetts, Mitt Romney. Maybe if it were called Obamacare on the coasts, and ?Tea Party Care? or ?Cruz Care? in the Midwest and in Texas it would be less controversial.

Every industrialized country already has national health care. They have been able to limit the growth of health care?s share of their economy to only 8% of GDP, compared to our 12%, but enjoy life spans 5-10 years longer. They had the wisdom to do it when it was cheap in the late 1940?s and early 1950?s.

Unfortunately, the US suffered from fears of a communist takeover then and was undergoing the McCarthy hearings, so there was no chance of adopting socialized medicine. We are supposed to be the smartest people in the world, so we have a better shot at making this work than anyone.

There is a huge investment story here. The health care industry is about to get 30-40 million more customers with government guaranteed payments. This is one of the best free lunches granted to any industry in decades and will be great for business. This is why I have been recommending the Health Care Select SPDR ETF (XLV) since the summer, recently one of the market?s top performing sectors.

Anyone who knows anything about the mathematics of insurance exchanges, such as Lloyds of London, already knows that Obamacare is going to work. Yes, it is possible to insure more people for less cost with the per capita burden carried by a greater number of people. This is why insurance is one of the oldest forms of commerce, originating in London in the mid 17th century, back when they still had to deal with the black plague.

Competition should reign in health care costs. As it matures in a decade or so, Obamacare will become actuarially sound and cost the government nothing. The payoff will be lower overheads and higher profits for US corporations. This is probably what the stock market is trying to tell us by going up almost every day. Since the Obamacare launch on October 1, stock S&P 500 (SPY) has tacked on an astonishing 5.5%, in what is historically a terrible month for stocks.

Obamacare distills down individual policies to plain vanilla securities, which can be traded like stocks, sucking in capital at market prices, much like the derivatives markets do today. You can bet that Wall Street will soon get in on the act as well. They will rapidly introduce hedging strategies, customized securitizations, and even ETF?s, so risks can be laid off here and abroad, creating new profit streams. In a decade the health insurance markets will become unrecognizable and far more efficient than they are today.

I don?t side with either party on this issue. A pox on both their houses. I?m on my side first, then your side, as a paying reader. Hence, this analysis. Overall, the plan is brilliant.

In fact, I wish I had thought of it first.

Bitch all you want about Obamacare, but it?s here to stay. In the meantime, I?m going to make hay why the sun shines, and stay healthy.

XLV 10-30-13

SPY 10-30-13Is There a Connection With Obamacare?

 

Obamacare siteMore Than Meets the Eye

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Mad Hedge Fund Trader

The Shutdown is Over?.For Now

Newsletter

After 16 days of high drama, bluster, and handwringing, the Great Washington Shutdown of 2013 is finally over. President Obama held fast and won. The Republicans kept changing their goals by the day and lost.

But what we got was anything but a resolution. The next shutdown is now scheduled for January 15, and the Treasury bond default has been pushed back to March, 2014.

The big winners in all of this have been stock investors. In the wake of the midnight deal, the S&P 500 blasted through to a new all time high. Those who called Republican bluff to crash the economy if Obamacare wasn?t ditched were richly rewarded.

The world was hoping for a Washington induced 10% sell off in shares so they could buy more. In the end, they only got a 4.6% dip, and were forced to chase for the umpteenth time this year. It all has the hallmark of a market that seriously wants to go higher.

So are we going to have to endure all of this again in the New Year?

I doubt it. The Republicans have been severely chastened and are unlikely to push their luck so far next time. Their standing in opinion polls has fallen to all time lows. According to Arizona Senator John McCain, ?we are now down to only paid staff and close family members.? The Democrats have been rewarded for standing fast, and therefore will continue to do so. Missing here is the detonator basis for another freeze in government spending.

The market may be so strong in January that investors may not even notice further antics in our nation?s capitol. Individuals and institutions are still massively underweight equities. The great rotation out of bonds into stocks never really happened this year. Instead, investors sold bonds, but moved the money into cash. Next year, the Great Rotation may really begin in earnest.

This presages a tidal wave of capital flows into stock in the New Year, which could run all the way until March. Expect a strong December, as traders try to front run this move. Extra juice will come from the Federal Reserve, which now has to postpone any taper for another 6-9 months, thanks to the economic slowdown induced by the shutdown. It seems that Ben Bernanke saw it all coming.

Paying readers of this letter are already well aware of my bullish view of stocks (click here for ?Why You Should Buy This Dip?, and ?My 2013 Stock Market Outlook?). If you are still starved for reasons to load the boat with equities, please click here for ?Why US Stocks Are Dirt Cheap?.

All of this makes my yearend target for the S&P 500 of 1,780 a chip shot. It also makes 2014 look pretty good, when I think the index could possibly run up to 2,000.

SPY 10-17-13

Arm WrestlingUntil Next Time

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