1) If Demographics is Destiny, Then America's Future Sucks. Desperate homeowners counting on a "V" shaped recovery in residential real estate prices to bail them out better first take a close look at global demographic data, which tells us there will be no recovery at all.

I have been using the US Census Bureau's population pyramids as long leading indicator of housing, economic, and financial market trends for the last four decades. They are easy to read, free, and available online at http://www.census.gov/ . It turns out that population pyramids are something you can trade, buying the good ones and shorting the bad ones. For example, these graphical tools told me in 1980 that I had to sell any real estate I owned in the US by 2005, or face disaster. No doubt hedge fund master John Paulson was looking at the same data when he took out a massive short in subprime securities, earning himself a handy $4 billion bonus in 2007.

To see what I am talking about, look at the population pyramid for Vietnam. This shows a high birth rate producing ever rising numbers of consumers to buy more products, generating a rising tide of corporate earnings, leading to outsized economic growth without the social service burden of an aged population. This is where you want to own the stocks and currencies.

Featured Trades: (THE BEAR MARKET IN BONDS IS STILL SLEEPING), (TLT)

 

3) The Bear Market in Bonds is Still Sleeping. I just wanted to give you this updated technical chart of the long dated bond ETF (TLT), showing that the bear market in bonds is indeed on 'PAUSE'. This will be music to the ears of my Macro Millionaire followers, who are raking in the coins running a short in the (TLT) June $86 puts. Although we have already taken in half the profit on this position, running it seems to be in order. While yields could climb from here, and prices fall, I doubt they will reach the 5.2% the 30 year would need to reach to get the (TLT) to break below our strike of $86.

Keep in mind that this is a short term counter trend trade in the midst of a long term bear market in bonds. We will certainly break below $86 in the (TLT), but not until our options expire. In a market that isn't giving you much to work with these days, this one seems to be a winner.

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Wake Me Up in June

Featured Trades: (NEW YORK STRATEGY LUNCHEON)

 

Last Chance to Buy a Ticket for the Thursday, March 31 New York Strategy Luncheon. The Mad Hedge Fund Trader's Global Strategy Update will be held at 12:00 noon on Thursday, March 31, 2011.

The event will be held at an exclusive private club on Central Park South.?? A three course lunch will be followed by a 30 minute PowerPoint presentation and a 45 minute question and answer period. I'll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, and real estate. Enough charts, tables, graphs, and statistics will be tossed at you to keep your ears ringing for a week.

I'll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets. To buy a ticket for $279, please visit my store. I look forward to meeting you, and thank you for supporting my research.

Featured Trades: (AIRLINE STOCKS COULD BE READY FOR A TAKEOFF)

 

3) Airline Stocks Could Be Ready for Take Off. When I was a young, clueless investment banker at Morgan Stanley 30 years ago, the head of equity sales took me aside to give me some fatherly advice. Never touch the airline industry. The profitability of this industry is totally dependent on fuel costs, interest rates, and the state of the economy, and managements haven't the slightest idea of what any of these are going to do.

At the time the industry had just been deregulated, and was still dominated by giants like Pan Am, TWA, Eastern Air, Western, Laker, and a new low cost upstart called People Express. None of these companies exist today. It was the best investment advice that I ever got.

If you total up the P&L's of all of the airlines that ever existed since Orville and Wilber Wright first flew in 1903 (their pictures are on my new anti-terrorism edition pilots license), it is a giant negative number, well in excess of $100 billion. This is despite the massive government subsidies that have prevailed for much of the industry's existence. The sector today is hugely leveraged, capital intensive, heavily regulated, highly unionized, offers customers terrible service, and is constantly flirting with, or is in bankruptcy. Its track record is horrendous. They are a prime terrorist target. A worse nightmare of an industry never existed.

I become all too aware of the travails of this business while operating my own charter airline as a sideline to my investment business. The amount of paperwork involved in a single international flight was excruciating. Every country piled on fees and taxes wherever possible. The French air traffic controllers were always on strike, the Swiss were arrogant, and the Italians unintelligible. The Greek military controllers once lost me over the Aegean Sea for two hours, while the Yugoslavs sent out two MIGs to intercept me.

While flying a Red Cross mission into Croatia, I got shot down by the Serbians, crash landed at a small Austrian Alpine River, and lost a disc in my back in the process. I had to make a $300 donation to the Zell Am Zee fire department Christmas fund so their crane could life my damaged aircraft out of the river. Talk about a tough business!

All of this leads me to conclude that there may be an opportunity here in airline stocks. The industry has once again been decimated by high oil prices, taking stock prices down to single digits. Many of these stocks have fallen so far, they have essentially become long dated call options on the companies with equivalent pricing. So for a little upfront cash you get a lot of bang for your buck.

A Darwinian concentration has taken place over the last 30 year that has concentrated the industry so much that it would attract the interest of antitrust lawyers, if it weren't losing so much money. Delta and United now control 50% of the US market, American 15%, and Southwest 10%, giving a 75% share to the top four carriers. The industry has fewer seats than in 1982; while inflation adjusted fares are down 40%.

They have taken yet another bloody nose from high oil prices, but this time they are covering a lot of this with higher fares, fees, and fuel surcharges. I can't remember the last time I saw an empty seat on a plane, and I travel a lot.

The real kicker here is that stock in an airline is in effect a free undated put on oil. If Khadafy suddenly chokes to death on a falafel, and the fear premium for crude disappears, these stocks would soar. You could easily have a five bagger on your hands.

I would vote for the airline that has been least adept at hedging its forward fuel needs through the futures market. That would be American Airlines (AMR). That means they will hurt the most now, but rake it in the most on any oil price pull back. And even if the decline in fuel prices turn out to be modest, a recovering US economy should boost profitability, given its recent maniacal pursuit of controlling costs. Just the missing pretzels alone should be worth a few cents a share in earnings. And no, I didn't get free frequent flier points for writing this piece.

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Maybe I Should Consider a Different Career

Featured Trades: (POST MORTEM ON THE YEN)

 

3) Yen Post Mortem. Since my bet that the Japanese yen would decline clearly didn't work, I thought I would sift through some alternative theories in an attempt to understand why this trade came undone so badly. After all, every loss is a lesson, best to be learned. You would think that with weak economic growth, horrendous demographics, feeble corporate management, inept national leadership, an incompetent central bank, and an enormous reliance on high priced imported energy and commodities, the yen would be the ideal currency to short.

Wrong and double wrong. For the second year in a row my short position in the yen has been my one loser of the year, condemning me to a series of stop outs. I know I have a lot of illustrious company, but that is never an excuse for taking a hit to the P&L. So I thought it might be instructive to examine alternative theories for the future of the yen, which see not, imminent weakness, but strength.

My old friend, Eisuke Sakakibara, the former Japanese vice minister of finance known in the foreign currency markets as 'Mr. Yen,' says that the ?79 of today is not the same as the ?79 of 15 years ago. Since then the country has suffered from relentless deflation, causing the prices of goods and services to plunge.

As a result, the yen today buys much more than it did in the previous millennium. That means that the currency should continue to appreciate, to at least ?70. American investment bank, JP Morgan, recently put out a report employing similar logic, arguing that the yen could go as high as ?50- ?60 before reversing. This has never happened in the history of modern developed economies, which is why this possibility never showed up on my radar, nor few others.

When a cat touches a hot stove and gets burned, it never goes near that stove again, even when it is cold. I feel like that cat. Since the dollar's 'flash crash' against the yen last week that took it from ?80 to ?76 in a nanosecond, the G-7 has come into the markets with a lot of big talk, but only a few feeble $6 billion rounds of token intervention. Yet, here the yen still hovers around ?80.

I think I've had enough of the yen for a while, and will happily watch from the sidelines. I'm not buying the breakout. The 'Madness of Crowds' comes to mind.

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Once Burned, Twice Forewarned