Global Market Comments
December 10, 2013
Fiat Lux
Featured Trade:
(GOTTA LOVE THAT NOVEMBER NONFARM PAYROLL),
(MAD HEDGE FUND TRADER PROFIT SPURTS TO 59%),
(SPY), (SFTBY), (AAPL), (TLT), (FXY)
SPDR S&P 500 (SPY)
SoftBank Corp. (SFTBY)
Apple Inc. (AAPL)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Japanese Yen Trust (FXY)
The November nonfarm payroll blew out to the upside once again, with 203,000 souls landing jobs for the month. Previous months were substantially revised up. The headline unemployment rate made a whopping great fall from 7.3% to 7.0%, the sharpest drop in years.
The much feared collapse in the jobs market triggered by the October Washington shut down was dead on arrival. Imagine what the number would have been without it? 300,000? 400,000?
Especially stunning was the fall in the broader U-6 unemployment rate, known as the ?real? unemployment rate, from 13.8% to 13.2%. This figure has remained stubbornly high for years, for demographic reasons, according to Philadelphia Fed governor Charles Plosser, an ardent quantitative easing opponent. This is because once baby boomers retire, they tend never to return to work.
This comes on the heels of Thursday?s blockbuster Q3 GDP number, which came in at a blistering 3.6%, the highest such report since Q1, 2012. It all confirms my predictions that the economy is going faster than anyone else realizes, that all surprises will be to the upside, and that share prices have yet to reflect this.
For more depth on the bullish posture which I have been maintaining since the summer, please click here for ?Why US Stocks Are Dirt Cheap?, here for ?You Just Can?t Keep America Down?, and? ?The Rising Risk of a Market Melt Up?.
The developments also explain the mercurial performance of my own Trade Alert Service, which blasted through to another all time high for 2013, up 59.72% (see below). Here, we eat our own cooking, and recently the fare would rate a third Michelin star.
You would be right to ask if all these positive developments bring forward the risk of a taper by the Federal Reserve. But it won?t happen in December.
It would be the height of rudeness for Ben Bernanke to launch a major change in monetary policy just before his friend, Janet Yellen, takes the helm.
I have been watching America?s central bank closely for 40 years, all the way back to the days of the giant (literally and figuratively) Paul Volker. The one line lesson from this massive investment of my time is that they are oh so Slooooooow?.
They work in reverse dog years. What takes us mere mortals to conclude in a month, they take seven months, or longer. This all augurs for a taper that starts no earlier than Janet?s first meeting as governor during March 18-19, no matter how positive the economic numbers run.
There is not another Fed meeting until January 28-29, 2014, so it is pedal to the metal for all risk assets until then.
On Donner! On Blixen!
The performance of the Mad Hedge Fund Trader?s Trade Alert Service is still going ballistic, reaching the heady height of 59% for the year.
I know some of your saw your faith challenged when, at one point, the stock market was looking at five consecutive down days last week. The red ink all disappeared when the November nonfarm payroll delivered shockingly positive numbers, thus delivering one of my best up days of the year.
Including both open and closed trades, 24 out of the last 26 consecutive Trade Alerts have been profitable.
The Trade Alert service of the Mad Hedge Fund Trader is now up 59.76% in 2013. November came in at a stunning +11.58%, while the December month to date record now stands at +3.68%.
The three-year return is an eye popping 114.77%, compared to a far more modest increase for the Dow Average during the same period of only 32%.
That brings my averaged annualized return up to 38.3%.
This has been the profit since my groundbreaking trade mentoring service was launched three years ago. It all is a matter of the harder I work, the luckier I get.
I took profits on my long position in Citigroup (C), which just achieved a major upside breakout, and then rolled the capital into the Financials Select Sector SPDR (XLV). I cashed in on a short position in the Treasury bond market (TLT). I?ll go back in on the next rally. I also took profits on short positions in the Japanese yen as it approached new lows for the year, then doubled up again on a subsequent rally there.
I caught the entire 10% move up in Apple (AAPL) with a major long position. Higher levels beckon. My remaining long positions in the Industrials Sector Select SPDR (XLI) are contributing daily to my P&L, thank you very much. An aggressive position in the Japanese online giant, Softbank (SFTBY), also turned profitable, playing on the Japanese economic revival.
This is how the pros do it, and you can too, if you wish.
Carving out the 2013 trades alone, 74 out of 89 have made money, a success rate of 83%. It is a track record that most big hedge funds would kill for.
My esteemed colleague, Mad Day Trader Jim Parker, has also been coining it. Since April, his own performance numbers have just come back from the auditors, revealing that he is up a staggering 279%.
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. Please join me on the gravy train. You will never get a better chance than this to make money for your personal account.
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.? Upgrade to?Mad Hedge Fund Trader PRO?and you will also receive Jim Parker?s?Mad Day Trader?service.
To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
Global Market Comments
December 9, 2013
Fiat Lux
Featured Trade:
(LESSONS FROM THE AUSTRALIAN DOLLAR),
(FXA), (EWA),
(HANGING OUT WITH THE WOZ), (AAPL),
(TESTIMONIAL)
CurrencyShares Australian Dollar Trust (FXA)
iShares MSCI Australia (EWA)
Apple Inc. (AAPL)
Last month, I shot out a Trade Alert to buy the Currency Shares Australian Dollar Trust (FXA) December, 2013 $89-$91 bull call spread that turned immediately profitable. A mere four trading days later I sold out, after the (FXA) rallied an impressive $1.2, adding 0.84% to the value of my model trading portfolio.
That turned out to be the absolute top of the move. This is not unusual, as I am legendary throughout the market for picking the perfect tops and bottoms of market moves, and then leveraging up the other way. This is why pros stampeded into my Trade Alerts. Maybe it?s my math and engineering background that enables me to do this with such precision, a world where accuracy is measured to the Angstrom (0.0000000001 meters).
When the market marked my position at its maximum theoretical value of $2.00, that?s all I needed to know. The Trade Alert to get out flew your way the next morning.
After that, the Aussie was deluged with bad news. Reserve Bank of Australia governor, Glenn Stevens, said he was considering intervening in the foreign exchange market to head off its appreciation. Then, the government blocked a $2.7 billion takeover bid by US agribusiness giant Archer Daniels Midland (ADM) for the Australian grain handler, GrainCorp. A ban of foreign takeovers means less capital coming into the Land Down Under. Then, Goldman Sachs followed up with a forecast that the Aussie was heading for $85. After that, it was all over but the crying.
So here we are three weeks later, and I am getting plaintive emails from followers asking me what to do about their Australian dollar positions. The excuses as to why they are still long Aussie are legion, and range from ?I was traveling? to ?my dog ate my homework.? In the meantime, the (FXA) has plunged from $93.80 to $90, spilling much blood among those who still held the position.
Let me tell you how many trading rules these people violated:
1) When positions go deep in the money, you always place a stop loss at your cost, below the market. That way, you are effectively playing with the ?house?s money.? Your worst case scenario is that you break even.
2) You can?t travel and trade. I structure these trades so they can breathe and you don?t have to watch your screen 24/7. But you can?t disappear off the face of the map counting on notes in bottles washing ashore to keep you up to date.
3) Understand your own risk tolerance. Before you enter every trade, calculate how much money you are willing to lose if it goes against you. Then, if it hits that point, get out in the most automatic, emotionless, automaton way possible and go on to the next trade. There are plenty of fish in the sea, over 100 this year alone. You don?t need my permission to take a loss.
4) Don?t look at any position in isolation, look at the entire portfolio. I design these things so that some will be going up in value at any given point in time, and others down, in all market conditions. That way, one will hedge the other, limiting losses. In the case of the (FXA), your hedge was in being short the Treasury bond market (TLT), (TBT), which was profitable, and mitigated your losses if you didn?t get out of the (FXA).
5) You?ve got to watch the news. Bloomberg, Reuters, and the Wall Street Journal can get you a headline faster than I can send out a Trade Alert. When the Australian central bank governor started flapping his gums about possible intervention to push his currency lower, that?s all you needed to know. Hasta la vista, baby.
6) I am not always right. In fact, this year?s trading statistics show that I am wrong 15% of the time. That is less than almost anyone else. But wrong is wrong. Don?t let that 15% cost you all your profits for fear because you lack discipline.
I don?t think the Australian dollar is going down forever. In fact, there is still a reasonable chance that the Currency Shares Australian Dollar Trust (FXA) December, 2013 $89-$91 bull call spread will close at its maximum theoretical value of $2.00 by the December 20 expiration.
Central bank intervention can only dictate the direction of a currency for only short periods. After that, fundamentals take over. In the face of a 2014 global synchronized economic recovery, that means UP for the Aussie.
International interest rate differentials are the primary factoring in determining direction over the long term. With overnight Aussie rates at an all time low of 2.5%, further cuts are unlikely, lest the real estate bubble there inflates further. That means the next directional change in Australian interest rates is up, and that will be great news for the Aussie.
Suddenly, The Aussie Isn?t Looking So GoodGlobal Market Comments
December 6, 2013
Fiat Lux
Featured Trade:
(THE BOND CRASH HAS ONLY JUST STARTED),
($TNX), (TLT), (TBT),
(INDIA VS CHINA),
(FXI), (PIN), (INP), (TTM)
10-Year Treasury Note ($TNX)
iShares Barclays 20+ Year Treas Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
iShares China Large-Cap (FXI)
PowerShares India (PIN)
iPath MSCI India Index ETN (INP)
Tata Motors Limited (TTM)
When I first visited Calcutta in 1976, more than 800,000 people were sleeping on the sidewalks, I was hauled everywhere by a very lean, barefoot rickshaw driver, and drinking the water out of a tap was tantamount to committing suicide. Some 36 years later, and the subcontinent is poised to overtake China's white hot growth rate.
My friends at the International Monetary Fund just put out a report predicting that India will grow by 8.5% this year. While the country's total GDP is only a quarter of China's $5 trillion, its growth could exceed that in the Middle Kingdom as early as 2014.
Many hedge funds believe that India will be the top growing major emerging market for the next 25 years, and are positioning themselves accordingly. Investors are now taking a harder look at the country ETF?s, including India (INP) and China (FXI), which have recently suffered gut churning selloffs.
India certainly has a lot of catching up to do. According to the World Bank, its per capita income is $3,275, compared to $6,800 in China and $46,400 in the US. This is with the two populations close in size, at 1.3 billion for China and 1.2 billion for India.
But India has a number of advantages that China lacks. To paraphrase hockey great, Wayne Gretzky, you want to aim not where the puck is, but where it's going to be. The massive infrastructure projects that have powered much of Chinese growth for the past three decades, such as the Three Gorges Dam, are missing in India. But financing and construction for huge transportation, power generation, water, and pollution control projects are underway.
A large network of private schools is boosting education levels, enabling the country to capitalize on its English language advantage. When planning the expansion of my own business, I was presented with the choice of hiring a website designer here for $60,000 a year, or in India for $5,000. That's why booking a ticket on United Airlines or calling technical support at Dell Computer gets you someone in Bangalore.
India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world. China's 30 year old 'one child' policy is going to drive it into a wall in ten years, when the number of retirees starts to outnumber their children.
There is one more issue out there that few are talking about. The reform of the Chinese electoral process at the next People's Congress in 2013 could lead to posturing and political instability which the markets could find unsettling. India is the world's largest democracy, and much of its current prosperity can be traced to wide ranging deregulation and modernization than took place 20 years ago.
I have been a big fan of India for a long time, and not just because they constantly help me fix my computers. In the past, I recommended Tata Motors (TTM), which has since doubled, making it one of my best, all-time single stock picks (click here for ?Take Tata Motors Out for a Spin?). On the next decent dip take a look at the Indian ETF?s (INP), (PIN), and (EPI).
Better to Own This Pyramid
Than This Pyramid
Taxi! Taxi!Global Market Comments
December 5, 2013
Fiat Lux
Featured Trade:
(THE POPULATION BOOM),
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR),
(WHO EXPENSIVE OIL HURTS THE MOST), (USO),
(TESTIMONIAL)
Guggenheim S&P Global Water Index (CGW)
PowerShares Water Resources (PHO)
First Trust ISE Water Idx (FIW)
Veolia Environnement S.A. (VE)
Tetra Tech Inc. (TTEK)
Pentair Ltd. (PNR)
United States Oil (USO)
In their century long coverage of exotic places, cultures, and practices, National Geographic Magazine inadvertently sheds light on broad global trends that deeply affect the rest of us. Plus, the pictures are great. A recent issue celebrated the approach of the world's population to 7 billion, and the implications therein.
Long time readers of this letter know that demographic issues will be one of the most important drivers of all asset prices for the rest of our lives. The magazine expects that our planet?s population will reach 9 billion by 2045, the earliest date that I have seen so far. Can it take the strain? Early religious leaders often cast Armageddon and Revelations in terms of an exploding population exhausting all resources, leaving the living to envy the dead. They may not be far wrong.
A number of developments have postponed the final day of reckoning, including the development of antibiotics, the green revolution, DDT, and birth control pills. Since 1952, life expectancy in India has expanded from 38 years to 64. In China, it has ratcheted up from 41 years to 73. These miracles of modern science explain how our population has soared from 3 billion in a mere 40 years.
The education of the masses may be our only salvation. Leave a married woman at home, and she has eight kids, as our great grandparents did, half of which died. Educate her, and she goes out and gets a job to raise her family's standard of living, limiting her child bearing to one or two. This is known as the ?demographic transition.?
While it occurred over four generations in the developed world, it is happening today in a single generation in much of Asia and Latin America. As a result, fertility around the world is crashing. The US is hovering at just below the replacement rate of 2.1 children per family, thanks to immigration. But China has plummeted to 1.5, Europe is at 1.4, and South Korea has plunged as low as 1.15.
Population pressures are expected to lead to increasing civil strife and resource wars. Some attribute the genocide in Rwanda in 1999, which killed 800,000, as the bloody result of overpopulation.
If you think that an energy shortage is bad, it will pale in comparison to the next water crisis. So investment in fresh water infrastructure is going to be a great recurring long-term investment theme. One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights.
Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. In places like China, with a quarter of the world's population, up to 90% of the fresh water is already polluted, some irretrievably so. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years.
Aquifers in the US, which took nature a millennia to create, are approaching exhaustion. While membrane osmosis technologies exist to convert seawater into fresh, they use ten times more energy than current treatment processes, a real problem if you don't have any, and will easily double the end cost of water to consumers. While it may take 16 pounds of grain to produce a pound of beef, it takes a staggering 2,416 gallons of water to do the same. Beef exports are really a way of shipping water abroad in concentrated form.
The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the 2008 US stimulus package was similarly spent. It says a lot that when I went to the University of California at Berkeley School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds!
At the top of the shopping list to participate here should be the Claymore S&P Global Water Index ETF (CGW), which has appreciated by 14% since the October low. You can also visit the PowerShares Water Resource Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VE), Tetra-Tech (TTEK), and Pentair (PNR). Who has the world's greatest per capita water resources? Siberia, which could become a major exporter of H2O to China in the decades to come.
