'When you fly from Shanghai airport to New York airport, you're flying from the Jetsons to the Flintstone's,' said Hot, Flat, and Crowded author Tom Friedman.
Featured Trades: (A TECHNICAL UPDATE ON YOUR POSITIONS), (BAC)
2) The Lost Decade For Bonds Has Begun! In order to enjoy your coming weekend, I thought you'd like a technical update of your positions, so feast your eyes on the two charts below. They say that a picture is worth a thousand words, so here is 2,000 words worth. If you have piled on the positions that I recommended over the last two weeks, these charts should enable you to sleep much better.
I believe these charts show that we are entering a major uptrend for financials, which are asserting themselves to become the lead sector for the market for the next several months. Watch the financial press this weekend, and you will hear a parade of technicians screaming that there has been a major trend reversal, a breakout, or a sea change. This alone could trigger a new wave of cash moving into the sector. The best case scenario has these things going up right into year end. Take a look at my Bank of America (BAC) trades, where the stock has popped 10% in two days. The low risk option play is up 57%, while the high risk one has soared by 325%. The fact that this is going on against a backdrop of a broader market that is doing diddly squat makes the moves even more convincing.
The exact reverse is true for bonds, where virtually every fixed income product broke down through their 200 day moving averages. Let me draw a simple picture ??for you laymen out there. That means you should sell every rally for the next ten years. The technical set up is now so dire, that bonds are going to have a really tough time rallying from here. The momentum players now smell blood in the water, and they'll be jumping in with both feet at every opportunity. The lost decade for bonds has begun!
Of course, you knew this was coming. It is the ultimate irony that the first action of the party that campaigned hard and won the House of Representatives on promises to cut the deficit was to engineer a dramatic increase in the deficit with yesterday's package of tax cuts. The bond market is not laughing.
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Momentum Players Are Smelling Blood
in the Water in the Bond Market
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While Mad Hedge Fund Trader Readers Are Sleeping Well
4) Testimonial. Signing up for your service was the easiest decision that I have ever made knowing the value that I am getting in return. Thanks for making the world of capital markets profitable for non-Wall Street guys that are busy working in other professions. Until now, I have been forced to deal with money managers or 'Company Men' that only push the products their higher ups want to sell. Finally, I have an alternative route to go. Thanks a 'Million'.
Steve
Boynton Beach, Florida
Featured Trades: (BAC)
1) What a Wild Day! I was looking forward to a quiet day today. I was sitting in front of the fireplace, an oak log that I had lovingly hand carried down from Mt. Diablo crackling away, reading the morning papers. Frank Sinatras' greatest hits was in the CD player (young readers please Google 'Frank Sinatra' and then go buy it).
I had listened to Strangers in the Night, and was only half way through It Was a Very Good Year when the phone rang. A sell side floor trader said the pre market in New York was seeing massive buyers of Bank of America (BAC) stock. Was it me? He was referring to the trade alert that I had put out yesterday urging readers to pile into BAC call spreads. I thought the stock might rise because of the bank's $137 million settlement with the SEC and the Justice Department over its municipal bond bid rigging practices, which was a bargain at the price. But this shouldn't generate a tidal wave of buying. Was it me?
The phone hasn't stop ringing since. The log burned out, unappreciated, hours ago, and I am only getting around to getting the letter out at this late hour. BAC ended up popping 5% on the day during an otherwise dead market, while gold and silver collapsed. My apologies, but these are the problems you want to have.
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Mount Diablo
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Featured Trades: (TBT), (YCS), (SSO)
2) Instant Gratification Alert. If you are one of the 1,000 recent new subscribers to The Diary of a Mad Hedge Fund Trader, religeously executed every trade I recommended, and ignore the naysayers and the party poopers, well done!
As I write this, the leveraged short Treasury bond ETF, the (TBT), has exploded to the upside, breaking the 200 day moving average. It has tacked on an impressive 10% from my cost last week, popping from $35.60 to $39.10. The options markets are now seeing massive buying of the December $40 calls. Of course, boosting our positions was the good old US Treasury, which slammed the market with $60 billion in new paper today. But we knew this was coming weeks ago.
The yen saw a major breakdown, sending the short play ETF (YCS) off to the races. Good job to those who acted on my trade alert yesterday and doubled up.
Stocks are holding up remarkably well against profit taking pressure off of Obama's tax compromise speech yesterday, a classic 'buy the rumor, sell the move' development. The really exciting thing is that Bank of America (BAC) is hugely outperforming to the upside, with the calls I recommended yesterday taking off like a scalded chimp. The March, 2011 $12-$14 call spread soared by 21%, while the aggressive version of this trade, paired with a short $10 BAC put, jumped by 100%. Not bad for a day's work. I knew I was good, but not that good!
New subscribers to my letter have clocked profits of up to 10% in a week, and all positions are now in the money. Some, who took on more leverage than I recommended, have seen their networth skyrocket by 20% in days. The portfolio has some nice cross hedges working, with any pullbacks in stocks more than offset by gains in short Treasuries and short yen. The strategy is firing on all 16 cylinders.
For those of you who have a need for instant gratification, you might consider cashing in here, calling it a year, and taking off for some skiing at Aspen, St. Barts for some sun bathing, or Wisconsin to visit the in-laws. In a zero return world, you don't get to coin 10-20% in a week very often, and sometimes it is prudent to take the money and run.
For those who thought this was the tenth big ticket Internet marketing scam they purchased in the past year and just sat back and watched with skepticism, don't worry. There will be other opportunities, and plenty of good entry points. There are so many rip offs out there, I will be the last one in the world to blame you for your jaundiced eye. I come from an unforegiving, uncompromising world where only results backed by cold, hard numbers have value, not empty words and hollow promises.
As for me, I'll be hanging on to my positions, and even looking to increase them. I'll be the guy who stays in the bar until they pile the chairs on the tables, mop up the spilled champaigne, flicker the lights a few times, and all of a sudden, every girl still hanging around suddenly looks beautiful. I think that I have sunk my teeth into some solid, sustainable trends here that will be good for months, if not years. I'll leave the day trading to the kids.
Watch your trade alerts. Fiat Lux.
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Will It Be Trading for Christmas?
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Or Sunbathing?
'A market system without significant bankruptcies cannot work,' said Dr, Alan Greenspan, former chairman of the Federal Reserve.
'There is an extraordinary amount of crowding out that is occurring as a consequence of the United States Treasury preempting the flow of savings in the economy. Approximately one third of the decline in capital investment as a share of cash flow is directly attributable to the crowding out of all other borrowers by the US Treasury,' said Dr, Alan Greenspan, former chairman of the Federal Reserve.
Featured Trades: (LOS ANGELES STRATEGY LUNCHEON REVIEW)
1) Los Angeles Strategy Luncheon Review.? Even though I grew up in Los Angeles during the fifties and sixties, visiting today feels like a trip to an exotic foreign country. It's as if the city was destroyed in some terrible war and rebuilt in a hodgepodge way, as Tokyo and Berlin were after WWII.? Most of what I remember fell victim to the developer's bulldozers decades ago. The land inhabited by the orange groves and horse ranches of my youth are now overrun with high rises, strip malls, and fast food joints. Only Philippe's, home of the French double dip sandwich, lasts forever, the same sawdust still on the floor as when my dad first took me there for lunch in 1956. The manager there recognized me and kindly pulled me out of the one hour wait for a repast in the kitchen. It is true that you can't go home again.
I knew the luncheon at the Los Angeles Athletic Club was going well when those at the gathering next door, held by a down market competitor, complained that we were laughing too loudly. Now that the markets are solidly in '?RISK ON' mode, there was much discussion and debate on the triggers and timing of the next bout of '?RISK OFF.' I am aiming for the end of Q1, 2011, when Ben Bernanke announces that quantitative easing has been such a success that he is ending the program early. The bond trading desks will see this coming first. Maybe that is what the surge last week in the TBT, from $34 to $37, is telling us?
I performed my ritual dump on the residential real estate market, as always. It is such a soft target. It is really like sneaking up behind a disabled person in a wheel chair, tying his shoe laces together, and getting a laugh when he tries to stand up and falls on his face.
Kevin from Anchorage, Alaska won the prize for the greatest distance traveled to the event, some 3,701 miles, according to Mapquest. He also scored highest on the pop quiz, getting eight out of ten right. As one of my 'early adopters' and longest running readers, no doubt the huskies on his dog sled team are wearing Gucci muckluks by now. Spend your Zimbabwean dollars wisely.
That night I went to the spectacular, futuristic, Frank Gehry design Disney Concert Hall to catch Beethoven's 5th Symphony, one of my favorites. The next morning I was awoken at my beachfront Hermosa Beach suite by a volley ball class, instructed by six foot tall Viking hotties, so I went surfing with the dolphins.
On the way home, Interstate 5 was punctuated by signs every few miles by libertarian farmers demanding 'Nancy Pelosi, Hands Off Our Water,' threatening armed action if enormous federal subsidies are not extended. There is so much that is deeply wrong with this country.? However, the split pea soup at Andersen's in Santa Nella was perfect as always, and I bought two cases to take home.
My next strategy luncheon will be held in Chicago, Illinois on Tuesday, December 28.
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Featured Trades: (A SCALP IN THE FINANCIALS)
2) There is @$*% Scalp Here in Financials. Regular readers of this letter are well aware that I despise financial stocks for the worthless pieces of paper that they are. Therefore, I think you should rush out and buy financials stocks right now.
There is a method to my 'Madness.' Financials are the preeminent lagging sector in the world's top lagging market. That alone will prompt some hedge fund managers to pull money out of super performing emerging markets for investment into the unloved and ignored sector. The 'Dogs of the Dow' crowd will most likely get sucked into the logic too.
Lets face it, the banks are making money hand over fist here. A steepening yield curve gives them the best free lunch of all time, borrowing from the Fed at zero interest rates and investing in government paper further down the curve . They can also lend it to prime corporate borrowers at 4%, 5%, or even 6%. The environment is so friendly that even bankers can make money. Rumors abound that they are ready to restore dividends early, Fed permission be damned, putting them on the menu for pension funds once more. ??Maybe this is why the Vampire Squid, Goldman Sachs, upgraded the sector last week to an overweight?
Mind you, I'm only recommending a one night stand with the banks here, not a long term relationship. If you do get married, make sure it is in Reno, Nevada, where you can get one of those quickie divorces. If banks were forced to use the same accounting rules that the SEC foists on me, like marking positions to market on a daily basis, they'd be showing huge negative net worths, and would be out of business overnight. All of those subprime loans they took on at the peak of the real estate bubble are still carried at full value. Banks will only lend to the best quality firms because they know huge hits are coming their way, and have to conserve capital. This is also why the foreclosure rate is so slow. Any faster and they'd really go broke.
Of course, the banks all know this, Ben Bernanke knows this, and I know this, hence the free lunch. There is another side to this coin. If banks join the party, it could give the S&P 500 the juice to make it up to my 1348 target, or even 1,400 in 2011. That is a best case scenario.
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Look for a One Night Stand Only
Featured Trades: (BUY THE &%$#! DIP)
3) Buy the &%$#! Dip. For proof that I will leave no stone unturned in my eternal search for market insight, look no further than the video link below of two imaginary fund managers debating how to deal with the current market. I think the message is 'buy the dip.' It is irrefutable proof that the end of year silly season is upon us. For a good laugh, click the link, but be forewarned that fowl language is involved. Here it is: http://www.youtube.com/watch?v=jllJ-HeErjU&feature=player_embedded
