To prove that The Diary of a Mad hedge Fund Trader only deals with the highest quality, top drawer clientele, I want to share the picture below sent in by a subscriber.
Global Market Comments
September 5, 2013
Fiat Lux
Featured Trade:
(OCTOBER 18 SAN FRANCISCO STRATEGY LUNCHEON)
(TAKING PROFITS ON MY EURO SHORT),
?(FXE), (EURO),
(POPULATION BOMB ECHOES),
(POT), (MOS), (AGU), (WEAT), (CORN), (SOYB), (RJA)
CurrencyShares Euro Trust (FXE)
Potash Corp. of Saskatchewan, Inc. (POT)
The Mosaic Company (MOS)
Agrium Inc. (AGU)
Teucrium Wheat (WEAT)
Teucrium Corn (CORN)
Teucrium Soybean (SOYB)
ELEMENTS Rogers Intl Commodity Agri ETN (RJA)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in San Francisco on Friday, November 1, 2013. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $191.
I?ll be arriving at 11:00 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.
The lunch will be held at a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
Global Market Comments
September 4, 2013
Fiat Lux
Featured Trade:
(WHY I?M KEEPING MY OIL SHORT),
(USO), (SCO),
(A COW BASED ECONOMICS LESSON),
(ON THAT TESLA RECOMMENDATION), (TSLA)
United States Oil (USO)
ProShares UltraShort DJ-UBS Crude Oil (SCO)
Tesla Motors, Inc. (TSLA)
SOCIALISM -You have 2 cows. You give one to your neighbor.
COMMUNISM -You have 2 cows. The State takes both and gives you some milk.
FASCISM -You have 2 cows. The State takes both and sells you some milk.
NAZISM -You have 2 cows. The State takes both and shoots you.
BUREAUCRATISM -You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away.
TRADITIONAL CAPITALISM -You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.
ROYAL BANK OF SCOTLAND (VENTURE) CAPITALISM -You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull.
SURREALISM -You have two giraffes. The government requires you to take harmonica lessons.
AN AMERICAN CORPORATION -You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow has dropped dead.
A FRENCH CORPORATION -You have two cows. You go on strike, organize a riot, and block the roads, because you want three cows.
A JAPANESE CORPORATION -You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called a Cowkimona and market it worldwide.
AN ITALIAN CORPORATION -You have two cows, but you don?t know where they are. You decide to have lunch.
A SWISS CORPORATION -You have 5000 cows. None of them belong to you. You charge the owners for storing them.
A CHINESE CORPORATION -You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity. You arrest the newsman who reported the real situation.
AN INDIAN CORPORATION -You have two cows. You worship them.
A BRITISH CORPORATION -You have two cows. Both are mad.
AN IRAQI CORPORATION -Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb the ** out of you and invade your?country. You still have no cows, but at least you are now a Democracy.
AN AUSTRALIAN CORPORATION -You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate.
A NEW ZEALAND CORPORATION -You have two cows. The one on the left looks very attractive. The one on the right is very nervous.
Will the person who bought Tesla shares (TSLA) on my recommendation last year at $30 please email me? I was traveling in Europe over the summer and lost your email address. I would like to get a testimonial from you. The stock hit $173.70 today, and is up 580% from your cost, making it the top performing US stock this year.
With the money you?ve made you can probably buy a Tesla now. I recommend the high performance Model S-1 with the upgraded sound system and the 270-mile range. I have one, and they are to die for. It?s the only car I ever bought where the specifications keep improving every month with each automatic software update. Or you can wait until next year and by the four-wheel drive SUV Model X. I am on the waiting list for that one.
You owe me.
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.
Shifting GM from This?.
To This?.
And This
Global Market Comments
September 3, 2013
Fiat Lux
Featured Trade:
(AN EVENING WITH ?GOVERNMENT MOTORS?), (GM),
(WHY BEN BERNANKE HATES ME)
General Motors Company (GM)
I don?t just think he hates me. He truly despises me. In fact, he does everything he can to put me out of business.
Take the taper, for example. If I am right and he doesn?t end quantitative easing, then my model-trading portfolio goes through the roof. If he does, it will crater. Many other independent analysts agree with me, including several Fed governors. But is he giving me any hints? Not any chance. I might as well flip a coin.
He could have let me off easy by announcing some minor back door easing, like ceasing interest rate payments on deposits from private banks, or even a token taper of $10 billion or so.
It?s not that I am not an all right guy. I am kind to children and small animals. I donate generously to many charities. I just sent my mother a card for her birthday, even though she is 85 and not expected to last much longer. I even occasionally escort little old ladies across the street, although this is a holdover from my days as an Eagle Scout.
It?s just that Ben Bernanke and I don?t see eye-to-eye on a lot of important issues. He wants stocks to go up. As a hedge fund manager who plays from the short side more often than not when the economy is growing at a paltry 2% rate, I want them to go down.
He wants bonds to go up too, as he clearly elicited with his recent announcement. I, on the other hand, want bonds to sell off because I know that when the bill comes due for all of this monetary easing, the crash will be momentous.
These are not the only matters we differ on. He wants to create jobs. He can wish this until the cows come home, but he?s not going to get them because of the gale force demographic headwinds the country is now facing and the massive deleveraging by the public and private sector. The 6 million jobs we exported to China are never coming back.
However, all he has to do is make a mere mention of his desires, or even just mention the letter ?Q?, and asset prices skyrocket, forcing me to stop out of my shorts at losses. This is why I was in such a foul, acrimonious, and detestable mood over the weekend, after stocks started to rally again for the umpteenth time.
My problem is that Ben Bernanke isn?t the only person who dislikes me. President Obama doesn?t think much of me either. And it?s not because I refuse to buy a cold chicken dinner at his St. Francis Hotel fundraisers for $35,000 or $70,000 if I bring a date. He talks about jobs too. He frequently speaks about the need to improve our education system, even though I know he is poised to slash the budget for the Department of Education as part of some deal with the Republicans. Ditto for Social Security and defense.
Fortunately for me, I wrote off any prospect of getting a retirement check a long time ago and have made other arrangements, like becoming a hedge fund manager. Either the payments will be too small for me to live on, subject to a means test that excludes fat cats like myself, or they will be made in worthless Zimbabwean dollars.
I got along with former Treasury Secretary, Timothy Geithner, OK, who keeps me on his ?must see? list whenever he stops in San Francisco. But we go way back. There are not a lot of people around who read my first book on the Japanese financial system when it was published 30 years ago. There are only four people in US history who can discuss Japanese monetary policy of the 1920?s in depth, and do it in Japanese just for laughs (it was clearly too easy, but they had to reflate after the 1923 Great Kanto Earthquake. Some things never change).
Two of them, Senator Mike Mansfield of Montana and Harvard professor, John K. Fairbank, died ages ago. So he is kind of limited in his choices. Besides, there are not a lot of people out there who can give him a 40-year view on the global economy, and I am one of them.
There are plenty of others who don?t think I am so hot. Try making a fortune in a market crash when everyone else is losing their shirt. While others in the locker room at my country club are slamming doors, tearing their hair out, and breaking golf clubs in half when they see the price feed on CNBC, I am chirping happily away about selling short at the top. I might as well be letting out a loud fart in Sunday church service. This explains why I stopped getting invitations to social dinners ages ago.
It?s not that my relationship with Ben Bernanke is totally hopeless. When the demographic picture turns from a headwind to a tailwind and individuals and corporations cease de-leveraging and return to re-leveraging, we?ll probably be reading from the same page of music. But according to the US Census Bureau, the earliest this can happen is 2023. By then, he probably won?t be the Fed governor anymore and I won?t care if he likes me or not.
There are other Fed governors who are not in the least bit interested in all this quantitative easing malarkey. They are much more similar in philosophy to Herbert Hoover?s Treasury Secretary, Andrew Mellon, who popularized the ?let the chips fall where they may? approach to economic policy. ?Liquidate, liquidate, liquidate?, he said. Kick the props out from under this market and all of a sudden Dow 3,000 is on the table, as argued by Global strategist and demographics maven, Harry Dent.
They might even go as far as unwinding the Fed?s hefty $3.5 trillion balance sheet. That would give the Chinese, who hold $1 trillion of these bonds, a heart attack. But who cares? It would create the mother of all trading windfalls for me. Hell, they might not even care if I torture small animals, beat children with a switch, and strand little old ladies in the middle of onrushing traffic. I think we would get along just great.
Screw Social Security, and Ben Bernanke too.
The Great Kanto Earthquake of 1923
Global Market Comments
August 30, 2013
Fiat Lux
Featured Trade:
(WHY I?M DOUBLING MY YEN SHORT),
(FXY), (YCS),
(GET READY FOR THE NEXT GOLDEN AGE)
CurrencyShares Japanese Yen Trust (FXY)
ProShares UltraShort Yen (YCS)