(SPECIAL ELECTION ISSUE)

Featured Trades: (CVX), (XOM), (COP), (BP), (RIG), (DO),
(BTU), (JOYG), (SHAW), (CCJ), (DVN), (CHK), (FSLR),
(NOC), (GD), (ZMH), (UNH), (HUM), (PFE), (DV), (STRA), (COCO),
(TBT), (TMV)

3) The Republican Portfolio. Let's say I'm all wrong, and the Republicans take everything in November, what will it mean for your portfolio?? This is an easy call to make. Expect a dramatic roll back of the leftward policies the country has adopted over the last two years, and a sudden revival of the industries that have suffered as a result. In fact, if you look at the charts below, many of the stocks I am suggesting have already started to discount a conservative win.

Big oil companies will be huge winners. American oil imports from the Middle East will accelerate, where the industry earns 80% of its profits. That will bring peak oil sooner, easily taking crude over $100/barrel quickly, and eventually to $150 or $200. Restrictions on both onshore and offshore drilling will get rolled back to their Bush era laissez faire levels, cutting costs and boosting profitability. You want to own Chevron (CVX), ExxonMobile (XOM), Conoco Phillips (COP), and of course, BP (BP). The drilling and service companies, like Transocean (RIG) and Diamond Offshore (DO), should do spectacularly well.

Coal will benefit immensely from relaxed environmental regulation, paving the way for more exports to China. You want to own Peabody Energy (BTU) and Joy Global (JOYG). Nuclear Energy is a big beneficiary here, which should drive you into Shaw Group (SHAW) and top uranium producer Cameco (CCJ). Forget about natural gas companies, like Chesapeake Energy (CHK) and Devon Energy (DVN). Relaxed environmental controls will stonewall restrictions on the new fracking technology that is unleashing huge supplies on the market, driving prices for CH4 to the basement.

You can count on subsidies for alternative energy to get axed as unaffordable luxuries, which have created 500,000 jobs in California alone in the past two years. After all, global warming is nothing more than a leftist hoax, right? The good news is that the higher oil prices Republican policies are guaranteed to bring means that green companies of every stripe will become profitable in their own right, making subsidies unnecessary. Remember, Bush policies took crude from $20/barrel to $150, topping up the Strategic Petroleum Reserve at the absolute top. Buy First Solar (FSLR) on the knee jerk sell off after the election.

The Republican portfolio should also have a heavy weighting in defense companies, as an expanded war against terrorism means we will be fighting more wars in more places for longer. Any shopping list should include Northrop Grumman (NOC) and General Dynamics (GD). Also prospering mightily will be the makers of prosthetic limbs for the military, like Zimmer Holdings (ZMH).

Health care is a natural. It is unlikely that we could see a complete abolition of Obama care until 2016 at the earliest. But a Republican win in the House would eliminate the possibility of any expansion of socialized medicine. Health care companies like United Health (UNH), Humana (HUM), and Pfizer (PFE) will do well.

The government's war on for profit education will grind to a complete halt (click here for my last piece). With a tidal wave of government subsidized loans to the industry assured, and hapless students stuck with the bill, companies like DeVry (DV), Strayer Education (STRA), and Corinthian Colleges (COCO) will rocket.

Major tax cuts for the top 2% of income earners costing $700 billion over ten years and more loopholes for corporations pared with increased defense spending promise to send deficits through the roof. That will last bring an end to the 30 year bull market in Treasury bonds, which are teetering as I write this. The double short Treasury ETF (TBT) and the triple short (TMV) will have to be a core holding in any long term portfolio.

As the two parties are diametrically and violently opposed to each other on virtually every issue, the impact of a regime change on the economy and the markets promises to be huge. I could write on this for days, so these are just the high points.

Meet the Republican Portfolio

Featured Trades: (GOLD), (GLD), (SILVER), (SLV), (PPLT), (PALL), (TBT), (SPX), (CORN), (FXA)
SPDR Gold Trust Shares ETF
iShares Silver Trust ETF
ETFS Physical Palladaium Shares ETF
ETFS Physical Platimum Shares ETF
Currency Shares Australian Dollar Trust ETF
Teucrium Commodity Trust Corn ETF

2) Everything is Working. So far, the markets are welcoming me back from vacation with open arms. Gold, which I have been relentless flogging for the last 18 months (click here for the last piece), ground up to a new all time high of $1,260. Silver continues to outperform, threatening a multiyear high at $21 (click here for that piece). The industrial white metals, platinum (PPLT) and palladium (PALL), have been rallying hard. Treasury bonds have been selling off, taking the short play TBT up 10% from its low. And the ags have been positively on fire, with the corn ETF (CORN) adding 25% in little more than two months (click here for that call). Even the resource backed Australian dollar has been virile at 92 cents, a currency I have promoted so much that I am developing that seductive down under accent.

The metals and the ags have been soaring, partly because their long term fundamentals are so strong, and because those for paper stock and bond alternatives are so dreadful. The markets I have been avoiding, likes equities generally and the US specifically, are reassuringly going absolutely nowhere.

It appears that the market is catching up on its overdo homework, reading the research reports which I put out three months ago. Seeing investors coming around to my views is even more warming than my High Sierra campfire stoked with the most pitch bearing pine. I've had a great year so far, and it seems to be getting better by the day. Maybe I should go back on vacation.

Looking for More Australian Dollars

4) Thanks for the Testimonials. My request for testimonials about the merits of The Diary of a Mad Hedge Fund Trader overwhelmed me with more than 100 responses. Flattering and humbling at the same time, it is a vindication of all the blood, sweat, and tears that I pour into this letter each day. I will be running some of the best at the bottom of the letter every few days. Thanks, all of you!

'I have been a retail stockbroker for 29 years and I spend a great amount of time reading and "net" surfing for info, ideas, and insights otherwise my clients will receive the same dull, uninspired, and mostly unprofitable opportunities that are primarily designed to generate fees for the large financial institutions that now own virtually everything, including the brokerage firm I worked at for 26 years.'

'I have been checking your site since about January. For several years, before 2008, I have been trying to inspire my clients to look outside the buy and hold stocks/mutual fund strategies of the prior 20 years and to look at other markets, geographically and in an asset class sense. Otherwise I am afraid that their investment returns for the next 10 years will be no better than the last 10 if not worse.'

'I believe I have done a decent job of protecting their assets, but as you know that ain't going to cut it going forward. At some point you need returns, and I truly believe we need a broader scope to achieve that, and that is where you come in.'

'You obviously have a broad view as well as depth, and are not content to write about "another list of high quality dividend paying stocks." Your circle of contacts in business and government, not to mention the industry, is quite impressive and obviously evolved over a number of years. Love your sense of humor.? My view is that only those who really understand their craft can see the humor and irony. And yes it is true that even one idea will more than pay for your subscription cost. '

Thanks again for your unique work.

AJ in Louisiana

Featured Trades: (NATURAL GAS), (UNG), (CHK), (DVN), (XTO)

 

1) Is the UNG Going Under? The poster boy for everything that can go wrong with an ETF is undoubtedly the United States Natural Gas Fund (UNG). If you had studiously done all of your homework a year ago, and concluded that natural gas was severely oversold and about to go up 40%, you would have been dead right. If you then went out and bought the UNG you would have then lost 40%. You would think at first glance that this is a chart for an inverse gas ETF that would only profit from falling gas prices. However, such an instrument doesn't exist.

This dreadful state of affairs was brought about by the intricacies of contango, where far month contracts in the futures markets are trading at premiums to the front month. As each month expired, the managers of UNG bought fantastically rich forward contracts, and then rode them all the way down to spot, as they were mandated to do by their prospectus. They then repeated this exercise every month.
If the contango continues indefinitely, the UNG will eventually approach zero. Moral of the story: don't just punch in a symbol and hit enter. Read the damn prospectus first.

Since we are discussing CH4, I have to tell you that the outlook does not look great. We are just coming out of one of the hottest summers in history, and NG only managed a rally from the $4.30/MCF low to $5.00 . Gas in storage is about to rise again, and gas producers, like Chesapeake Energy (CHK), XTO Energy (XTO),? and Devon Energy (DVN), are racing to out-produce each other in the hope of offsetting falling prices with increased volumes. The price collapse is prompting a Darwinian consolidation of the entire industry. The spot price for NG has already suffered a free fall down to $3.70. It's sad to see such a great molecule fall on such hard times. Pitiful, really.

This is all happening thanks to the new miracle fracting technology, which has suddenly and unexpectedly been used to discover a 100 year supply of natural gas. The Marcellus shale in Pennsylvania, and other fields in Ohio, New York, and West Virginia could power the entire East Coast for decades. The Haynesville shale in Louisiana, Texas, and Arkansas could knock oil out of the box for power generation in the South. Huge fields in North Dakota are yet to be fully developed. All this makes the construction of a gas pipeline from Alaska pointless, once a pet project of former governor Sarah Palin.

It seems that now only need poke a straw in their backyard to obtain a lifetime supply of relatively clean burning energy. Gas majors are now jockeying to exploit untapped shale fields in Europe, with Poland and Germany leading the charge in deploying fracting technology. They must be sweating bullets in Qatar, which just invested $50 billion in facilities intended to export NG to the US and Europe. Looks like they'll have to flare it instead.

The problem is that ETF's have become a great money spinner for Wall Street, replacing earlier income generators, like CDO's, that died in the crash. By the beginning of this year, some 900 ETF's had been created worth $1trillion, generating massive management fees and trading commissions for the industry.

The big question is, when one of these marquee ETF's goes under, will it sour investors on the entire asset class? UNG has already cratered from $8.30 in July to $6.24 today, costing investors millions. Imagine how a leveraged ETF would have fared. Will this be the ETF that kills the goose that laid the golden egg?

Is Natural Gas Going to Burn Investors Once More?

Featured Trades: (CHINESE SOLAR INDUSTRY), (STP), (YGE), (FSLR)

3) Darwinian Downsizing in the Solar Industry. The solar industry is suffering some 19th century Darwinian style competition, with Chinese manufacturers Suntech (STP) and Yingli Green Energy Holding (YGE) clearly dumping panels in the US and Europe below cost to gain market share.

You may laugh, but I watched the Japanese pursue the same strategy in the seventies and eighties with a vast array of products, from cars to memory chips, to devastating success. They now control half the US automobile market, and the most profitable half at that.

As a solar consumer I shouldn't care, as the 50% price drop has, with Obama's generous tax subsidies, made new installations cheaper than obtaining electricity from my local power company (PGE) at 12 cents a kilowatt. It's just a matter of booking the profit in China instead of Phoenix.

But the predatory pricing has also kicked my beloved First Solar (FSLR) in the shins. Use the weakness to pick up (FSLR) on the cheap. The company is using advanced cadmium telluride based thin film semiconductor technology, which has enabled it to match the Chinese price cuts dollar for dollar, and the engineering will allow them to continue to do so. The Chinese, wedded to an older polysilicon product, can't keep playing this game, unless they want to hemorrhage cash, or face US anti-dumping enforcement. To see more on the current fundamentals of solar, please click here.