Global Market Comments
August 21, 2009

Featured Trades: (NATURAL GAS), (UNG),
(LITHIUM), (OPTT), (HANG SENG), ($HSI)

1) Many traders are staring at their screens with rapt attention to see if natural gas can hold the new seven year low of $3. If it does, you can expect an explosive rally back to $3.50. If it doesn?t, the mother of all stop loss selling will ensue, as day traders and chartists, ignorant of the fundamentals of CH4, bail on positions that technically looked sooooo attractive. Seeing this terrible price action with a hurricane barreling in on the East coast is nothing less than amazing. NG owners have to be thinking that if you throw good news on a market, and it can?t go up, then get the Hell out of there. You could see $2/MCF in a heartbeat, and the washout could set up one of the great long plays of the decade. Buying on the back of others? distress is always a great play. Please see my call on June 2 to sell NG at $4.30 by clicking here . Remember the $13.50 we saw last year, or better, the $17 that printed after hurricane Katrina? They don?t call this contract the widow maker for nothing. For an excellent update on this clean burning fuel, go to the opinion page of the August 17 issue of the Wall Street Journal and read the piece entitled ?New Priorities for Our Energy Future,? written by none other than two sons of the South, T. Boone Pickens and Ted Turner. (To read the full article, click here). They argue that the gigantic pool of NG recently discovered under the US exceeds the energy reserves of Saudi Arabia and should be used to transform our economy. But that isn?t going to help nervous traders decide if they should puke their long NG positions first thing tomorrow morning.

2) If we do move from a carbon to a lithium based economy, what are the implications? Will we all become mellow? Politicians, industrialists, and environmentalists who see battery powered vehicles as the wave of the future are overlooking the fact that 50% of the world reserves of lithium are found in impoverished, landlocked Bolivia. This is a country that, until now, was best known for killing off famous foreigners (Che Guevara, Butch Cassidy, and the Sundance Kid), and being the source of a new form of venereal disease. Lithium ion batteries are four times more efficient than the current generation of nickel cadmium ones, and are essential for electric cars to finally become economically viable. But now that the country finally has something the world wants, nationalism is rearing its ugly head. Local politicians see their country as the Saudi Arabia of the highly corrosive, toxic, reactive metal, and are already discussing ways to restrict access. Will La Paz become the headquarters of OLEC, the Organization of Lithium Exporting Countries? The only other supplies are to be found in Chile, Argentina, Australia, China, and Nevada. Should the US invade to insure supplies? Iraq worked didn?t it? The safer way for opportunistic investors to play this is to look at Sociedad Quimica Y Minera (SQM), Chile?s largest producer of lithium, which has already seen its shares nearly triple this year.

3) Wave power has been the orphan of the alternative energy world, the allure of infinite supplies of energy offset by the highest cost of extraction. Every time it looks like someone has cracked this nut, a storm comes along and washes away all of their high tech buoys. However, we may finally be seeing this technology come to fruition. New Jersey based Ocean Power Technologies (OPTT) has been working on the problem since 1994, went public in 2007, and seeks to convert the mechanical motion of ocean waves into electricity with their PowerBuoys. Their engineers have created a 150 KW buoy that generates power at a relatively rich ten cents per KW. The energy available in waves is truly immense. A small harbor of these could generate enough electricity to power a medium sized city. The Navy has been their biggest customer until now, accounting for 58% of sales, driven by a directive to obtain half of their renewable energy generation from renewable sources. Commercial projects are operating or under consideration for the Jersey shore, Spain, Scotland, Western Australia, Hawaii, and Oregon, where local utilities are operating under similar mandates. The cash rich, well funded company says if they can mass produce their next generation 500 KW PowerBuoy, which will be operable in 2010, the cost of electricity will drop from 10 cents to 5 cents per kilowatt, making it cost competitive with fossil fuels, wind, and solar. Throw government subsidies into the mix and this could be an interesting play. The stock cratered with those of other green companies, dropping from $20 to $4. With crude now having moved from $32 to $75 on its way back up to $150 this could become an interesting cheap call on energy prices. Check out their website at http://www.oceanpowertechnologies.com/

4) All eyes are riveted on Shanghai, where the index has gone from up 110% on the year to only 53% in less than three weeks. Talk about taking the rice wine away from the party! I know from my own hard earned trading experience that the Middle Kingdom is the home of the one way move, a tendency exacerbated by the 53% retail participation in the daily trading volume. Analysts are looking for the 150 day moving average to hold at 2,700, which could set up a range of 2,700 to 3,500 for the rest of the year. Use the sell off to get a position in an economy that will see growth accelerate from the current 9% rate to possibly 12% by next year. With Shanghai closed to foreign direct investors, the best way to do this with decent leverage is through the Hong Kong based Hang Seng futures. The mini contract has only recently been cleared by US regulators, and is now available to US based traders. One contract? gives you an exposure of? US$26,000, with a margin requirement of?? US$2,000, giving you leverage of 13 times. Catch a 10% move and you earn a handy 130% return. The only drawback is you have to stay up from 9:45 pm to 4:30 am New York time to watch the intraday moves, which can be utterly breathtaking. If you don?t mind the No Doze and want to know how to get set up on this, email me at madhedgefundtrader@yahoo.com.

5) Note to subscribers: I will be off for a week, first to attend the San Francisco Money show, then to drink the pristine, ultra pure waters of Lake Tahoe. Great news for the kids, bad news for the fish. It?s time to accumulate some grit on my teeth instead of stock positions, and watch burning marshmallows drip from my coat hanger into the fire instead of diminishing investment opportunities. Paid subscribers will have these days added to the end of their run. Thanks for all of the wonderful suggestions for poison oak remedies after my last trip. Does anyone know any good tricks to keep the mosquitoes at bay?

QUOTE OF THE DAY

?Recession-Plagued Nation Demands New Bubble to Invest In,? says a headline in The Onion, a satirical publication.

Global Market Comments
August 18, 2009

Featured Trades: (SPX), (T), (SILVER)

1) Wow! One triple digit move down in the Dow, and all of a sudden, everyone is bearish.? Once invisible falling home prices, soaring deficits, bogus corporate earnings, catatonic consumers, a crashing Shanghai market, and a suicidal Baltic Dry Shipping Index? are now staring nervous stock owners in the face, eyeball to eyeball, and the picture is not pretty. Expect a run at Walmart on the Imodium and Kaopectate supplies. Even Robert Prector, of Elliot Wave fame, was on the tube proclaiming an end to a bear market rally. Did all the BSD bears just come back from family vacations to find the short selling opportunity of the year? Technical analysts think so.

2) Now that the stock market is rolling over like a cheap date, use the weakness, not to buy stocks, but silver. The US Treasury is relentlessly soaking the bond markets with ever rising amounts of borrowing, and loading up on inflation hedges during periods of weakness has to be a great idea. The American silver eagle $1 coin offers investors one ounce of .999 fine silver with a walking liberty design for $15, or 7% over the spot price. The premium on these coins has varied from $1-$4.50 over the past year, depending on the Treasury?s production rate, which is running at near double 2008 levels. Interestingly, an ever present flight to safety bid made sure that the premium never got below a dollar during last year?s liquidity driven crash in prices. If you had to pick a precious metal to buy on decline it would be this one, since it is already 34% off its year ago high, compared to only 9% for gold. If you need the size, liquidity, and low fees silver futures contracts offer, email me at madhedgefundtrader@yahoo.com, and I?ll tell you how to get set up. If you want to take physical delivery to hold it in your hot little hand, will it to your grandkids, hide it from a predatory ex-spouse, or bury it in your backyard, go to Millennium Metals at? www.millenniummetals.net for excellent quality, prices? and personal service. See my earlier call to buy this investment grade white metal by clicking here

3) Great analysis by my alma mater, The Economist (visit their website), over the weekend about the implications of the rapid demise of land line telephones. Some 700,000 of these are being cut each month, with cost conscious mobile only customers jumping from 7.3% of users in 2005 to 20.2% by the end of 2008. Businesses depending on large switchboards are stuck with land lines, so they can expect their bills to go ballistic. You can kiss the telemarketing industry goodbye in a mobile only world, where owners have to pay for incoming calls. No loss there. But first responders like firemen, police, and hospitals are also land line based. Pollsters who only call land lines can also expect greater error rates, and greatly underestimated Obama?s lead for most of the 2008 election. The 50 million cell phone only users they missed tend to be single, in their early thirties, earning under $50,000 a year, and yes, liberal. The trend has been so dramatic, that Hawaiian Telecom, where these trends are moving in extremes, filed for bankruptcy in December. Not good for cable companies, which have been fighting tooth and nail to wrest 20% of the land line market away from traditional, once protected providers like AT&T (T).

QUOTE OF THE DAY

?The worse the economy is, the more stock markets might go up, because the central bankers are printing more money, trying to create another bubble,? said Marc Faber, publisher of the Gloom, Doom & Boom Report.

Global Market Comments
August 12, 2009

Featured Trades: (GMGMQ), (TM)

1) GM says that its new Volt hybrid will get an unbelievable 230 miles per gallon for a 300 mile range when it is introduced at the end of 2010. Does this mean it only has a two gallon gas tank? The $40,000 car will use no gas at all for the first 40 miles a day, which covers two thirds of all American drivers. At three cents a mile, this will give the average driver of 15,000 miles a year a $450 annual fuel bill. By the time the car hits the market, seen by many as the troubled car maker's lifeline to the future, the Prius will have been on the market for ten years and built up a major distribution and service network, not to mention immense customer loyalty. Toyota's (TM) current $22,000 benchmark competitor gets 50 miles/gallon, giving you a $900 a year gas bill at current prices, and has a huge quality advantage. The problem for GM is that by the time the Volt comes out, Toyota will have brought its plug in version to the market, which will deliver the same performance at half the price. Nice idea, GM, but you're 30 years too late.

2)?? Sorry for the short letter today. It is move in day for my son at the University of California at Berkeley. Time to strap the extra long twin mattress and box springs on to the roof of my BMW, and load the trunk with the freshly laundered sheets,?? Imac, lava lamp, tie dyed T-shits, incense burner, sandals, and sub woofer. I think I also saw one or two textbooks in one of those boxes. I didn't want to listen to what the Fed says anyway. Talk to you tomorrow. I promise not to inhale.

QUOTE OF THE DAY

'Forecasts of the future tell you more about the forecaster than the future,' said Berkshire Hathaway CEO Warren Buffet.

Global Market Comments
August 10, 2009

Featured Trades: (SHANGHAI), ($SSEC),
(UUP), (USO), (SPX), (TBT)

1) The Mad Hedge Fund Trader will be presenting a lecture to San Francisco?s prestigious Commonwealth Club of California at 5:30 pm on Tuesday, August 11, 2009. It is entitled Does America Have a Future? I will give a brief history of the hedge fund industry, and then launch into a broader explanation of the long term investment trends that will dominate for the next decade. An extended Q & A will follow. This is your chance to question the logic, the analysis, and yes, even the sanity of The Mad Hedge fund Trader in person. It will be held at the club headquarters at 595 California Street, second floor, San Francisco, CA 94105, which is right at the Montgomery Street BART station. Non members are welcome, but you must buy tickets in advance for $15, as the event is expected to be a sellout. For more information, please go to this link to the lecture at, or go to the club website. Please leave the bags of rotten tomatoes at home, as I don?t want to get stuck with a cleaning bill.

2) Looks like I am going to have to be the designated driver at this brewfest. The Friday nonfarm payroll showing losses of only 247,000 jobs, with upward revisions to May and June, is signaling to many that the bull market is back. We?re definitely getting worse at a slower rate. You might as well put a giant neon sign on your roof saying ?party here tonight.? One can never underestimate the animal spirits here. I?m sure the newspapers are going to call the 0.1 % micro improvement in the unemployment rate to 9.4% as the beginning a major trend. But look at the chart below, which shows were aren?t close to a turnaround in the worst jobs turndown since the thirties. I don?t see any new consumers on this chart, and I was able to breeze through my favorite restaurant at lunch because it was still half empty. I think what is really happening here is that having priced in Armageddon in March, we are now pricing it back out. What?s an Armageddon worth? Some 3,000 Dow points, or 350 S&P 500 points, about where we are right now, sounds like the right price to me. Let me know when you?re ready to go home, and I?ll pile your inebriated carcasses back into the car. I?ll even take the breathalyzer test.

3) Deutsche Bank has put out a report on residential real estate that will raise the hair on the back of your neck, if you still own your own home. Prices have not hit bottom and have another 14% to fall by 2011, putting in a 42% fall from top to bottom. By then, almost half of all mortgage holders in the US will be underwater. The list of the top underwater cities in the US is not good news for the Land of Fruits and Nuts, where lending was the most aggressive, imaginative, and oops, illegal:

Merced, CA 85%
El Centro, CA 85%
Modesto, CA 84%
Las Vegas, CA 81%
Stockton, CA 81%

The murder weapons in these nearly home equity free cities break out as the following:

Option ARMS 89%
Subprime 69%
Alt-A 66%
Jumbo 46%
Conforming 41%

These forecasts tell us that a second stimulus package is a sure thing, that unemployment will soar over 10%, and that a ?W? shaped recession is a lock. Gee, do you thing the stock market might go down on this?

4) When the stock market rolls over, don?t expect to be able to hide anywhere, except in cash. If someone mentions the word ?decoupling?, turn around and walk away, delete their number from your Blackberry, delink from their Facebook page, and block their Tweets. Knowing this individual will be seriously injurious to your wealth. To see how highly correlated markets are these days, take a look at the chart below from StockCharts.com. It shows high correlation between stocks (SPX) , gold (GLD), and oil (USO), and similarly high inverse correlations with bonds (TBT) and the dollar (UUP). I have always viewed diversification as a great way to lose more money in varied places with more exotic sounding names. When the Dow drops, the Shanghai market ($SSEC) will probably fall twice as fast, as it did last year.

QUOTE OF THE DAY

?The big rally since March has been all about backing out the fat tail of Armageddon. It is premature to start discounting the fat tail of a boom. If the market want to go that far, then get me off the train,? said PIMCO?s Paul McCulley.