Global Market Comments
October 22, 2013
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE INVEST LIKE A MONSTER SAN FRANCISCO TRADING CONFERENCE)
(WHAT TO DO NOW?), (SPY),
(TESTIMONIAL)
SPDR S&P 500 (SPY)
I am pleased to announce that I will be participating in the Invest like a Monster Trading Conference in San Francisco during October 25-26. The two-day event brings together experts from across the financial landscape that will improve your understanding of markets by a quantum leap and measurably boost your own personal trading performance.
Tickets are available for a bargain $399. If you buy the premium $499 package you will be invited to the Friday 6:00 pm VIP cocktail reception, where you will meet luminaries from the trading world, such as tradeMONSTRS?s Jon and Pete Najarian, Guy Adami, Jeff Mackey, and of course, myself, John Thomas, the Mad Hedge Fund Trader. All in all, it is great value for money, and I?ll personally throw in a ride on the City by the Bay?s storied cable cars for free.
Jon Najarian is the founder of optionMonster, which offers clients a series of custom crafted computer algorithms that give a crucial edge when trading the market. Called Heat Seeker ?, it monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets.
To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes of data, every 30 minutes. His firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. Jon?s team then distills this ocean of data on his website into the top movers of the day. ?As with the NFL,? says Jon, ?you can?t defend against speed.?
The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.
Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as a pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.
Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.
In order to register for the conference, please click here. There you will find the conference agenda, bios of the speakers, and a picture of my own ugly mug. I look forward to seeing you there.
Cling! Cling!
Jon Najarian
I am completing one of the best trading years of my 45-year career in the stock market. The Trade Alert service is up by a stunning 41.5% so far in 2013 and by 96.55% since inception 35 months ago.
Pretty much every forecast I made for the year came true (click here for ?My 2013 Annual Asset Class Review?). The question now is: ?What to do here??? How do I beat the performance of the ages?
It seems that the world has come around to my point of view on virtually every asset class. Stocks are soaring, lead by the sectors I suggested, technology, industrials, health care, and consumer cyclicals. Since I wrote ?Apple is About to Explode? the shares have been up nine consecutive trading days, and are now 36% above its June lows.
Commodities have, at last, begun their long crawl off the bottom, with copper producer Freeport McMoRan (FCX) massively outperforming the market since August. Gold, silver, and the agricultural commodities have been dead in the water, as expected. Bonds are going nowhere. Oil is falling, as it should. It took a poison gas attack to squeeze me out of my short position there, (thanks a lot Bashar!).
The Washington shutdown came to a big nothing, and translated into ?BUY,? as I expected. Of course, the data flow is going to be gobbledygook for the rest of the year, as different parts of the economy shut down, restart, and then report at different rates. Only privately sourced information, like corporate earnings and the endless torrent of real estate numbers, will be reliable. You can bet that the Federal Reserve is watching these numbers more than usual too.
It looks like we lost about a fifth of our economic growth for the year, while achieving absolutely nothing. For this, the Republicans will have hell to pay next year. More on that later.
There is only one problem with this scenario. When the world agrees with me, I get nervous. Much of my money is made betting against the consensus, not agreeing with it. I am getting run over by bulls on stocks catching up with me from behind. As a result, I have sold out of all of my positions and let my remaining options positions expire well in-the-money. For the first time in years, I am 100% cash. What a bizarre feeling.
Any experienced, seasoned trader will tell you that the best thing to do now is nothing. Maintain your discipline and don?t chase. Buying something that is up ten days in a row is idiotic. Leave that behavior to the wanabees, newbies, and dummies. Just wait for an extreme move in something, anything, and then go the other way.
Let?s take a look at corrections in the S&P 500 this year, which have been few and far between. It has been a market where once you got out, it has really been hard to get back in. Someone else always came by to take your seat. Here were those rare points:
May - 8%
July - 4.7%
September - 4.6%
The primordial, lizard brained trader will look at this chart and come to the same conclusion, regardless of its ticker symbol. They?ll buy once on a 4.6% dip, double up on an 8% dip, and place a stop loss order not far below there.
If the market continues to run away to the upside, then just sit back and watch it. If you already have a monster year, and you should if you have been following the advice of this letter, that?s fine. Let your friends pick up the tab for the next dinner.
Some of the indicators I follow are starting to shout about a top. Individual margin debt is at an all time high. And my buddy, Henry Blodget, of Business Insider sent me the chart below. It shows the funds held in Rydex money market funds, one of the best contrarian indicators out there.
Peaks in assets held by this very low risk family of funds are highly coincident with stock market bottoms, the last two of which were found in November, 2012 and July, 2013. The markets roared after that. Bottoms of assets held in the Rydex funds very roughly coincide with stock market tops, although they may take months to play out. This presages a selloff in risk assets that could start at anytime.
Sometimes, discretion is the better part of valor.
Hey, Save My Place, Will You?
Global Market Comments
October 21, 2013
Fiat Lux
Featured Trade:
(NOVEMBER 1 SAN FRANCISCO STRATEGY LUNCHEON),
(SEND ME YOUR IDEAS),
(REVISITING THE FIRST SILVER BUBBLE),
(SLV), (SLW)
iShares Silver Trust (SLV)
Silver Wheaton Corp. (SLW)
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.
The Diary of a Mad Hedge Fund Trader is now approaching its seventh year of publication.
During this time, I have religiously been pumping out 1,500 words a day, or eight double spaced typed pages, of original, independent minded, hard hitting, and often wickedly funny research.
I?ve been covering stocks, bonds, commodities, precious metals, real estate, and agricultural products. You?ve been kept up on my travels around the world, and got to listen in on my conversations with those who drive the financial markets. I also occasionally opine on politics, but only when it has a direct market impact, such as with the recent Washington shutdown.
The site now contains over 3 million words, or six times the length of Tolstoy?s epic War and Peace. Unfortunately, it feels like I have written on every possible topic at least 20 times over. So I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.
Please send any and all ideas directly to me at support@madhedgefundtrader.com/, and put ?Research Idea? in the subject line.
The great thing about running an online business is that I can evolve it to meet your needs on a daily basis. Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product?s quality, to your benefit.
The Diary originally started out as a daily email to my hedge fund investors giving them an update on fast market moving events. This was at a time when the financial markets were in free fall, and the end of the world seemed near.
I thought, differently, but didn?t have time to hold hands with every customer individually over the phone. The daily emails gave me the scalability that I so desperately needed. Today?s global mega enterprise grew from there. Presently, the Diary of a Mad Hedge Fund Trader is read in 140 countries.
If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post. It urged readers to buy gold at $950 (it soared to $1,920), and buy the Euro at $1.50 (it went to $1.60). Now you know why this letter has become so I popular. Unfortunately, I also recommended that they sell bonds short. I wasn?t wrong on that one, just early, about five years too early.
I always get asked how long will I keep doing this? The government tells me that the latest I can start drawing down on my retirement funds and Social Security is 70 ?. That?s some 8 ? years off for me. Then I?ll reassess whether I want to carry on for another decade, or find something else more fun to do. Given the absolute blast I have doing this job, that is highly unlikely. Take a look at the testimonials I get on an almost daily basis and you?ll see why this business is so hard to walk away from (click here for Testimonials).
Fiat Lux (let there be light).
With smoke still rising from the ruins of the recent silver crash, I thought I'd touch base with a wizened and grizzled old veteran who still remembers the last time a bubble popped for the white metal. That would be Mike Robertson, who runs Robertson Wealth Management, one of the largest and most successful registered investment advisors in the country.
Mike is the last surviving silver broker to the Hunt Brothers, who in 1979-80 were major players in the run up in the 'poor man's gold' from $11 to a staggering $50 an ounce in a very short time. At the peak, their aggregate position was thought to exceed 100 million ounces.
Nelson Bunker Hunt and William Herbert Hunt were the sons of the legendary HL Hunt, one of the original East Texas oil wildcatters, and heirs to one of the largest fortunes of the day. Shortly after president Richard Nixon took the US off the gold standard in 1971, the two brothers became deeply concerned about financial viability of the United States government. To protect their assets they began accumulating silver through coins, bars, the silver refiner, Asarco, and even antique tea sets, and when they opened, silver contracts on the futures markets.
The brothers? interest in silver was well known for years, and prices gradually rose. But when inflation soared into double digits, a giant spotlight was thrown upon them, and the race was on. Mike was then a junior broker at the Houston office of Bache & Co., in which the Hunts held a minority stake, and handled a large part of their business.?The turnover in silver contracts exploded. Mike confesses to waking up some mornings, turning on the radio to hear silver limit up, and then not bothering to go to work because he knew there would be no trades.
The price of silver ran up so high that it became a political problem. Several officials at the CFTC were rumored to be getting killed on their silver shorts. Eastman Kodak (EK), whose black and white film made them one of the largest silver consumers in the country, was thought to be borrowing silver from the Treasury to stay in business.
The Carter administration took a dim view of the Hunt Brothers' activities, especially considering their funding of the ultra-conservative John Birch Society. The Feds viewed it as a conspiratorial attempt to undermine the US government. It was time to pay the piper.
The CFTC raised margin rates to 100%. The Hunts were accused of market manipulation and ordered to unwind their position. They were subpoenaed by Congress to testify about their motives. After a decade of litigation, Bunker received a lifetime ban from the commodities markets, a $10 million fine, and was forced into a Chapter 11 bankruptcy.
Mike saw commissions worth $14 million in today's money go unpaid. In the end, he was only left with a Rolex watch, his broker's license, and a silver Mercedes. He still ardently believes today that the Hunts got a raw deal, and that their only crime was to be right about the long term attractiveness of silver as an inflation hedge.
Nelson made one of the great asset allocation calls of all time and was punished severely for it. There never was any intention to manipulate markets. As far as he knew, the Hunts never paid more than the $20 handle for silver, and that all of the buying that took it up to $50 was nothing more than retail froth.
Through the lens of 20/20 hindsight, Mike views the entire experience as a morality tale, a warning of what happens when you step on the toes of the wrong people.
And what does the old silver trader think of prices today? Mike saw the current collapse coming from a mile off. He thinks silver is showing all the signs of a broken market, and doesn't want to touch it until it revisits the $20's. But the white metal's inflation fighting qualities are still as true as ever, and it is only a matter of time before prices once again take another long run to the upside.
Silver is Still a Great Inflation Hedge
Global Market Comments
October 18, 2013
Fiat Lux
Featured Trade:
(OCTOBER 23 GLOBAL STRATEGY WEBINAR),
(THE SHUTDOWN IS OVER?FOR NOW), (SPY),
(EUROPEAN STYLE HOMELAND SECURITY),
(TESTIMONIAL)
SPDR S&P 500 (SPY)
After 16 days of high drama, bluster, and handwringing, the Great Washington Shutdown of 2013 is finally over. President Obama held fast and won. The Republicans kept changing their goals by the day and lost.
But what we got was anything but a resolution. The next shutdown is now scheduled for January 15, and the Treasury bond default has been pushed back to March, 2014.
The big winners in all of this have been stock investors. In the wake of the midnight deal, the S&P 500 blasted through to a new all time high. Those who called Republican bluff to crash the economy if Obamacare wasn?t ditched were richly rewarded.
The world was hoping for a Washington induced 10% sell off in shares so they could buy more. In the end, they only got a 4.6% dip, and were forced to chase for the umpteenth time this year. It all has the hallmark of a market that seriously wants to go higher.
So are we going to have to endure all of this again in the New Year?
I doubt it. The Republicans have been severely chastened and are unlikely to push their luck so far next time. Their standing in opinion polls has fallen to all time lows. According to Arizona Senator John McCain, ?we are now down to only paid staff and close family members.? The Democrats have been rewarded for standing fast, and therefore will continue to do so. Missing here is the detonator basis for another freeze in government spending.
The market may be so strong in January that investors may not even notice further antics in our nation?s capitol. Individuals and institutions are still massively underweight equities. The great rotation out of bonds into stocks never really happened this year. Instead, investors sold bonds, but moved the money into cash. Next year, the Great Rotation may really begin in earnest.
This presages a tidal wave of capital flows into stock in the New Year, which could run all the way until March. Expect a strong December, as traders try to front run this move. Extra juice will come from the Federal Reserve, which now has to postpone any taper for another 6-9 months, thanks to the economic slowdown induced by the shutdown. It seems that Ben Bernanke saw it all coming.
Paying readers of this letter are already well aware of my bullish view of stocks (click here for ?Why You Should Buy This Dip?, and ?My 2013 Stock Market Outlook?). If you are still starved for reasons to load the boat with equities, please click here for ?Why US Stocks Are Dirt Cheap?.
All of this makes my yearend target for the S&P 500 of 1,780 a chip shot. It also makes 2014 look pretty good, when I think the index could possibly run up to 2,000.
Until Next Time
The English are feeling the pinch in relation to recent events in Libya, and have therefore raised their security level from ?Miffed? to ?Peeved.? Soon, though, security levels may be raised yet again to ?Irritated? or even ?A Bit Cross.? The English have not been ?A Bit Cross? since the blitz in 1940, when tea supplies nearly ran out. Terrorists have been re-categorized from ?Tiresome? to ?A Bloody Nuisance.? The last time the British issued a ?Bloody Nuisance? warning level was in 1588, when threatened by the Spanish Armada.
The Scots have raised their threat level from ?Pissed Off? to ?Let?s get the Bastards.? They don?t have any other levels. This is the reason they have been used on the front line of the British army for the last 300 years.
The French government announced yesterday that it has raised its terror alert level from ?Run? to ?Hide.? The only two higher levels in France are ?Collaborate? and ?Surrender.? The rise was precipitated by a recent fire that destroyed France?s white flag factory, effectively paralyzing the country?s military capability.
Italy has increased the alert level from ?Shout Loudly and Excitedly? to ?Elaborate Military Posturing.? Two more levels remain: ?Ineffective Combat Operations? and ?Change Sides.?
The Germans have increased their alert state from ?Disdainful Arrogance? to ?Dress in Uniform and Sing Marching Songs.? They also have two higher levels: ?Invade a Neighbor? and ?Lose.?
Belgians, on the other hand, are all on holiday as usual; the only threat they are worried about is NATO pulling out of Brussels.
The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.
Australia, meanwhile, has raised its security level from ?No worries? to ?She?ll be alright, Mate.? Two more escalation levels remain: ?Crikey! I think we?ll need to cancel the barbie this weekend!? and ?The barbie is canceled.? So far no situation has ever warranted use of the final escalation level.
? John Cleese ? British writer, actor and tall person.
