My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.

I asked who was coming. She said Reagan?s Treasury Secretary, George Shultz, Clinton?s Defense Secretary, William Perry, and Senate Armed Services Chairman, Sam Nunn. I said I?d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.

When I arrived at San Francisco?s Mark Hopkins Hotel, I was expecting the usual mob scene. I was shocked when I saw the three senior statesmen making small talk with their wives and a handful of others.

It was a rare opportunity to grill high-level officials on a range of top secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days. I moved in for the kill.

I have known George Shultz for decades, back when he was the CEO of the San Francisco based heavy engineering company, Bechtel Corp. I saluted him as ?Captain Schultz?, his WWII Marine Corp rank, which has been our inside joke for years. Since the Marine Corps didn?t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he already was familiar with ballistics, trajectories, and apogees.

I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn?t fight them there, we would be fighting them in the streets of Los Angeles. He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy. To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.

I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament. Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.

Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930?s, although he never mentioned this in any election campaign. As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which today generates 10% of the total US electric power generation.

Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.

I had not met Bob Perry since the late nineties when I bumped into his delegation at Tokyo?s Okura Hotel during defense negotiations with the Japanese. He told me that the world was far closer to an accidental Armageddon than people realized.

Twice during his term as Defense Secretary he was awoken in the middle of the night by officers at the NORAD early warning system to be told that there were 200 nuclear missiles inbound from the Soviet Union. He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch.

When the US bombed Belgrade in 1999, Russian president, Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter response. Fortunately, his generals ignored him.

Perry said the only reason that Israel hadn?t attacked Iran yet, was because the US was making aggressive efforts to collapse the economy there with its oil embargo. Enlisting the aid of Russia and China was key, but difficult since Iran is a major weapons buyer from these two countries. His argument was that the economic shock that a serious crisis would bring would damage their economies more than any benefits they could hope to gain from their existing Iranian trade.

I told Perry that I doubted Iran had the depth of engineering talent needed to run a nuclear program of any substance. He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.

Ever in search of the profitable trade, I asked Perry if there was an opportunity in the nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster. He said there definitely was. In fact, he personally was going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5th generation technology that uses small, modular designs, and alternative low risk fuels like thorium.

I had never met Senator Sam Nunn and had long been an antagonist, as he played a major role in ramping up the Vietnam War. Thanks to his efforts, the Air Force, at great expense, now has more C-130 Hercules transport planes that it could ever fly because they were assembled in his home state of Georgia. Still, I tried to be diplomatic.

Nunn believes that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind. But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as this year.

Nunn applauded current administration efforts to cripple the Iranian economy, which has caused their currency to fall 70% in the past six months. The strategy should be continued, even if innocents are hurt. He argued that further arms control talks with the Russians could be tough. They value these weapons more than we do, because that?s all they have left. Nunn delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets. I hadn?t heard that.

As the event drew to a close, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 26 years ago. He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 92. I responded ?I want to be like you when I grow up?. He answered that I was ?a promising young man.? It was the best 61th birthday gift I could have received.

Oops, Wrong Number

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 last Wednesday, for example, when the Federal Reserve Open Market Committee gave me and my views a complete thrashing. Additional quantitative easing was the last thing in the world I was expecting because it was not justified by the current fundamentals. Most other independent analysts agreed with me, including several Fed governors.

He could have let me off easy by announcing some minor back door easing, like ceasing interest rate payments on deposits from private banks. But, no, Ben decided to make me look like a complete idiot, not by just announcing more QE, but one infinite in size that goes on forever. To make matters worse, he got his pals, ECB president Mario Draghi and BOJ governor Haruhiko Kuroda, to join in. Talk about pouring salt on my wounds.

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 Mothers Day, 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 go through the roof, 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 blasted through to new all time highs.

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 fund raisers 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. 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 deleveraging 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

 

I will spend the rest of the week attending the 5th annual SALT conference at the Bellagio Hotel in Las Vegas. This is the preeminent get together of the major players in the hedge fund industry. There, I will hook up with readers, consulting clients, old pals, and former staff, many of whom now run their own multi billion dollar hedge funds. I could write a letter entirely composed of tips from my former employees, and it would be a damn fine one too.

On Wednesday, May 8, I will sneak away for a few hours to present my own Las Vegas Global Strategy Luncheon to a select group of Mad Hedge Fund Trader subscribers.

SALT is organized by my friend, Anthony Scaramucci, managing partner of SkyBridge Capital, which manages and advises $6.9 billion of hedge fund assets. Among the listed speakers are Dr. Doom, Nouriel Roubini, Clintons chairman of the Council of Economic Advisors, Dr. Laura Tyson, former CIA director, Leon Panetta, an ex prime minister of Israel, Ehud Barak, and hedge fund legends Leon Cooperman of Omega, and Daniel Loeb of Third Point. The actor, Al Pacino, will also be there too.

I can?t tell you who I will be meeting with, or I will have to kill you. According to the terms of my invitation, I am not permitted to directly quote, record, or photograph any of the speakers. Such an off-the-record format enables them to open up and share thoughts on what?s really happening in today?s complex markets.

But as readers of the Mad Hedge Fund Trader you will greatly benefit from whatever views and hard information I pick up in future letters. It is a level of access you can?t obtain elsewhere.

The SkyBridge Alternatives (SALT) Conference is committed to facilitating balanced discussions and debates on macro-economic trends, geo-political events and alternative investment opportunities within the context of a dynamic global economy. With over 1,800 thought leaders, business professionals, hedge fund managers, and investors from over 26 countries and 6 continents, the SALT Conference provides an unmatched opportunity for attendees from around the world to connect with global leaders and network with industry peers.

Over the course of the program, more than 100 speakers will participate in some three dozen panels, speeches, and breakout sessions that address critical geopolitical and economic issues. The agenda is designed to provide multiple perspectives on a variety of salient topics within the context of a dynamic global economy.

For more information about the SALT Conference, please visit their website at http://www.saltconference.com.