Global Market Comments
January 23, 2013
Fiat Lux
Featured Trade:
(TRADE ALERT SERVICE BLASTS TO NEW ALL TIME HIGH),
(SPY), (IWM), (FCX), (AIG), (FXY), (YCS), (TLT)
(CATCHING UP WITH DOWNTON ABBEY)
The Trade Alert Service of the Mad Hedge Fund Trader posted a new all time high today, pushing its two-year return up to 66%. The Dow average booked a miniscule 12% gain during the same time period. The industry beating record was achieved on the back of a spectacular January, which so far had earned readers a mind blowing 10.92% profit.
Right after the January 2 opening, I shot out Trade Alerts urging readers to take maximum long positions in the S&P 500 (SPY) and the Russell 2000 small cap index (IWM). Later, I piled on longs in copper producer Freeport McMoRan (FCX) and American Insurance Group (AIG). I balanced these out with aggressive short positions in the Treasury bond market (TLT), and the Japanese yen (FXY), (YCS). Only my position in Apple (AAPL) has cost me money this year.
After grinding around just short of the previous top for four tedious and painful months, the breakout was certainly welcome news for many. Once I wracked up an unprecedented 25 consecutive profitable trades over the summer, things went wobbly. The Fed unleashed an early, surprise, pre election QE3. Then inventors stopped drinking the Apple (AAPL) Kool Aide en masse. The extent of the tax loss selling after the Obama win was also a bit of a shocker. Maybe I should take longer vacations.
Then the ?aha? moment came. I concluded at the end of November that the multiple political crises facing us were nothing more than hot air. This meant the risk markets were poised to launch multi month bull runs to new all time highs, and I positioned myself, and my followers, accordingly. In the end, that is exactly what we got.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011 and 14.87% in 2012. The service includes my Trade Alert Service, daily newsletter, real-time trading portfolio, an enormous trading idea database, and live biweekly strategy webinars. To subscribe, please go to my website at www.madhedgefundtrader.com, find the ?Global Trading Dispatch? box on the right, and click on the lime green ?SUBSCRIBE NOW? button.
I decided to flee the madness in London for a day and visit some old friends in the countryside, the 8th Earl and Countess of Carnarvon. The late 7th Earl was an early investor in my first hedge fund and I have kept in touch with the family ever since.
His grandfather, the 5th Earl gained fame and fortune from his co-discovery of King Tut?s tomb in Egypt?s Valley of the Kings in 1922. His early death, shortly thereafter, was the origin of ?The Mummy?s Curse? of depression era horror film fame. Many of his discoveries today make up the bulk of the Egyptian collection in New York?s Metropolitan Museum of Art, which the family sold to pay estate taxes.
Recently, the family has been renting out their 350 year old home, a 15-minute taxi ride south of Newbury, the spectacular Highclere Castle, for use as a film set. The period drama series that resulted, ?Downtown Abbey,? unexpectedly became a blockbuster in the US where viewers stupefied by endless low budget reality shows were starved for quality, thoughtful content and adult writing.
It also sent 100,000 visitors a year their way, as well as $25 million in ticket fees. This windfall enables them to maintain the house and the magnificent gardens in immaculate condition. The cash flow also allows them to ramp up the other family business, breeding racehorses for the queen. Portraits of past winners adorned almost every room.
After tea with my hosts and a personal tour of the estate, I picked up some tea towels for friends at home who are into this kind of thing. I also saw a display of some spectacular early Egyptian relics, which the family found bricked up behind a wall 60 years after the Met sale.
The series? third season has just begun and I can tell you now how I think it will play out. The politically incorrect and ultra liberal American mother-in-law, played by Shirley MacLain, has made an unannounced visit, and was about as welcome as a bull in a china shop. Matthew Crawley has bought a new car, so we can expect him to flirt with death in a crash in the near future. The current earl, Robert Crawley, appears to be better at hosting dinners than managing the estate, we we can count on another financial crisis.
There seems to be some sort of gay lovers triangle developing among the footmen. The former head footman, John Bates, now in prison for murder, will be exonerated, but killed in a jailhouse riot just before his release. Lady Edith Crawly is left standing at the altar, so she goes into politics to champion the suffragette movement, much to the horror of her family. The Irish son-in-law and former driver dies in the 1922 Irish rebellion.
Given the huge reception by the viewing public, we can count on this drama to extend to at least five seasons, when it will then be syndicated for the rest of our lives. That works fine for the real life Carnarvons, who can now reinvest in even more thoroughbreds. Who needs hedge funds?
Global Market Comments
January 22, 2013
Fiat Lux
Featured Trades:
(THE DEBT CEILING CRISIS IS CANCELLED),
(SPY), (IWM), (FCX), (AIG), (FXY), (YCS),(AAPL), (VIX)
(JANUARY 23 GLOBAL STRATEGY WEBINAR)
I am sitting here in front of a crackling hot fire at my lakeshore estate in Nevada?s Incline Village. It is a brilliantly clear day, with mallard ducks skimming the surface of Lake Tahoe, and the Canadian geese flying in formation overhead. Snow covered Mount Tallac, some 30 miles to the South, looks so close I feel I can almost grab it and take out a bite.
I am on my way to Washington DC for the inauguration, and had the jet touch down in nearby Truckee for a day of reading and rest. My staff greeted me like I was some kind of conquering hero. One of the perks of working for me is that they get a free subscription to my newsletter, and they all invest their 401k?s, IRA,?s pensions, and profit sharing plans accordingly. When they?re doing well, I feel it. My performance shows in those little chocolate truffles that get placed on my pillow at night.
In fact, it has been the hottest start to a year for me in a long time. The model- trading portfolio is up 8% so far in 2013, which is more than half of what I made during all of last year. With the way my positions are currently structured, I stand to make an additional 50 basis points a day until the next options expiration on February 15. All the market has to do until then is to trade up, sideways, or down small,and I get to keep it all. Right now, that is looking like a pretty good bet.
I completely nailed everything. On day one, I went aggressively long the S&P 500 (SPY) and the Russell 2000 (IWM). I averaged up with more equity positions, a financial, American Insurance Group (AIG), and copper producer Freeport McMoRan (FCX) as a China play. Sensing that it was pedal to the metal for a falling yen (FXY), (YCS), I put a major chink of the portfolio into a short position there. In effect, I am long US equities in Japanese yen.
On top of that, I have a massively short volatility position embedded in all of this, not a bad thing to have when the Volatility Index (VIX) is plumbing new six year lows at the 12% handle. Since then, the data has been released showing that the biggest cash flows into equity mutual in a decade came hot on the heels of my Trade Alerts. Things only went awry with Apple (AAPL), which continued to weaken beyond all belief, as if to prove that I was only human.
It looks like my numbers are going to get a further boost this week from no less a fan than the Republican Party. Former vice presidential candidate, Paul Ryan, from Wisconsin, has indicated that the coming debt ceiling crisis, due on March 31, will be postponed for three months.
Having covered Washington politics for 40 years, I can tell you that he is speaking in code. For ?postponed?, read ?cancelled?. I think they figured out it was a lame idea anyway. Certainly, the markets came to the conclusion two months ago that all of these media constructed ?crises? were a bunch of baloney. That is why I have been pounding the table with readers to pile on the long positions, and ?go commando? on their short positions. Risk markets can only go ballistic in response to this ?aha? moment.
All of this encourages me to stick with the strategy outlined in my 2013 Annual Asset Class Review (click here). Look for a hot first quarter, to be followed by two scary ones, and then a strong finish. This means that all good things will be coming to an end in the not too distant future. In fact, we have probably already started some sort of topping process in the markets that will take a couple of months to unfold. Then look out below.
I just got a call from the airport that the flight plan has been filed, clearance obtained, and the jet is fueled up. Got to go.
Life is good.
Nice Long!
Nice Short!
Party Pooper!
Life is Good!
Global Market Comments
January 18, 2013
Fiat Lux
Featured Trades:
(ATTENDING MY LAST ELECTRIC NISSAN LEAF RALLY)
(SPOILED FOR CHOICE)
It was a typical fall day in San Francisco, the fog wafting in and out through the Golden Gate Bridge. I took the opportunity to attend a company sponsored rally of Nissan Leaf drivers on the Marina Green.
These were the fanatics, the diehards, the truly devoted. These were people who were willing to bet big bucks on an untested, unproven new technology. These were the faithful who put up $5,000 years in advance on the chance that Nissan might actually be able to produce the car someday. In the Bay, there are at least a couple million of us. That?s why so much new, groundbreaking technology originates here.
I am considered of the eminence gris of this community, as I have been covering Nissan as a company for 40 years, and am friends with the current peripatetic Brazilian CEO, Carlos Ghosn. ?I was involved in the early design process of the Leaf, took delivery of one of the first American models, and have run up the most miles.
I strolled among the revelers, speaking to other owners and comparing notes. For the right-brained English teacher types who don?t know the difference between an amp, a volt, or a kilowatt, I answered some basic engineering questions. To admire their creativity, check out the pictures of their personalized license plate numbers, which I posted below.
One guy was there selling an aftermarket Leaf range extender he designed himself, which he claimed boosted the single charge travel distance from 80 miles to 150. The price was $4,000. You always see this sort of thing at Bay area events, people promoting something they built in their dorm room that is revolutionary. Other electric car drivers showed up, including those behind the wheels of BMW?s, Tesla?s, iMiev?s, and Fisker?s. Nissan provided all comers with a 440-volt fast charge for free.
Not only did I buy a car with a zero running cost. I also joined a social community. Someone has developed an iPhone app which lists all the people in your immediate area who will let you hook up to their home for a free charge. As a result, I have never seen one of these dead on the side of the road. But I have passed them doing 45 on the freeway, which means they are just about to run out of juice, and are employing desperate range extending tactics.
Leaf drivers are admired for their idealism, environmental consciousness, and grit by local residents. I never go anywhere without getting a thumbs up. When I first drove mine home, I told my neighbor with the solar roof panels, ?I?ve out greened you.? He grimaced. The state also treats us as royalty. Electric car owners are entitled to a coveted silver bumper sticker that allows them to drive in high occupancy vehicle lanes with a single driver 24/7. Only drivers of 100% battery electric and hydrogen fuel cell, and compressed natural gas powered cars are entitled to such a privilege. Prius drivers, eat your heart out.
Boy, am I spoiled for choice on what to do this weekend. On the one hand, I have been invited to join the president on the reviewing stand for Monday?s inauguration in Washington DC. On the other, the Maverick?s World Surf competition near California?s Half Moon Bay is on the same day, which has not been held for three years.
I have to admit that it is temping to don my wetsuit, throw my Firewire Dominator board into the back of my Highlander, and catch some 40-foot waves with the best in the world. It is rare to get these monster waves on the California coast, which are more often found at Waimea Bay on Oahu?s North Shore. But the mid Pacific buoy says they are headed our way.
I can?t tell you what impossible mission I accomplished to get invitations like these. If I did, I would have to kill you.
In the end, it?s my readership that will decide the issue. I think I can gain more market insight hanging for a day with the cabinet, the Supreme Court, and the leaders of Congress and the Federal Reserve, than a bunch of surfer dudes. It is especially critical that I gauge their thinking, since there are so many momentous political events hanging over the financial markets these days.
I also don?t want to risk offending the president, as I might lose my special access and get cut off his Christmas card list. So I?ll let you know what I decide. In the meantime, on Monday, look for me about ten rows behind the Chief Justice during the swearing in ceremony. And you can catch the Mavericks on ESPN.
Will It Be This?
Or This?
? ? ? ? ? ? ? ? ? ? ? ? ?? 
??????? ? ? ? ? ? ?? ????????????? 
Global Market Comments
January 17, 2013
Fiat Lux
Featured Trades:
(APRIL 19 CHICAGO STRATEGY LUNCHEON)
(MLP?S ARE ON FIRE),
(CVRR), (SXCP), (AMJ), (EEP), (KMP), (TLP)
(ALL I WANT TO DO IS RETIRE)
Master Limited Partnerships have been on fire since the beginning of the year. Once the deal on the ?Fiscal Cliff? was done, and these instruments? special tax treatment protected, it was off to the races. These unique and versatile instruments combine the tax benefits of a limited partnership with the liquidity of publicly traded securities.
The explosion in demand has created a new issue boom. SunCoke Energy Partners (SXCP) makes coking coal used in the steel production process, came to market this week boasting an 8.25% yield. Then, CVR Refining (CVRR), which specializes in petroleum refining in Texas and Oklahoma, upped the ante with an eye popping 18.8% yield. These things can?t be that high risk!
Enbridge Energy Partners (EEP) is run by some of my former colleagues at Morgan Stanley and offers a 7% yield. Kinder Morgan Energy (KMP) posts a healthy 5.8% yield, while Trans Mountain (TLP) ups the ante with an 8% return. Linn Energy goes all the way up to a healthy 6.3% yield.
Why the enticing cash flow? The problem is that these partnerships suffer from their guilt by association with Texas Tea, which is notorious for its volatility. Although they have no direct exposure to the price of oil, investors tend to incorrectly classify them as energy stocks and dump them whenever oil falls. The great thing about these high yields is that you get paid to wait until crude makes a comeback, which it will always do, as long as there is a China. Not a bad game to play in a zero return world.
To qualify for MLP status, a partnership must generate at least 90 percent of its income from what the Internal Revenue Service deems ?qualifying? sources. For many MLPs, these include all manner of activities related to the production, processing or transportation of oil, natural gas and coal.
Energy MLPs are defined as owning energy infrastructure in the U.S., including pipelines, natural gas, gasoline, oil, storage, terminals, and processing plants. These are all special tax subsidies put into place when oil companies suffered from extremely low oil prices. Once on the books, they lived on forever.
In practice, MLPs pay their investors through quarterly distributions. Typically, the higher the quarterly distributions paid to LP unit holders, the higher the management fee paid to the general partner. The idea is that the GP has an incentive to try to boost distributions through pursuing income-accretive acquisitions and organic growth projects.
Because MLPs are partnerships, they avoid the corporate income tax, on both a state and federal basis. Instead of getting a form 1099-DIV and the end of the year, you receive a form K-1, which your accountant should know how to handle. The only problem with this set up is that the partnerships are required to send you a K-1 for every state in which they do business. Own enough of these, and your tax return will end up as thick as the Houston telephone book.
Additionally, the limited partner (investor) may also record a pro-rated share of the MLP?s depreciation on his or her own tax forms to reduce liability. This is the primary benefit of MLPs and gives MLPs relatively cheap funding costs.
The tax implications of MLPs for individual investors are complex. The distributions are taxed at the marginal rate of the partner, unlike dividends from qualified stock corporations. On the other hand, there is no advantage to claiming the pro-rated share of the MLP?s depreciation (see above) when held in a tax deferred account, like an IRA or 401k. To encourage tax-deferred investors, many MLP?s set up corporation holding companies of LP claims which can issue common equity.
Since 2003, MLPs as an asset class have grown astronomically, from $30 billion to over $250 billion, and have also been the best performing asset class in the world over the last 10, 5, and 3 year periods. The recent discovery of new, massive gas and oil fields in the US and the rapid expansion of shale fracking should auger well for the rising popularity of this instrument.
If you don?t want to bet the ranch putting all you money into a single issue, you might consider the JP Morgan Alerian MLP Index ETN (AMJ), with a 5.35% yield. You give up some yield here in exchange for a broader diversification of risk across many issues in this quasi index fund. For many, it will be worth it to just to sleep at night.
Nope, Don?t See Any Yield Yet