Research Archives

Will the Market Crash in October?

I think the bull market has at least three more years to run, but I?ll tell you why later.

In the meantime, we have to survive October first.

That is easier said than done.

October has long earned a notorious reputation as a wealth confiscation month for both professional traders and long-term investors.

If you go broke during this always challenging month, you won?t have any money left to play the coming price rises.

Over the weekend, I did my usual scan of the 200 most important charts for the global financial markets. The technical picture that leapt out at me was nothing less than atrocious.

Failure to break the old support/new resistance level in the (SPY) at $203 means we now have to retest the August 24 lows at $186, or $182 in the intraday futures.

If $182 doesn?t hold, then we?re breaking to new lows, and entering a new bear market.

Every technical service I subscribe to was repeating the identical pattern. This is rare enough that when it does occur, I stand to attention.

Look out below!

This year, October will be particularly vexing.

The newly elevated level of volatility has scared the daylights out of a lot of stockholders.

Look no further than last Friday, September 18. Just when everyone thought it was safe to nibble on some new longs, the Dow Averaged came out of the blue and whacked them with a 300-point loss.

I don?t even recall the reason. But it is irrelevant. Traders were gun-shy. No one wanted to hold a position over the weekend, and risk that China would have a bad Monday (it did).

It get?s worse.

Congress is now threatening another shutdown. Be it over Planned Parenthood funding or the Iran Treaty, it makes no difference. Closed is closed.

This is exactly what the market doesn?t want to hear.

Then we have three more months of Fed torture to endure. Failure to move on September 17 means that uncertainty surrounding the first interest rate reversal in nine years has been given another fresh three months of life.

As if we didn?t have enough to worry about!

It all adds up to a nightmare for neophyte traders. No one has the slightest idea of what the market will do next. If they pretend to, they?re lying.

That is, unless you happen to have a half-century of trading experience, as I do. Then it?s a piece of cake.

Just hit the mute button on the TV and close your eyes. Then buy every big dip and sell every substantial rally. Don?t try to rationalize this in any way. This is trading and investment totally devoid of the thought process.

Overthinking your trades right now can be hazardous to your wealth. Just let your primordial brain stem take over for now.

And it works like a charm.

Just look at my trades of the last few days. When the market opened high, I bought the October (SPY) $204-$207 vertical bear put spread.

When it then dove 300 points I bought the Home Depot (HD) October $105-$110 vertical bull call spread as a hedge.

When the market popped 200 points on the following Monday morning opening (and 300 points if you count the overnight Asia low), I kicked out Home Depot for a nice little 6.2% one day profit.

I then rolled down and purchased the (SPY) October $203-$206 vertical bear put spread to double up my short exposure.

I ended up +0.91% on the day on my total portfolio, just 1.23% short of a new all time high, and ahead 37.14% so far in 2015.

I don?t normally trade this fast. But they?re running the movie on triple fast forward now. A month?s worth of price movement is occurring in a day.

Bob and weave, bob and weave. We have to trade the market we have, not the one we want.

While a technical breakdown is looming, and the fundamentals seem to be backing it up, I don?t think a real bear market will appear.

Historically, stock markets continue rising an average of 30 months after the first Federal Reserve interest rate hike. That hourglass won?t even get turned over until December, or maybe even not until 2016.

The longest data point on this chart is 73 months. That means the Fed inaction means THE BULL MARKET COULD HAVE ANOTHER SIX YEARS TO RUN!

Yikes!

Beyond the hysterical, oops, I mean the historical analogies, the economy is just too darn strong to grease the skids for a true bear market.

I had to call three restaurants to get a dinner reservation in San Francisco this weekend, and finally got one only because it was a dive. I can?t get a plumber to unblock my toilet because he is too busy. And these were the guys who were collecting unemployment checks only four years ago.

For more glorious detail on the current state of the economy, please click here for ?The Bear Market That Isn?t?.

The dreaded October effect traces back to the 19^th century, when agriculture accounted for 50% of the US GDP. Right before crops were harvested in the fall, farmer outlays to pay for the inputs of seed, fertilizer, and labor were the greatest.

Yet, the crops hadn?t been sold yet, so farmer borrowing also hit a peak. The aggregate of all this hit the financial markets with an enormous cash call, which led to the inevitable crashes.

Once the trend was established, it became a self-fulfilling prophecy, even though agriculture presently accounts only for 2% of the American economy now.

It is traders that sweat October now, not farmers.

Back for a Replay?

September 22, 2015/by Mad Hedge Fund Trader

The Death of Gold

Diary, Newsletter, Research

One of the most impressive moves in the wake of the Fed?s Thursday move to maintain ultra low interest rates was to be found in gold.

In the run up to the flash headline on the Fed non-announcement, the yellow metal rocketed $40. The action was even more impressive in silver (SLV), which tacked on 90 cents, or 6.6%.

Now, here is the really bad new.

The fundamentals for the barbarous relic are about to turn from bad to worse. The prospect is sending perma bulls rushing to update their life insurance policies.

This is the dilemma. To sell, or not to sell?

Gold does well when interest rates are low or falling. That reduces the opportunity cost of owning the barbarous relic, which doesn?t pay any interest or dividends. It just sits there, shines, and collects dust.

It also runs up storage and insurance fees, effectively hampering it with a real negative yield.

So what happens when the fundamentals flip from good to bad?

WARNING: if you have been carefully salting away one ounce American gold eagle coins in your safe deposit box for the past several years, you are not going to want to read this.

If I am right, and we have put in a generational high in bond prices and a low in yields, interest rates are going to rise. Initially, for the first couple of years, they may not do it a lot. But eventually they will.

That is terrible news for gold owners.

The market clearly thinks this is happening. Take a look at the charts below. Gold is making its third run at support at $1,100 over the past 18 months. Break this and cascading, stop loss selling will ensue, taking gold down to $1,000.

That, by the way, is my jeweler?s downside.

Caution: My jeweler is always right. There he plans to load the boat with bullion, which his business consumes in creating baubles for clients, like me.

It wasn?t supposed to be like this, as the arguments in favor of buying the yellow metal were so clear five years ago.

The exploding national debt was about to force the US government to default on its debt. It almost did, thanks to congressional gamesmanship.

Massive trade deficits with China and the Middle East were supposed to collapse the value of the US dollar.

The election of Barack Obama was predicted to lead to the creation of a socialist paradise. We were all going to need gold coins to bribe the border guards in order to get out of the country with only what we could carry.

The problem is that none of this happened.

The US budget deficit is falling at the fastest rate in history, from a $1.5 trillion peak to as low as $400 billion this year. Foreign capital pouring into the US has pushed the greenback to multiyear highs, and loftier altitudes beckon.

Since the 2009 inauguration, the S&P 500 has tripled off its intraday low. This has enriched the 1% more than any other group, who have seen their wealth increase at the fastest pace on record.

The trade deficit with China is now balancing out with America?s own burgeoning surpluses in services and education. As for the Middle East, we make our own oil now, thanks to fracking, so why bother.

To see such dismal price action in the barbarous relic now is particularly disturbing. Traditionally, the Indian ?Diwali? gift giving season heralded the beginning of a multi month bull run in gold. It ain?t happening.

In fact the dumping of speculative long positions by long-term traders used to this is accelerating the melt down. That?s because gold, silver, or any other inflation hedges have no place in a deflationary, reach for yield world.

Mind you, I don?t think gold is going down forever.

Eventually, emerging central banks will bid it back up, as they have to buy an enormous amount just to bring their reserve ownership up to western levels. Inflation is likely to return in the 2020?s, as my ?Golden Age? scenario picks up speed.

In the meantime, you might want to give those gold eagles to your grand kids. By the time they go to college, they might be worth something.

Better to Look than to Buy

September 21, 2015/by Mad Hedge Fund Trader

Don?t Buy Alibaba, Yet

Diary, Newsletter, Research

Long time readers of this letter have known for years that the Alibaba IPO was coming, that it had massive implications for the market, and could well signal an interim market top.

I?m sticking to my guns.

You have to hand it to the underwriters of the company?s initial public offering, the largest in history.

Some $25 billion in capital was raised.? At the all time high of $118, Alibaba had a market capitalization of $300 billion, making it the 8th largest in the US, right after Wal-Mart (WMT).

At that price, the lucky few insiders who received allocations had a paper profit of 74% from the $68 IPO price.

To get this deal off successfully, the managers had to orchestrate one of the greatest onslaughts of hype, hyperbole, and euphoria of all time.

Of course, you want to buy a company that represents Amazon (AMZN), PayPal, and Ebay (EBAY) combined, in the fastest growing major country in the world!

As my old boss at Morgan Stanley used to hammer into me, ?stocks are not bought, they?re sold.?

What artificially boosted the price of the shares in the aftermarket was the unusual allocation of the shares.

CEO Jack Ma personally hand picked the top 25 institutions that received 50% of the shares. His goal was to place them with the largest, longest-term holders, basically, people who never sell.

Hedge funds were banned from participation, as were most individuals.

That shut out thousands of investors who were forced to chase stock in the after market. This is how you get such a dramatic initial gains. They?re always engineered.

The final insult was the ?green shoe?, which increased the deal size by 15% at the last minute at the underwriters? discretion. When these guys finally get in, look out below.

Look carefully at what you get as an Alibaba shareholder, and you might have second thoughts.

This is not your father?s joint stock company. It is a share in a profit stream into a Cayman Islands holding company, the amount of which is at the discretion of Jack Ma. It is more like a hedge fund limited partnership than a publicly listed company.

In some court cases in China, the structure has already been ruled illegal. One could only imagine what would happen in a liquidation. There are no assets, just a post office box on a remote Caribbean island.

Not exactly widows and orphans stuff.

If you had any doubt about (BABA)?s next move, better take a look at the shares of its two largest shareholder?s, Softbank (SFTBY) (-46%) and Yahoo (YHOO) (-47%). They have both done an outstanding rendition of a swan dive.

Some of this is no doubt the result of new Alibaba holders hedging their position by selling short (SFTBY) and (YHOO). But it could also mean that (BABA) is grotesquely over valued and has to fall to come in line with reality.

Keep in mind, also, that non-dividend yielding stocks tend to have greater volatility than those that do pay out.

I am inclined to hold back until (BABA) hits the low $40 handles. That is still a big discount to the IPO price. Some brokers have already issued reports suggesting that the shares will get there shortly.

By the way, my old friend, Softbank?s Masayoshi Son?s $20 million initial investment in Alibaba, made in 2004, is now worth $100 billion at the peak. That has to be one of the greatest trades of all time.

Good for you, Mas, and the next dinner is one you!

The $25 Billion Dollar Man

I?m Sticking to My Guns on Alibaba

September 21, 2015/by Mad Hedge Fund Trader

Why I?m Chasing the Euro

Diary, Newsletter, Research

I?m not a person inclined to chase winning positions. Making money on one trade is certainly no guarantee that you will repeat the win on the next. Lightening doesn?t strikes twice in the same place.

Well, actually it does sometimes, especially when it comes to selling short the Currency Shares Euro Trust (FXE). Selling short the Euro (EUO) has been one of my most consistently winning trades for all of 2015.

It?s like suddenly being adopted by a generous rich uncle, a continental one that drinks espresso, eats croissants, and smokes Galois cigarettes.

Given the European Central Bank?s dramatic action weeks ago to implement an aggressive program of quantitative easing, the entire world has been trying to sell short the beleaguered continental currency.

This means running the Euro printing presses non-stop, much like the Federal Reserve started doing five years ago.You saw the results here.

Overnight Euro interest rates have already been chopped to negative numbers. Even my cleaning lady, Cecelia, knows she should be unloading her Euros.

The trouble is that the currency has already plunged 37 cents, or almost 27% since its mid 2014 top. In the currency world, this is a big move, and puts China's piddling 4.4% move in the Yuan to shame.

However, we needed an event, or an uncertainty removed, before we could go back in on the short side.

We got that yesterday with Janet's move on interest rates.

You have to go to the weekly charts to find the next support levels, but its clear that $1.00, and then $0.90 eventually beckons one.

We live in a world of chase now. All asset classes, from stocks to bonds, currencies, precious metals, oil, and even food, are at the extended end of very large one-way moves. So pickings on the trading front are becoming increasingly thin.

Think of it as buying the US stock market in 2009. I?d rather sell the (FXE) at the beginning of a five year move, than buy in the middle of a 10 year appreciation, which is what we are seeing in US stocks now.

This is also a play on the US bond market. Any fall in Treasury bond prices and rise in yields, a pretty safe bet over the medium term. This will be happening while Euro interest rates are falling, giving a huge yield advantage to the greenback.

As regular readers of this letter know, INTEREST RATES DIFFERENTIALS ARE THE LARGEST DRIVER OF CHANGES IN FOREIGN EXCHANGE RATES.

It's as simple as that.

If you need a third argument for this position, it is a bet on the continued virility of the US fracking industry.

Every additional barrel we produce in America means one less imported from the Middle East, and (as of today) $47 less sold in the foreign exchange markets.

Frackers have already cut our import bill from $400 billion to $200 billion in the past five years, prompting a staggering decline in our dollar outflows.

They are also eliminating our country?s need to maintain expensive ground forces there to protect oil supplies. Every fracking job created in the windswept planes of North Dakota means one less soldier stationed abroad.

This savings will eventually eliminate the government?s present $400 billion budget deficit.

Our newest war in the bleak sands of Syria and Iraq, fought with F-16?s, drones, and Special Forces for targeting, will cost pennies on the dollar when compared to previous conflicts.

I may not be selling short the Euro this second, today, or this week. But I will continue to smack substantial rallies. I might also pick up some Wisdom Tree Europe Hedged Equity ETF (HEDJ), which benefits mightily from a weak continental currency.

Call me old fashioned, but I like to sell high and buy low.

Run Those Printing Presses, Mario!

September 18, 2015/by Mad Hedge Fund Trader

The Bull Market is Alive and Well

Diary, Newsletter, Research

It?s fall again, when my most loyal readers are to be found taking transcontinental railroad journeys, crossing the Atlantic in an a first class suite on the Queen Mary 2, or getting the early jump on the Caribbean beaches.

What better time to spend your trading profits than after all the kids have gone back to school, and the summer vacation destination crush has subsided.

It?s an empty nester?s paradise.

Trading in the stock market is reflecting as much, with increasingly narrowing its range since the August 24 flash crash, and trading volumes are subsiding.

Is it really September already?

It?s as if through some weird, Rod Serling type time flip, August became September, and September morphed into August. That?s why we got a rip roaring August followed by a sleepy, boring September.

Welcome to the misplaced summer market.

I say all this, because the longer the market moves sideways, the more investors get nervous and start bailing on their best performing stocks.

The perma bears are always out there in force (it sells more newsletters), and with the memories of the 2008 crash still fresh and painful, the fears of a sudden market meltdown are constant and ever present.

In fact, nothing could be further from the truth.

What we are seeing unfold here is not the PRICE correction that people are used to, but a TIME correction, where the averages move sideways for a while, in this case, some five months.

Eventually, the the moving averages catch up, and it is off to the races once again.

The reality is that there is a far greater risk of an impending market melt up than a melt down. But to understand why, we must delve further into history, and then the fundamentals.

For a start, most investors have not believed in this bull market for a nanosecond from the very beginning. They have been pouring their new cash into the bond market instead.

Now that bonds have given up a third of 2015?s gains in just a few weeks, the fear of God is in them, and dreams of reallocation are dancing in their minds.

Some 95% of active managers are underperforming their benchmark indexes this year, the lowest level since 1997, compared to only 76% in a normal year.

Therefore, this stock market has ?CHASE? written all over it.

Too many managers have only three months left to make their years, lest they spend 2016 driving a taxi for Uber and handing out free bottles of water. The rest of 2015 will be one giant ?beta? (outperformance) chase.

You can?t blame these guys for being scared. My late mentor, Morgan Stanley?s Barton Biggs, taught me that bull markets climb a never-ending wall of worry. And what a wall it has been.

Worry has certainly been in abundance this year, what with China collapsing, ISIL on the loose, Syria exploding, Iraq falling to pieces, the contentious presidential elections looming, oil in free fall, , the worst summer drought in decades, flaccid economic growth, and even a rampaging Donald Trump.

We also have to be concerned that my friend, Fed governor Janet Yellen, is going to unsheathe a giant sword and start hacking away at bond prices, as she has already done with quantitative easing (I?ve been watching Game of Thrones too much).

This will raise interest rates sooner, and by more.

Let me give you a little personal insight here into the thinking of Janet Yellen. It?s all about the jobs. Any hints about rate rises have been head fakes, especially when they come from a small, anti QE Fed minority.

When in doubt, Janet is all about easy money, until proven otherwise. Until then, think lower rates for longer, especially on the heels of a disappointing 173,000 August nonfarm payroll.

So I think we have a nice set up here going into Q4. It could be a Q4 2013 lite--a gain of 5%-10% in a cloud of dust.

The sector leaders will be the usual suspects, big technology names, health care, biotech (IBB), and energy (COP), (OXY). Banks (BAC), (JPM), (KBE) will get a steroid shot from rising interest rates, no matter how gradual.

To add some spice to your portfolio (perhaps at the cost of some sleepless nights), you can dally in some big momentum names, like Tesla (TSLA), Netflix (NFLX), Lennar Husing (LEN), and Facebook (FB).

You Mean it?s September Already?

September 16, 2015/by Mad Hedge Fund Trader

My Yearend Stock Market View

Diary, Newsletter, Research

I hate to be the bearer of sad tidings guys.

But I think the choppy, volatile, trendless, trading conditions we are all suffering right now will continue for a few more weeks, and possibly all the way out to the September 17-18 Federal Reserve interest rate decision.

Man! I wish I were still back in the Sahara Desert. There, I only had to worry about scorpions, poisonous snakes, heat stroke, and raiding Berber tribesmen.

I can afford to be flippant. I have just enjoyed my best trading summer ever, adding 10% to the value of my trading book since I took off for Europe in June.

This, I did with rickety Internet access, only occasional access to market information, and a six-hour time difference.

My secret? I kept my book small, my cash levels high, and didn?t check prices every 15 minutes.

Above all, I stayed patient, holding back from buying stocks that suddenly became cheap. Apple (AAPL) at $120? Disney (DIS) at $110? Tesla (TSLA) at $250?

Most importantly, whenever I thought about buying energy or commodity plays, I lay down and took a long nap instead. When I woke up, the temptation went away.

That said, we are clearly in a capitulation mode for the entire oil space (USO), and could reach a bottom in weeks, given the current rate of decay (an old nuclear physics term). The $30 handle seems to be begging for attention.

In fact, a bottom in energy could signal a bottom for the entire market, and trigger one of the great generational buys of all time. China, the marginal big buyer of all things energy, hasn?t died; it is just resting.

So back to the stock market.

Since April, I have seen a long sideways triangle unfolding for the S&P 500 (SPY). I think we will reach an apex in September, right around a confluence of several news events (Fed decision, energy bottom).

The initial direction will be down, probably through the 200 day moving average. But that will be a head fake, and the real move will start right after that.

Around then, the calendar will flip from hostile to friendly, as we enter the half year period which sees the greatest amount of stock buying (at least it has for the past 60 years). Also about now, the daily data releases will show a dramatic improvement in the economy.

That presents us with a rally into 2016 and a new all time high.

Sectors? You want to know about sectors? Jeez, you?re a tough crowd to please.

I think we can go back to our old reliables of technology (QQQ), health care (GILD), consumer discretionaries (DIS), cyber security (PANW), and biotech (IBB).

This coming cycle will see some new additions. They include interest sensitives, like banks (GS) and regional banks (KBE), homebuilders (LEN), energy (XOM), (OXY), (COP) and solar (SCTY), (FSLR), if oil doesn?t go to zero.

As for Apple, expect the slumber to continue until the next new product cycle for the iPhone 7 launches next year. In between cycles is never a great time to buy Apple, although we may get a pop going into the Christmas selling season.

For those who have been prudently sitting on their hands all year waiting for a chance to put more long term, non-trading money to work, this is it. Your entry point will open up over the next few weeks.

Let me tell you that I have an unfair advantage in making market calls like this that are bold, confident, and possibly bordering on hubris.

I have the good fortune to live in the San Francisco Bay area. It is like living 10-20 years in the future.

The GDP here is definitely not growing at a feeble 2% annual rate, as it may be for much of the rest of the country (like North Dakota, Oklahoma, and Texas). It is really growing at a 5% rate, and possibly much more.

The technology boom in the City by the Bay is reaching a 1990?s fever pitch. You can?t get restaurant reservations or lease office space. Companies have launched serial poaching of staff with only the most limited experience at eye-popping salaries. Contractors everywhere have turned into prima donnas.

Housing is a joke. A friend of mine managed to score a tiny, rent controlled pre-war studio apartment for $2,000 a month after winning a lottery against 50 other entrants. He had to pay a $100 ?application fee? just to enter the lottery.

Oh, and since this is one of the few dog friendly buildings in the city, the whole place smells like crap and dog hair, as every resident owns a pet. Open the door, and you get a slap in the face.

Yes, I know that the United States is not San Francisco. However, the tools and services they are creating here, at a breakneck pace, can be used by the rest of the world to dramatically improve productivity and profitability. That boosts growth and share valuations everywhere.

By the way, if any of you has a twenty something kid looking for a job and a purpose in life, send them to San Francisco immediately. With any luck, they will be able to gain a foothold and pick up some skills before the next crash occurs.

As for me, I am going to try and maintain discipline and not chase every little gyration of the market.

You can?t take advantage of the coming best buying opportunity in a year if you blew all your money trying to catch the small fry.

I Much Prefer Being Here Than in the Market

August 17, 2015/by Mad Hedge Fund Trader

China?s Firecracker Surprise

Diary, Newsletter, Research

Don?t waste your time trying to analyze financial markets right now.

There is only one ticker symbol you need to know about, that for the Shanghai Stock Exchange Composite Index, the ($SSEC).

When Shanghai goes up, the rest of the world?s risk assets happily join the party. When it drops, ?RISK OFF? fever goes pandemic.

China upped the ante this week when it allowed its currency, the Yuan, or the renminbi as it is known locally (the people?s currency), to float freely for the first time in 25 years. That produced a two-day devaluation of 3.6%.

In the very long history of currency debasements, this one was barely a whimper.

Ancient Sumerians used to shave the edges off of gold and silver coins 5,000 years ago.

When President Nixon took the US off of the gold standard in 1973, the dollar eventually fell 75% against the European currencies.

More recently, the Euro has given up 37% against the greenback, moving from a position of grotesque over valuation to dealing with the Greek credit crisis.

So Beijing?s move this week barely tips the needle in the official history of devaluations.

What it does do is create a giant psychological effect, and therein lies the problem.

Since June, the Mandarins in China have been pulling out all the stops to halt a free fall in the country?s share prices.

It has cut interest rates and relaxed reserve requirements. It banned high frequency trading, blaming the collapse on foreign short sellers (sound familiar?). It has even made stock selling illegal in roughly 94% of the country?s free float.

Still, the bears remain emboldened by their recent success.

By cutting the value of the Yuan, the government is providing a modest boost to the economy. A cheaper currency means less expensive exports and more of them, thus, making local businesses more profitable and creating jobs.

But not by much.

There are not a lot of products that live or die on a 3.6% margin. America has not just lost a chunk of its own exports from the additional competition, contrary to the claims of the TV networks and bogus newsletters with which I compete.

But by taking the first such move to undercut the Yuan in 25 years, it is showing the world how serious a problem is the stock crash.

Will the stock collapse feed into the main economy? Is 10% of the world?s GDP going into a Great Recession? Yikes!

SELL, SELL!

There are a few other problems with the Chinese firecracker.

It violates a secret agreement with the US government, made a decade ago, to allow a steady 3-4% a year appreciation of the Yuan against the dollar.

This was designed to slowly eliminate the artificial under valuation of the Yuan that gave the Middle Kingdom an unfair export advantage. The arrangement was responsible for the 20% rise of the Yuan since 2009.

(Sorry Donald, but you?re holding the chart upside down. Yes, I know, stock charts can be pesky things).

Reneging on the deal is ruffling feathers at the US Treasury in Washington. But it won?t amount to more than that, as long as it is temporary.

Which it will be.

China still has a massive trade surplus with the United States. In 2014, it totaled a staggering $343 billion. It maintained that heady pace, totaling $171 billion during the first half of 2015.

There are an awful lot of Chinese clothes, electronics, and toys sitting on the shelves of American retailers.

Its imports are falling, thanks to the collapse of the price of oil and other bulk commodities.

The natural state of the currency of any country running such huge surpluses is for it to rise in value. That will continue in China?s case for the foreseeable future.

Once the waters settle in the stock market, you can count on the Yuan to regain its upward path.

However, this isn?t going to happen in a day. It could be weeks or months until order returns to Chinese equity markets. Until then, expect some scary days there and here as well.

Compound these problems with the uncertainty over the Federal Reserve?s decision on interest rates in September and slower than expected US growth.

It certainly leaves traders and investors alike, with a full plate of issues to consider.

As if we didn?t have enough to worry about.

For some background on my 45 year coverage of the Middle Kingdom, please click here for my 2011 SPECIAL CHINA ISSUE.

Surprise!

August 13, 2015/by Mad Hedge Fund Trader

The July Nonfarm Payroll Yawn

Diary, Newsletter, Research

I?m back.

No more croissants for breakfast. Goodbye to the fabulous selection of cold cuts and cheeses. No more great coffee. It?s back to a sugar infused, calorie packed concoction at Starbucks.

In other words, it?s back to the salt mines for me.

I have just come off a grueling 12 ? hour flight from Zurich, Switzerland to San Francisco.

My cell phone no longer worked in the US, so I couldn?t call Uber. That meant taking a regular taxi, complete with smelly seats, fleas, and a rude driver, at double the price.

When I got home, I discovered that the refrigerator had broken down, the contents spoiled, the ice melted, flooding the kitchen floor, and causing the floorboards to buckle.

The network connection for the TIVO failed. The batteries in the remotes died. Some insects of indeterminate origin appear to have moved in.

It turns out that jet lag is worse the older you get. Life is a bitch, and then you die.

Can I go back? What! Not until next year? I better get hustling!

At least I got the July nonfarm payroll right. My prediction of 215,000 new jobs proved dead on. The prolific gains in technology were offset by the hemorrhaging losses in energy and commodities.

The new economy appears to be growing at the expense of the old.

No surprise means no market movement. The post number price action was the most muted I can remember. The volatility Index (VIX) only made it to an intraday high of $14.50.

That was fine with me, since my core position of a (SPY) deep in-the-money bear put spread is also effectively a short volatility position. I?m taking some heat in my offsetting hedge, a short in US Treasury bonds (TLT). But that expires in ten trading days, and I?m still in the money.

I think I nailed the coming market action in my Milan, Italy Global Strategy Webinar. After the big dip, and then the big rally, we get a big nothing. That is how I expect August to play out.

Today?s nonfarm was the last chance for any market volatility until the Federal Reserve meeting during September 17-18. Then the Fed decides whether to raise rates by 0.25%, or not, for the first time in nine years.

It?s 50/50 whether they move then, or wait until next year. The Federal Reserve has its own wall of worry to climb.

It makes no difference which action the Fed takes. The mere fact that the decision is out of the way is the big issue. Then we?ll get a head fake of a dip, to be followed by a major rally that could continue until 2016, and take us to new all time highs.

Worse case, we are looking at ? point rise this year, and another one in the spring. After that, the burden will be only the shoulders of inflation, which is absolutely nowhere to be seen, and shouldn?t make a reappearance until the 2020?s.

Since America is the leader of the free world, there is the rest of the planet to consider as well.

Europe is just starting to see some green shoots. China is in disarray. Japan looks OK. Emerging markets, nearly half the world?s GDP, are in dire straights. Even the IMF and the World Bank have pleaded with the Fed not to be too quick off the mark in raising interest rates.

The payroll figures delivered the strength that we have become accustomed to. The headline unemployment rate remained unchanged at 5.3% a decade low, while the broader U-6 ?discouraged worker? jobless rate hovered at 10.4%. There were 14,000 in upward revisions for May and June.

Retail led the pack, with +36,000 job gains, followed by food services (+29,000), health care (+28,000), and professional and technical services (+27,000). Mining and logging lost -4,000 jobs. No surprise there.

I?ll leave you with a nice little piece of anecdotal evidence.

For the last four years, I have bought my kids back to school clothes at the big Desigual shop at the Milan train station.

In 2011, prices were at a 90% discount. They were literally trying to throw inventory out the window. I had to buy an extra suitcase to take my booty home.

The next year, I got a 70% discount, still great. After that, prices were only half off. This year? A 30% break. Not so great, but better than paying full retail. And my kids get next year?s styles early.

Hey, in San Francisco, for sixth grade girls, it?s all about fashion.

My conclusion? When the ?RISK ON? environment returns, buy Europe first. Throw some Japan in there too. And buy the US dollar with both hands.

I?m Baaaack!

August 10, 2015/by Mad Hedge Fund Trader

Why I Don?t Care About Oil

Diary, Newsletter, Research

With the price of oil closing at a low on Friday of $43.77, you?d think I might be concerned.

In actual fact, I could care less, am indifferent, unconcerned, and even could give a rat?s ass.

There?s nothing like seeing your long term forecasts vindicated.

When I warned the oil majors in the late 1990?s that fracking technology was about to change their world beyond all recognition, they told me I was out of my tree, in the politest way possible, of course.

Their argument was that the technology was untested, unproven, and a huge liability risk. If they accidently polluted underground fresh water supplies, the ambulance chasers would make a beeline towards the deepest pockets around, and that was theirs.

They were telling me this after I supplied them my data showing 17 consecutive successful wells drilled in the depleted oilfields of the Barnet Shale, in West Texas (in the old Comanche country).

Today, I received the chart below from my friends at Business Insider. And guess what? Some 15 years later, and the energy industry has been changed beyond all recognition. The majors finally jumped in after building legal walls against the liability that so concerned them, and started fracking like there was no tomorrow.

The message is pretty clear. In the last five years, US oil production has skyrocketed from 8 million to 11.3 million barrels a day. America is now the world?s largest oil producer, eclipsing Saudi Arabia at 11 million b/d, and Russia at 10.5 b/d and falling.

Oil imports have collapsed from 10.3 to 7 million barrels a day. The share coming from the volatile Middle East has shrunk to a miniscule 2 million barrels a day. Some 80% of Persian Gulf oil exports now go to China. OPEC surplus oil production capacity is soaring (see table below). It couldn?t happen to a nicer bunch of people.

The chart also predicts that the US will achieve energy independence within four years, or at least parity in its imports and exports or energy and distillates. The administration is doing what it can to help along this trend, permitting the first exports of distillates in half a century, to South Korea, it turns out.

Is it any wonder that President Obama is turning a blind eye to recent horrific developments in the Middle East? This explains why I really don?t care about oil prices anymore.

There is another upshot to all of this. About the time that America gets its energy independence, it should also get a balanced budget. That is coming primarily from the big cuts in defense spending. The twin deficits, energy and the budget, are intimately linked. It is no surprise, then, they will disappear together.

By the way, did I mention that this is all great news for the long term future for stock prices? The stock market certainly thinks so, with its stubborn refusal to fall substantially.

Just thought you?d like to know.

Do You Think there?s too Much?

August 10, 2015/by Mad Hedge Fund Trader

Mad Hedge Fund Trader Hits 31.5% Gain in 2015

Diary, Free Research, Newsletter, Research

Life is good.

Since my last letter to you, I hired a Mercedes and a Moroccan driver, driven the three hours from Tangier to Casablanca, and spent a day touring the architecture of the French colonial art deco center of that storied city.

It turns out that my driver only did his job part time. He was in fact a graduate student in economics studying in Tangier and had a lot to say about his fascinating country?s economy.

Jackpot!

I?ll write up his comments in a future letter, subject to the regular fact checking with the IMF and the World Bank. Until then, we have winnings of a difference sort to discuss.

It has been a pretty prosperous time for followers of the Mad Hedge Fund Trader?s trade alert service as well.

After staying out of the market during a tempestuous, white knuckled month, I finally sense an interim market bottom.

In quick order, I phone Trade Alerts into the head office to buy Apple (AAPL), the S&P 500 (SPY), and to sell short the Japanese yen (FXY), (YCS). I caught a $12 move in (AAPL) and a 4% move in the (SPY).

The yen vaporized, producing a very speedy 16.5% profit, which I quickly seized.

I then sought to protect my gains by adding a new short position in the (SPY) close to the recent highs. To get risk neutral, I then added a short position in Treasury bonds (TLT), (TBT).

The fruit of these labors was to take the Mad Hedge Fund Trader?s performance for 2015 up to a new all time high at 31.54%. July alone was as hot at the Sahara Desert that I recently escaped, up 4.86%.

This brings my performance since inception four years and eight months ago to 184.38%. That annualizes out to 39.5% per year, not bad in this topsy turvey world. It seems like only a Madman can prosper in these hopeless trading conditions.

Some 15 of the last 16 consecutive Trade Alerts, over the past three months, have been profitable. Followers have found themselves in the green every month of 2015, quite substantially so.

Better than a poke in the eye with a sharp stick. And the best is yet to come!

I started out 2015 with the goal of earning 25% for my readers during the first half, and another 25% in the second half. This latest batch of trades puts me right on track for reaching my yearend goal.

I should take these extended research trips more often! My back office tells me that subscriptions have been falling off in North Korea, Mali has been weak of late, and that a strategy luncheon in Bhutan would be welcome any time.

Under promise and over deliver; it has always been a winning business strategy for me.

This is against a backdrop of major market indexes that are nearly unchanged so far this year, despite sudden bursts of volatility and long, Sahara like stretches of boredom.

The key to winning this year has been to put the pedal to the mettle during those brief, but hair raising selloffs, and then take quick profits. They don?t call me ?Mad? for nothing.

When the market is dead, you sit on your hands.

After all, you are trying to pay for your own yacht, not your broker?s.

When the market pays you to stay away, you stay away.

Those who have made the effort to wake up early every morning and read my witty and incisive prose have an impressive row of notches on their bedpost to show for their effort.

My groundbreaking trade mentoring service was first launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, a development of which I am immensely proud.

Some 50% of my clients are over 50 and managing their own retirement funds fleeing the shoddy but expensive services provided by Wall Street. The balance is institutional investors, hedge funds, and professional financial advisors.

The Mad Hedge Fund Trader seeks to level the playing field for the average Joe. Looking at the testimonials that come in every day, I?d say we?ve accomplished that goal.

It has all been a vindication of the trading and investment strategy that I have been preaching to followers for the past eight years.

Quite a few followers were able to move fast enough to cash in on my trading recommendations. To read the plaudits yourself, please go to my testimonials page by clicking here. Our business is booming, so I am plowing profits back in to enhance our added value for you.

Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, 67.45% in 2013, and 30.3% in 2014.

Our flagship product,?Mad Hedge Fund Trader PRO, costs $4,500 a year. It includes?Global Trading Dispatch?(my trade alert service and daily newsletter).

You get a real-time trading portfolio, an enormous research database, and live biweekly strategy webinars. You also get Bill Davis?s Mad Day Trader service, which provides great intra day market color.

To subscribe, please go to my website, ?www.madhedgefundtrader.com, click on the ?Memberships? located on the second row of tabs.

And now for the rest of the year.

I can?t wait!

Letter From Casablanca

July 28, 2015/by Mad Hedge Fund Trader

Back for a Replay?

Better to Look than to Buy

The $25 Billion Dollar Man

I?m Sticking to My Guns on Alibaba

Run Those Printing Presses, Mario!

You Mean it?s September Already?

I Much Prefer Being Here Than in the Market

Surprise!

I?m Baaaack!

Do You Think there?s too Much?

Letter From Casablanca

Cookie and Privacy Settings