Mad Hedge Fund Trader

Robust Asia, Weak U.S., Even Weaker Europe

yyt Fed chairman Ben Bernanke say the recession is “technically” over. This will be great news for the people living in the tent city under short finals who I fly over when I land at Buchanan airport. It means “technically” they will eat tonight. It will also be welcome to the 18% of the workforce who are now unemployed in California, the 1.5 million who are losing unemployment benefits in the next three months, and one million college students who ran up and average $30,000 in debt to graduated this year so they could sleep on their parents’ sofa. Traders celebrated the news by running the S&P 500 up to 1,054, a positively nose bleeding 58% above the March 9 low. Apparently, the stock market thinks Obama is the greatest president in history, rising some 40% since the inauguration, compared to a 30% drop during the eight years of Bush rule. That is some report card. Too bad we can’t annualize that. The only thing I approve of today is that this love fest took silver to a new high this year of over $17. Wake me up when the party is over, and I’ll drag your drunken carcasses into the car and drive you home. Then I’m going to cash in a couple of my sliver dollars and take my significant other out for a Corona and some vegetarian burritos.

Market Outlook: Time to Assume a Defensive Position

I agree. It looks like the worm has finally turned. Hedge funds that rushed headlong into piling on new risk positions as recently as last Friday are now unwinding them today just as fast. All last week the smart money was selling to the late comers, newbies, and wanabees. The Viagra is starting to wear off. It’s time to take short term trading profits on crude (USO), commodities (DJP), all stocks (SPX), emerging markets (EEM), short Treasury bonds (TBT), all currencies (FXE), and junk bonds (JNK, HYG). I love all these things long term, but suffer from a short term tolerance for paid. When the best case scenario is sideways, I’m outa there. Look for decent bounces in risk reducing positions like the dollar ($USD), short dated Treasury securities (CSJ), and defensive sectors like utilities (IDU). It has been obvious to me that all of the good, long term holds were rolling over on shrinking volumes right at 50 or 200 day moving averages, since last month (see “Sell in May and Go Away” at madhedgefundtrader.com...). All of a sudden burgers on the back yard BBQ, booking campsites at Big Sur, and visiting those long lost, but nearby relatives looks like a better choice. I’m having a “staycation” this year to save money. Instead of Italy’s Amalfi Coast, you’ll find me dining at my local cheapo Italian restaurant with the nice Roman mural painted on the wall, the red checked tablecloths, and the plastic grapes draped over the doors. Please pass the parmesan cheese!

Emerging Markets: The Return of Decoupling?

Put your money here. The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF’s for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It’s a once in a century opportunity to buy the highest growth corners of the world’s economy at severely knocked down prices.

Tweaking Nusbaum's El-Erian Portfolio via ETFs

Exchange traded funds, or ETF’s, were one of the hot financial products of 2008, and enable investors to go 100% or 200% long or short any number of indexes, sub indexes, industry groups, bonds, currencies, and commodities. The largest issuers have been Barclay’s iShares, State Street’s StreetTracks SPDR’s, Rydex, and PowerShares. Sponsors of ETF’s have filed for registration of another 850 such products, including ETF’s for many new single country funds for Columbia, Egypt, Argentina, Peru, and the Nordic countries. Charles Schwab (SCHW) has also announced that it is entering this field for the first time. These will allow fund managers to make more narrow and specific bets in the capital markets. But they will also increase market volatility, as they obviously did last year.

Tweaking Nusbaum's El-Erian Portfolio via ETFs

Gold finally hit a wall just above $1,000, and instantly melted $50. For many traders who got in just above $700 three months ago, it’s time to say thank you very much to Mr. Market and either wait for a substantial pull back, or go on to the next trade. It was taking increasingly larger purchases of physical gold by ETF’s and coins by individuals to push the price up. CME statistics showed the speculators’ position soared to a net long of 215,661 contracts ($21.5 billion). The SPDR Gold Trust ETF (GLD) added five tonnes of the barbaric relic to 1,029 tonnes in just one day. The turnaround neatly sets up a double top on the long term charts with the high set last year. It may take a couple of more runs, and more bad news, which seems in abundant supply, to get the yellow metal to a true new high.