Mad Hedge Fund Trader

Key Market Factors: Interest Rates, Gold, China and Japan

ssdm The dinosaurs of the market, like myself, are collectively being struck by the similarity of the current stock market and that of September 1987, just before the one day, 25% plunge in the Dow. That was when I tied to buy stock with the index down 300 from a payphone in Paris, only to have the trader at Morgan Stanley burst into tears and smash the phone down on the desk (remember that David G.?). My new guru is Gluskin Sheff’s strategist David Rosenberg, who says that stocks have already discounted two years of recovery and now carry a lot of risk. It is priced for 40% EPS growth and a “V” shaped recovery, which we have zero chance of getting. GDP this year will come in at negative 2.5%, and will claw back a listless 1-2% rate in 2010. Stocks are discounting a 4% GDP growth, compared to only 2% for bonds, so he’d much rather own those. With a deflation rate of minus 2% and high yield returns of 12%, junk now offers a 14% inflation adjusted yield, not bad. The secular 25 year bull market in credit expansion is over. Rent still accounts for a third of the CPI, and they are falling for the first time in 17 years. Sure, we’ll see ephemeral sugar highs like those for cash-for-clunkers and the tax credit for first time home buyers. But at best, it will only add up to a series of small “W”’s, or what I refer to the as the “square root” shaped recovery. With the price of everything stretched, you better start reeling in some of that risk.

Altera Earnings Match Expectations

The administration is proposing banning smoking in the military. About time! The Pentagon spends $846 million a year on cigarettes, and another $6 billion treating smoking related diseases. I became a cigarette addict myself when the military gave me all the free “coffin nails” I wanted in Southeast Asia 35 years ago, and it took me ten years to kick the nasty habit. Some 59,000 men died in Vietnam, and I’m sure many more than that died from the lung cancer that followed. Few people know that the Bureau of Prisons banned smoking three years ago, precisely to reduce spiraling health care costs. The riots that followed went unreported. The military in fact banned obesity 30 years ago. If a soldier is over his benchmark weight, his pay gets docked, and if he doesn’t go on a diet, he gets kicked out on a medical. While they’re at it, they should stop giving combat soldiers and pilots amphetamines. Is it any coincidence that the meth disaster that is unfolding in the Midwest coincided with the return from Iraq of thousands of troops? Not good for Altria (MO).