Hedge Fund Manager's Notebook: Buffet's Buys and the End of the Inflation Trade

by: The Mad Hedge Fund Trader

1) With the euro at $1.46 on its way to the $1.30’s and commodities in free fall, it is becoming screamingly obvious that the inflation trade is temporarily dead. Long bond yields are approaching new lows for the year, with the ten year at 3.80%.

2) Nine million jobs are expected to leave the US for China and India over the next ten years, manufacturing to China and back office and support to India. China’s GDP is expected to exceed that of the US by 2035. Hopefully I will be dead by then.

3) If China had not implemented its “one family, one child” policy in 1979, the population would have shot up to 1.7 billion today instead of the current 1.3 billion. The 400 million difference equals the entire population of North America now.

4) If Michael Phelps were a country he would rank 5th the Olympic gold medal rankings. The cost of feeding him his 12,000 calories/day has risen from $19.95 a day to $38.57 over the last three years, according to his mother. That is $14,000/year just for food. But by earning an expected $5 million in endorsements this year I think he can afford it. By comparison, Mark Spitz earned $1 million from his famous poster with him wearing all seven of his gold medals, but that was in 1972 dollars.

5) If the flap between the US and Russia worsens it could be bad news for the bond market. Russia owns $216 billion in US debt, including $150 billion in Freddie Mac and Fannie Mae paper. If the Russians dump bond yields would soar, at least temporarily.

6) MF Global (MF) at 15 times earnings at $7 is a strong buy here. The stock has been unfairly beaten down from its $30 high a year ago by rogue trader stories and tarred by the poor performance brush of other listed hedge funds. There is an easy double here.

7) Firewood prices in the Northeastern US have doubled over the last three years to $300/cord. Consumers are rushing to head off a 25% leap in home heating costs this winter. Sales of wood stoves are also booming. This is not good for global warming.

8) Q2 disclosures show that Warren Buffet has been adding to his positions in NRG Energy (NYSE:NRG), Ingersoll Rand (NYSE:IR), and drug company Sanofi-Aventis (NYSE:SNY). The Gates Foundation has been buying ugly shoe company Crocs (NASDAQ:CROX), AIG International (NYSE:AIG), and Eastman Kodak (EK).

Full disclosure: no long or short positions in any stocks mentioned.