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The Mad Hedge Fund Trader’s Top Ten Surprises for 2010
My friend and former Morgan Stanley colleague, Byron Wien, now luxuriating in a cushy job as vice chairman of Stephen Schwarzman’s Blackstone Group (BX), initiated this concept a few decades ago, which I always find a useful intellectual exercise. The goal is to list events which investors and the markets believe are either highly unlikely or impossible, but which have a higher probability of occurring than they think.
To a hedge fund manager, this generates a risk/reward imbalance, which always piques my interest, and can present great trading opportunities. Often you can see this in option pricing, with “puts” on securities managers see as “sure things” being tossed away for pennies. I liken them to Einstein’s “thought experiments.”
Here is my own list for 2010.
1) A dramatic decline in the unemployment rate enables the Democrats to gain seats in the House and the Senate in the November midterm elections. Obama’s popularity soars.
2) A “Goldilocks” economy of huge corporate profits with no inflation gives the stock market boom another year of life, taking the Dow to a new all time high of 15,000.
3) Strong economic growth cutting the government’s borrowing needs, and continuing deflationary concerns, keep interest rates on 30 year Treasuries and home mortgages near century lows.
4) Reviving American economic prospects and an early Fed move to raise interest rates cause the dollar to soar to parity against the Euro. Differential growth and deficit spending rates then cause the European currency to fly apart. Deutschmarks, French francs, and lira make a comeback as member countries revert to their original constituent currencies. Talks of dollar reserve alternatives die out.
5) The surge in Afghanistan succeeds through a combination of drone attacks and intimate, on the ground, presence in the villages, and the war winds down to a dribble of sporadic suicide bombers. Osama bin Laden is captured in the mountains of Pakistan and put on trial in New York.
6) An American victory in the Middle East triggers the collapse of the fundamentalist regime in Iran. A new reformist government promptly shuts down its nuclear program and establishes diplomatic relations with the US. Obama signs a trade agreement that paves the way for US companies to make a killing rebuilding Iran’s aging energy infrastructure.
7) Continued low subsidized interest rates and renewed first time buyer tax credits at both the state and federal level trigger a buyers’ panic in the real estate market. Banks start competing aggressively for market share.
8) The global commodity boom ends as China’s stimulus spending program runs out of money. Gold, silver, and platinum crash. Burgeoning stockpiles of everything from copper, to crude, to natural gas finally overwhelm real demand, and prices crater.
9) Huge new offshore discoveries, great strides in alternative energy, and enormous efficiency gains made possible by a smarter grid trigger a collapse in oil prices to $20/barrel. All exploration and development grinds to a halt, and several oil independents go under.
10) Tiger Woods admits to a sex addiction in a “tell all” episode of Oprah, and goes on to win every major golf tournament. He refuses to take back the sponsors who baled on him last year, replacing AT & T and Gatorade with Viagra and Flomax.
For more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com .
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11) Helicopter Ben decides to tell all and brings down the Fed.
12) Obama popularity goes above 50%
...11) obama is caught in the act with tiger woods
"...11) obama is caught in the act with tiger woods"
Already happened. Moussad has the evidence and is negotiating terms to withhold its release...
aha the Mad Hedge Fund Trader
see at
http://seekingalpha.com/author/mad-hedge-fund-trader/comments
april, may
He follows always the herd, but too late.
He is a lagging indicator.
by Schlumpf
Thanks to ZH they dont have erased my comment.
In SA (Seeking Alpha) thy have done it.
That he is a lagging indicator. See his change in Gold.
11) we find out that santa clause really exists and he lives undercover as a guy called b bernanke...
...guess that mad hedge fund trader watched too much cnbc.
by Schlumpf
now formerly not.
by Schlumpf
to late.... if he keep on track cnbc, or Cramer some
month earlier
he couldn't go short......bank stocks.
This was a Cramer call. Maybe he is wathing cnbc right
now. Too late.
by Schlumpf
sure he was long gold and now short.
aha the Mad Hedge Fund Trader
he is a lagging indicator, see his comments under
http://seekingalpha.com/author/mad-hedge-fund-trader/comments
see april and may, always he change his mind into
the herd min, but nearly always to late.
Hmm. I think this is more likely to happen.
http://www.youtube.com/watch?v=RB2GboGOuTI
The goal is to list events which investors and the markets believe are either highly unlikely or impossible, but which have a higher probability of occurring than they think.
This process works well for those of a military planning predisposition. Especially for those in the role of insurgent.
#8 happened last year after the Olympics.
If #8 happens again, #7 is an outright impossibility because if the price of everything it takes to build a house crashes, people will just build their own from scratch at half price, instead of entering a 'buying panic' in the secondary market. (And, yes, there is still crap loads of vacant land on which to build...go look.)
11) Unicorns are discovered
12) Radical Islam lays down its arms and embraces peace
13) YAWN............
:-)
11. Comment writers on ZH without a built in Sarcasm Detector successfully lobby Congress for their own bailout fund managed by T.D. since they cannot be expected to absorb losses when everyone else who missed the obvious is on the Gravy Train.
Well stated Rainman. Couldn't have said it better myself.
Sounds like a post from the Mogambo Guru - after having a lobotomy and sobering up.
:)
Speaking of old Mogambo Guru where the hell is he? I loved reading his stuff...sure your not going to get super insightful gems out of it but it always brought a smile to my face.
Raise his taxes until he understands BMOP
Humble way to out-do Byron.
I get it.
:D
I only got to #4. Thought experiments are all fine and good, but suggesting that gravity will be repealed is, well, not advisable.
HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA HAAA
Monkey throwing darts
If the dow hits 15k, oil will not hit $20.
Not to say nearly all of your predictions aren't wishful thinking.
The only one with a chance of occuring is euro on parity with USD, and not for the reason(s) you mentioned.
Isn't this one of the guys who spams the seeking alpha threads constantly with the same post(s)?
11) By June 2010, Bloomberg and CNBC merge with The Onion News Network. Steve Liesmann is quoted as saying: "I don't give a shit"
LMAO! And he's not a Tiger anymore, his stage name is "Cheetah Woulds".
Um, yeah, the oil one makes absolutely no sense if the DOW is at 15000. And Exxon is what, at $150 because they made the discovery?
These "surprise" predictions are fun but this one is the same as that made by Byron Wien. They are basically optimistic. But why? Why cannot politics become more physical and Washington DC streets fill with protesters wanting to "kick the bums out". Why should senators and representatives not come to need serious protection and bodyguards. And with thousands of US and European unemployed looking for work why not slap tariffs on Chinese goods wholesale?
Yes, there are many surprise that are possible but may not be probable, the flaw is to think the surprises need be only one way.
Except for item 10 this all happened already under W and Bill. Not likely to happen again for another 80 years.
ginning a fake economic recovery, $8 trillion... knowing satire when you see it, priceless...
My personal rules:
Most things take longer to happen than you think they will (especially in technology development).
This rule still applies even after you think you have taken it into account.
This is an excellent exercise in sarcasm.
And absurdity.
That was really fun.
Reminds me of how many times I've been right on the facts and wrong in the outcome... "don't fight the fed" comes to mind, even today.
Just cannot overestimate the irony of reality (- or the ironing needed when twisted).
I kept waiting for the joke part. Did I miss it?
Long Tiger Woods/ Short Tiger Capital Management! Was chatting with a currency trader this morning who told me this is a great environment to sell vol because markets will be range-bound. He thinks the greenback will rally in the first half of 2010 and the euro will make up some gains in the second half of the year. So, question to all of you, are you ballzy enough to sell vol in this environment?
Andrew Balls at Pimco is selling US T's in HUGE VOLUME is that ballzy enough for ya LEO ?
Vol is screaming buy.IMO ( in this make believe recovery/environment )
And what's your track record? My buddy, the currency trader, has over 22 yrs experience and an excellent track record. Sell vol for 2010!
These are gray swan possibilities. But how about some real black swan predictions, things hardly conceivable? Like China offers to run the West's banking/financial system and the Central banksters accept? Or peace breaks out in the middle east, led by Pakistan?
11) Tyler Durden is revealed to be Dennis Kneale. Popularity of Zero Hedge surprisingly increases, despite reports of several Zero Hedge readers committing suicide.
12) Bruce Willis finds that life imitates art after he landed 747 after having subduied a terrorist. John Travolta comments on incident.
13) The Government extends low mortgage rates to Facebook users on Farmville. This is a followup to the farmers bailout offered to American Farmville users. Facebook shares climb. Mark Zuckerberg named Chairman of Commerce.
14) Obama is elected to his 3rd term as President after it is revealed that the law regarding 2 terms does not apply to Presidents born outside the U.S.
This will all occur....in a parallel universe.
In my youth, a " thought experiment " was often defined as a bad acid trip.
So car you put a probability on these things? I'm curios how likely you actually think they are.
Sure some of these things are "possible" but I would hardly think any are probably. Though I would be pleasantly surprised by any of them. Also 6 seems partially possible, but it would not be American companies in the infrastructure building. Well unless the revolution was done/funded via the CIA and it was nothing more then a puppet regime, then yes by all means.
Mad Hedge Fund Trader, speaking of his contributions to Zero Hedge on his website:
http://www.madhedgefundtrader.com/Today_s_Diary_Entry.php
To find my own work there, just do a search for my handle “madhedgefundtrader”. Of course you, the paying subscriber to the Diary of the Mad Hedge Fund Trader, will continue to get my research first, weeks, and even months before it appears publicly, in order to maintain your trading edge.
@Green Sharts,
I missed your commentary over the holidays. Glad to see you are back.
People pay to read this? I want my five minutes back.
MHFT;
If we get a spike in the price of Kool-Aid your in trouble. Other wise, looks like you have clear sailing, right off the left side of the earth.
Maybe for those who confuse possibility with probability.