madhedgefundtrader's blog

The clear message that has come out of the BP oil spill is that onshore energy resources are now more valuable than offshore ones. The company’s stock has been trashed with the rest of the industry. OXY has minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America. Oh, and please sell your BP. (OXY), (BP)

We are ten days into a summer rally that will run out of steam sometime in August. Where to play in a bear market. (ING), (TM), (LEN), (CRB), (AA), (AGU), (IBM), (XOM), (COP), (BBY).

Not even the Japanese want to buy their own stocks, with foreign institutions accounting for up to 60% of trading volume on a good day. Local investors would much rather buy emerging market funds, currency funds, bond funds, anything but their own equities. This explains the miserable 1.15% yield investors get on ten year JGB’s. A new kid has shown up in the neighborhood called China which has usurped its traditional role. A massive accumulation of debt and a thousand “bridges to nowhere.” Obama take note.

They call the yellow metal the barbaric relic for a reason. Obama has not suddenly turned into a paragon of fiscal rectitude, and Ben Bernanke still has the keys to the printing presses. Politicians of both parties see the only way to win elections is to inflate. The output of gold has fallen by 12% annually for the past decade, compared to a doubling of production costs to $500/ounce. Barrick Gold (ABX) isn’t opening a new mine at 15,000 feet in the Andes because it likes the fresh air. (GLD), (UGL), (ABX).

For the first time in history, the world is attempting to pull off an economic recovery without an engine. Except for the US, every major economy is now simultaneously cutting spending while raising taxes, with hugely deflationary consequences. What are the consequences for asset prices everywhere? The oceans of red ink bleeding from your screen last week told the whole story.

The public generally considerers denizens of the pit as greedy, soulless, money grubbing monsters, difficult to empathize with in any setting. Any arguments? How much do you want to bet that the troubled bank starts with the letter “L”. Watch for film crews framing those dark, foreboding shots in the canyons of downtown Manhattan this summer. Hey Kevin, baby, have your people call my people and let’s do lunch!

Ben Bernanke and Alan Greenspan are in denial, still don’t understand the Fed’s role in creating the credit bubble, and until they do, investors have no reason to trust in paper currencies. You should be restructuring your portfolio to reflect the ongoing economic decline of the West and the rise of the East. Central banks have cut their holdings of the greenback from 70% to 65%, and we could be on our way to 50% or lower. An exclusive Hedge Fund Radio interview with Adrian Day of Adrian Day Asset Management. (UDN), (CYB), (EWZ), (GFA), (EWS), (FCX), (CORN), (POT), (PHO), (AINV), (ARCC).

The market valued Tesla Motors at an impressive $3.3 billion, with virtually the entire auto industry and its pet analysts pissing all over the deal from the greatest height possible. Applies IPO comes to mind. What happens when Obama’s massive electric car subsidies disappear? Oh, and Elon, don’t tell a divorce court that you’re broke a week before the market values your holdings in TSLA at $2 billion. Will Tesla will be joining the Tucker, the DeLorean, and the Pontiac in the dustbin of history.(TSLA)

The ten year Treasury bond yields we saw at a stunning 2.91% are telling us that the government can borrow nearly infinite amounts of money at the lowest interest rates in history. The expiration of the Bush tax cuts next year and recovering economy will bring a return of tax revenues, eliminating 79% of this year’s deficit, even is Obama does nothing. This is the writing on the wall the bond market is attempting to focus our blinkered eyes on.

All of a sudden, the world wants to buy this company while there is blood in the street and oil on the water. Sovereign buyers from China to Singapore to Saudi Arabia have been lining up. That well known value stock player, Libya, is in play. Cap that sucker, and the next stop is $40 or more.

An industry that was sweating bullets poured tens of millions of dollars into lobbying efforts to render this bill toothless. The new restrictions on credit amount to a de facto quantitative tightening that will shave a few dozen basis points off of our long term GDP growth. For the banks that are left it means lower earning, higher cost operations deserving of shrunken multiples. Toss all this in with the unknown amounts of toxic waste that still lurk on bank balance sheets, and I want to avoid the sector like a blind date who shows up with bleeding sores on her face.

At a 13 times multiple, the S&P 500 is not cheap. A permanent downshifting from a 3.9% to a 2%-2.5% GDP growth rate only deserves lower earnings multiples for equities. I think we are in a long term 900-1200 band that lower growth demands, and that we are trending towards the bottom end of that range.

There is no doubt momentum is fading, and that there is a downshift in private sector hiring underway. The BP oil spill is having an immeasurable effect, as thousands of oil workers, fishermen, and tourist industry staff were sent to the dole queue. A drop to a 9.5% unemployment rate was only achieved because 650,000 workers abandoned the labor force. At the current rate, it will take six years to recover the 8 million jobs that vanished during the Great Recession.

I am more convinced than ever that a Treasury bond short will have its day in the sun. The next financial crisis will be a chain reaction that has already started in small, peripheral European countries, will spread to large European countries, and then eventually hit Japan and the US. Debt service will soar from the current 11% of the federal budget to a gob smacking 28% as early as 2014. Washington is doing nothing to avert the impending crisis.

The charts for almost all ag products, like corn, wheat, and soybeans, are making potential one year double bottoms. Bad weather is now threatening in Canada. The world is both eating more food, and more calorie intensive foods, like beef and pork, thanks to rising emerging market standards of living. A further boost from the Yuan revaluation. The new family of ag ETF’s will be a game changer. (CORN), (CANE), (WEAT), (SOYB).