madhedgefundtrader's blog

QEII is truly lifting all boats, even the leaky ones, like the US stock market. The debasement of the dollar this policy assures will keep money pouring into virtually every tradable asset in the world, including stocks, bonds, currencies, commodities, precious metals, and yes, even real estate. The Fed knows it is creating a monster with the enormous amounts of money it is now creating, and that someday, it will have to drive a giant steak through its heart in the form of huge and cathartic interest rate rises.

QEII has suddenly made this paper appear a bargain. Treasury bond investors are not being compensated for their risk at current yields, but muni bond investors are. If the Bush tax cuts are not extended, the effective taxable yield pops up to 4.27% for top earners. That’s a lot in this zero yield world we live in. And let’s face it, taxes are going up a lot, no matter who won the election, making these bonds even more valuable in the future. The risk of an outright default on this paper has been vastly overblown by the media. (NCP), (NVX).

Who really won this election? I did! There will be a major sell off next year, not just in stocks, but in all asset classes. The election results increase the certainty and the severity of this event. Volatility (VIX) will rise across the board. What The Election Means for Economic Policy. What the Election Means for the Markets.

The subcontinent is poised to overtake China’s white hot growth rate. India will grow by 8.5% this year. Growth could exceed that in the Middle Kingdom as early as 2013. Financing and construction of huge transportation, power generation, water, and pollution control projects are underway. India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world. Many hedge funds believe that India will be the top growing major emerging market for the next 25 years. (INP), (FXI).

Prices aren’t going down forever. The good news is that the next bull market in housing starts in 20 years. That’s when 85 million millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer’s. By then, house prices will be a lot cheaper than they are today. The next interest rate spike that QEII guarantees will knock another 25% off prices. Think 1982 again. Fannie Mae and Freddie Mac will be long gone, meaning that the 30 year conventional mortgage will cease to exist. Just remember to sell by 2060, because that’s when the next intergenerational residential real estate collapse is expected to ensue.

Will a ton of anonymous corporate donations be enough to turn back an overwhelming demographic tide pushing the country to the left? We find out tomorrow.

The country’s largest ever IPO is a blowout success. Tapping into the Chinese steel industry’s insatiable demand for metallurgical coal. Global investors starved for new, unexploited emerging market plays are pouring in. Mongolia is poised to become the fifth leading gold producer. What are the world’s biggest unexploited coal reserves and the richest untapped copper deposit worth in this superheated market? Are these the early stages of a bubble?

Rough rice has skyrocketed by 50% since July, to $14.50 a hundred pounds. Rice is the primary food stuff for 3 billion of the world’s 7 billion population. Many of the disaster scenarios for the global food supply revolve around Asia. Crisis shortages will hit the rice markets there first, then spill over to other foodstuffs here. (CORN), (WHEAT), (SOYBEANS), (AGU), (POT), (MOS).

China plans to cut rare earth export quotas by 30% next year. As China controls 97% of the world’s rare earth production, and consumers are desperate to lock in supplies so they can build everything from hybrid cars to IPods to heat seeking missiles. Is this the first shot in the coming resource wars?

Advocates claim that passage of Proposition 19 would solve the state’s budget crisis, as it would bring in tens of billions of dollars of tax revenue while cutting the cost of our prison budget by billions more. Be careful what you wish for. Today, the industry for alcoholic spirits is dominated by a handful of globally integrated marketing giants running volume driven businesses on razor thin margins, like Anheuser Bush (BUD) and Diageo (DEO). State tax revenues from this will be miniscule.

Add in the cost of our military presence in the Middle East and the true, fully costed price for Saudi crude is a staggering $219/barrel! We are literally spending $100 billion extra to buy $60 billion worth of oil a year. Bail on Afghanistan and Iraq, and oil prices would fall, our military budget would plunge, the federal budget deficit would shrink, and our taxes would likely get cut. Please don’t tell ExxonMobile or BP I told you this.

A little knowledge of history can be a dangerous thing. We are trapped in a runaway Toyota, with the doors locked and broken, the accelerator stuck on the floor, careening towards a cliff at 100 miles per hour. Gridlock assures we can do nothing about it. Be careful what you wish for. This is what lost decades are made of.

The Treasury Secretary who surfs. The crisis was caused by excessive debt levels, the adjustment of which is now mostly behind us. Permanent investment tax credits for domestic R & D are on the way. So is a one year tax credit for capital investment. Stepped up spending on infrastructure is a big priority. The US will not engage in a debasement of its currency. There will be no non dollar reserve currency in our lifetimes. By any measure, the Chinese Yuan is undervalued. Promises, promises. Don’t expect to see any Geithner signed dollar bills soon.

Is Indonesia the next China? Despite the triple digit return, it could still be early days for the world’s largest Muslim country. Since the rumblings about a global, synchronized QEII began in September, $2 billion a day has been flooding into emerging markets, and Indonesia has been at the top of the list. A rupiah that has been steadily appreciating against the dollar has added a nice double leveraged effect to the upside. (IDX), (EIDO)

The painful cost cutting, layoffs, and downsizing that has swept the corporate area for the past 30 years is now being jammed down the throat of the public sector. The financial crisis afflicting states and municipalities is going to make the school teacher join the sorry ranks of the service station attendant, the elevator operator, and the telephone operators. A profession that has been rendered useless by technology. High schools are about to move online. Anyone for a student teacher ratio of 250:1? (BBBB).