madhedgefundtrader's blog

There is a stampede by 49 alternative energy projects to get approval before massive federal incentives offered by Obama expire at the end of the year. The golden state has set a goal of obtaining 33% of its electric power from alternative sources by 2020, the most ambitious anywhere in the world. Making the state a hot house for new energy technologies that can be exported to the rest of the world. (SPIR), (HOKU), (FSLR), (TSL).

We are entering a major secular bull market in food, as the world is making people faster than the food to feed them. A 175,000 new customers a day. When push comes to shove in the global economy, the commodities you have to have are the grains. The Scottish reverend Thomas Malthus must be smiling from his grave. (CORN), (AGU), (MOS).

In view of the blistering Q3 9.6% GDP growth rate, it’s time to increase positions in the Middle Kingdom. Look for cash to rotate out of virile, young emerging markets back into the established BRIC’s. We have blasted through the 200 day moving average, suggesting that this move may have the legs of Secretariat. Rumors of its imminent demise are premature by at least a decade. Jim Chanos, please get out of New York and widen your circle of contacts. (FXI), ($SSEC), (EWZ), (RSX), (PIN).

The statistics that the government pumps out have been meaningless for decades. The true number of unemployed is closer to 30 million, or about one in five working age Americans. The economy is obliterating jobs far faster than anyone realizes. As many as 25 million jobs were exported to China and other low waged emerging markets.

Those who were too clever by half and traded out of the yellow metal early are now trying to buy it back on any dip, driving it relentlessly higher. The gold industry is in a supply/demand sweet spot now, as supplies have been ex-growth for a decade in the face of a rising tide of demand. Peak gold is upon us, and unexploited deposits are getting farther and fewer between. (INIVX), (AEM), (KGC), (GOLD).

The next big focus in the foreign exchange markets will be a strengthening US economy and another slow down in Europe. After one last gasp, that could take the euro as high as $1.45, and a great shorting opportunity will set up that could take it as low as $1.10-$1.15 next year. The US elections will remove much uncertainty from the dollar just when American growth is reasserting itself, opening the way for another down leg in the European currency. (FXE)

Weather in primary producer, Latin America, has been poor. US coffee stockpiles are now at 10 year lows. Major producer Vietnam is threatening to cease exports and start hoarding, as Russia has already done with wheat. Although prices are now at 13 year highs, we may get even more of a jolt out of this trade.

All the gasoline I want at 24 cents a gallon. That is the de facto price that PG&E is billing me for a full charge on the all-electric Nissan Leaf. Thumbing my nose at OPEC. The new electric cars will be total game changers.

A big spender with unlimited funds named Ben Bernanke of the Federal Reserve has upended the short side of the equation for many hedge funds. The amount of money he is willing to inject into the economy is thought to range up to $2 trillion, to be disbursed in convenient, bite sized $500 billion chunks. Rumors swirl daily in the Treasury pits that the money is already hitting the market, emboldening traders to take the ten year to a mind boggling 2.36% yield.

After a tumultuous 2009, oil has been one of the least volatile assets of 2010. It now appears that this crucial commodity is stretching its muscles, limbering up, and getting ready for a serious move. The net effect of the BP oil spill will be a cut of one million barrels a day of Gulf production, about 5% of US consumption. A serious run on the dollar is adding fuel to the fire. (USO), (XOM), (CVX), (OXY), (RSX)

Given the global surge that is going on in all asset classes, the (PCY), with its generous 5.82% yield, has to be on the menu in a yield hungry world. One of the great ironies in the international capital markets is that emerging nation balance sheets are so healthy because the West refused to lend to them for so long. Take a look at the (ELD) where you get the a double play: a continuous cycle of credit upgrades lead to lower interest rates, higher bond prices, in appreciating currencies.

A 2.4% GDP rate added to 0% inflation is giving you the 2.4% yield you see glaring at you from your screen today for the ten year Treasury bond. The market is essentially betting that inflation will remain at zero for another decade. Rampant inflation has already broken out in great swaths of the global economy. What is wrong with this picture?

In a profession where you are only as good as your last trade, the question arises of what to do now? I look at moves like these and my inner trader says “run, Forest, run!” Mean reversion has the nasty habit of taking profits away. Is QEII (the monetary kind) already priced in, but may not happen? What’s a poor trader to do? Better to lock in that performance, keep you powder dry, and live to fight another day.

Ben Bernanke has privatized the upside of the global stock, bond, currency, commodity, energy, and precious metals markets, and socialized the downside, with his much publicized move towards quantitative easing. While former Treasury Secretary Hank Paulsen spoke about a bazooka in his pocket, Helicopter Ben is hinting that he has a 100 megaton thermo nuclear weapon.

A number of short term technical and momentum models start flashing red lights that gold is entering extremely overbought levels. Is the momentum waning?