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The Mad Hedge Fund Trader

The Mad Hedge Fund Trader. Scottsdale Strategy Presentation for HS Dent Readers Friday, May 4, 2012 www.madhedgefundtrader.com. Flip Flopping Economy is Creating Flip Flopping Markets.

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The Mad Hedge Fund Trader

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  1. The Mad Hedge Fund Trader Scottsdale Strategy Presentationfor HS Dent ReadersFriday,May 4, 2012www.madhedgefundtrader.com
  2. Flip Flopping Economy is Creating Flip Flopping Markets *Growing economy=“RISK ON”, buy:stocks, emerging markets junk bonds commodities precious metals foreign currencies especially the Australianand Canadian dollars commercial real estate & multifamily dwellings*Shrinking economy=“RISK OFF”, buy:the safe haven plays, including: the US dollar, US Treasury bonds sell short all of the above
  3. Weekly Jobless ClaimsThe Canary in the Coal Mine-Is the Reversal at Hand?Comes out every Thursday Morning, 8:30 EST October 3RISK ON April 29RISK OFF The one economic statistic you want if you are stranded on a desert island.It called the last downturn at the beginning of April
  4. The Best House in a Bad Neighborhood *A global synchronized recession without the US*US Growing at 2%*Europe in recession*Japan in recession*China permanently slowing from 11% to 7%
  5. The Australian Dollar (FXA) Saw the Coming Weakness FirstPeaked on February 6
  6. Then the Australian Stock Market (EWA)Peaked February 28
  7. Copper Warned That Trouble Was ComingPeaked February 12
  8. Then GoldPeaked February 28
  9. And SilverPeaked February 28
  10. Bonds Never Bought the “RISK ON” ScenarioA sustainable economic recovery would have generated a much bigger sell off
  11. Only Equities Don’t See It Coming *Stock prices were rising while earnings forecasts were falling*Price rise almost entirely driven by multiple expansion from 11X to 14X*Multiple expansion not justified by slow growing economy*Falling volume means index rise driven by lack of sellers in an equity underweight world in the face of small annual inflows*The Myth of QE3-Bernanke put at SPX 1,100 The European LTRO never made it to the US Poured into European bonds*Driven by one stock: Apple*Sell in May and go away four years in a row
  12. S&P 500 (SPX)
  13. It Was All About Apple (AAPL)$225 billion in new market capitalization created in 2012 equalsthe 3rd largest company in the US after Exxon
  14. The Recession is Not Here Yet *Corporate profits downshifting from a 15% to 5% annual rate 50% of S&P 500 earnings from abroad – at risk because they’re not hiring people*Recovery of the US car industry to 15 million units a year, replacements at 14 million units*Second leg of the “V” shaped recovery in Japan never showed*Leading and coincident economic indicators point to a few more quarters of 2% type annualized growth*All adds up to a summer correction of 5-15%, then a new highinto the run up to the presidential election(It makes no difference who wins)*We are a 2% a year GDP and a 4% a year GDP stock market
  15. The Jobless RecoveryWhy high unemployment is permanent They’re speeding up the treadmill for every one. Companies would rather increase hours and hire temps than full time workers.
  16. The Next Battle in the European Banking Crisis *Portugal and Spain are the Greece of 2012 Portugal has 110% debt/GDP, 15% ten year bonds*Spreading to Spain (66%) and Ireland (104%)*Italy (119%) is the big one, 80% of sovereign bonds issues in Europe are Italian*PIIGS are getting worse, not better*Sovereign debt defaults wipe out the French and German banks*Is France on the menu?*Does Europe move backwards or forward?*Europe buys 25% of US exports, is China’s largest export market, and generates 50% of US multinational foreign profits
  17. The Great Crash of 2013 *Long term structural issues overwhelm short term positives*Corporate profits reach diminishing returns, happening now*2009 stimulus a distant memory*Bush tax cuts expire, plus sequestration cuts annual GDP by -3.5%*There will be no QE3, unless Dow breaks 10,000*Huge demographic headwinds bring another leg downin the residential real estate market*Falling home prices bring secondary banking crisis,but this time no TARP and no bail outs*Gridlock in Washington prevents any real solution, 2012 election is out of the way*Unemployment remains stuck at 8-9% level, then soars to 15%
  18. Zero Monetary Growth Market is assuming that we have a QE3 without it actually being there.Watch out for the end of “twist” in June
  19. My Balanced BudgetHow to find $1.5 trillion in 60 SecondsStop borrowing our economic growth from the future Tax Increases$250 billion home mortgage deduction$200 billion charitable contributions$264 billion company paid health insurance$100 billion corporate tax loopholes$55 billion oil depletion allowance$20 billion agricultural subsidies$211 billion tax increases to 2000 levelsSpending cuts$400 billion defense$1.5 trillion-is hugely deflationary for the economyOff budget items: 1) raise retirement age to 77, means test recipients, makes socialsecurity cash flow neutral 2) Limit access to high cost operations over age 80 makes health care revenue neutral (40% of health care spending in the last 4 months of life).
  20. Don’t Get Sucked Into Real EstateDon’t confuse “gone down a lot” with “cheap” *Huge demographic headwind - 80 million baby boomers trying to sell houses to 65 million Gen Xer’s who earn half as much*6 million homes late or in default on payments Access to credit still impaired*Additional shadow inventory of 15 million units*Fannie Mae and Freddie Mac in receivership 95% of US home mortgages Each need $100 billion in new capital*Home mortgage deduction a big target in tax revamp Government gains $250 billion in revenues*Signs of life in best prime markets, like commuting distance from Apple, Google, and Facebook ownership approaching parity with rentals at bottom end, not close at top*Best case scenario - bumping along a bottom for 10 years Worst case - down another 20%
  21. How Low Can They Go?Case-Shiller Real Estate Price Index
  22. Déjà Vu All Over Again *Is 2013 a repeat of 1937?*We catch up with the kicked can*Dow Average fell 50% over 5 years*Premature end of government stimulus brought the second leg of the Great Depression*Economic downturn didn’t end until the stimulus package known as WWII started a 25 year bull market
  23. Dow Average 1900-2011 1937 1942Midway
  24. The Crash PortfolioHow to Make Money in the Next Collapse *Stocks-sell rallies, especially in emerging markets*Bonds-buy dips*Commodities and oil-sell rallies*Foreign Currencies-sell rallies, buy dollar*Precious Metals-sell rallies*Volatility-buy the big dips*Real estate-from bad to worse, rent, don’t buy
  25. Major Long Term Trends ReassertAfter the “RISK OFF” bring back the “RISK ON” *The growth of the global population*The rise of the emerging market middle class*The scarcity of essential natural resources*The shift from paper to hard assets*Demographic investing*The rise of technology*Deflation and then inflationResumes in two to five years, 2014-2018
  26. The New Golden AgeThe 2020’s will be another 1950’s *Technology is accelerating far faster than anyone realizes*No one big invention, but thousands of small ones will aggregate to create a huge leveraged effect*Information technology*Energy-conventional and alternative allows US energy independence*Health care-cancer cure worth $1 trillion a year*Demographics shift from headwind to tailwind as 85 million millennials chase 65 million Gen Xer’s*Labor shortages, rising wages, soaring consumer spending, real estate boom*Dow rockets from 15,000 to 50,000 by 2030
  27. US Energy IndependenceThe greatest investment opportunity of the century *Fracking technology allows US to become a net energy exporter in 3 years*Hybrid, electric, and fuel cell driven cars cut transportation demand*Truck conversion to natural gas cuts oil imports by two million barrels/day*US gasoline mileage is rocketing 25 to 55 mpg by 2025 means 50% of US oil consumption becomes 25%*Natural Gas crash accelerates coal conversion*LPG will become a major US export
  28. Peabody Energy (BTU)world’s largest private coal producer
  29. Union Pacific (UNP)
  30. Global Trading Dispatch *Daily newsletter with 3-4 trading ideas a day *E-mail and text messaged trade alerts for immediate action *Daily updated position sheet and risk analysis *Dedicated password protected website *Biweekly global strategy webinars *Four year research data base *Podcasts with investment heavyweights *Strategy luncheons in your city *2012 “RISK ON” Portfolio & Whento Implement It$40.17% Return in 2011
  31. Trade Alert Daily Performance Since InceptionThe Stairway to Heaven
  32. 2011 Trading Opportunities
  33. 2012 Global Strategy Lunch and Seminar Schedule June 11 Beverly HillsJune 29 ChicagoJuly 5 New YorkJuly 6-13 Queen Mary II New York to SouthamptonJuly 16 LondonJuly 17 ParisJuly 18 FrankfurtJuly 27 ZermattOctober 26 San FranciscoNovember 8 OrlandoJanuary 3, 2013 Chicago
  34. Subscribe Now athttp://hsdent.com/DISPATCH
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