Transcript Slide 1 - Mad Hedge Fund Trader

Please Stand By for
John Thomas
Wednesday, March 6, 2013, San Francisco, CA
Global Trading Dispatch
The Webinar will begin at 12:00 pm EST
The Mad Hedge Fund Trader
“The Great Yawn of 2013”
Diary of a Mad Hedge Fund Trader
San Francisco, March 6, 2013
www.madhedgefundtrader.com
MHFT Global Strategy Luncheons
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2013 Schedule-Updated
April 12 San Francisco
April 19 Chicago
July 2 New York
July 8 London, England
July 12 Amsterdam, Neth.
July 16 Berlin, Germany
July 18 Frankfurt, Germany
July 25 Portofino, Italy
August 1 Mykonos, Greece
August 9 Zermatt, Switzerland
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San Francisco
April 12
Chicago
April 19
Trade Alert Performance
Another all time high
*January +16.75% Dow +6.9% (2.4X)
February +10.13% Dow +0.57% (18X)
March +0.93%
*2013 YTD +27.8%, compared to 8.2%
for the Dow, beating it by 19.6%
*First 114 weeks of Trading +82.9%
*Versus +16.4% for the Dow Average
A 66.5% outperformance of the index
110 out of 157 closed trades profitable
70% success rate on closed trades
Portfolio Review-Balancing Out Longs and Shorts,
Volatility collapse causing options premiums to shrink,
increasing risk and reducing returns of option spread strategy
Maximum return if nothing happens
Asset Class Breakdown
Risk Adjusted Basis
current capital at risk
1
Risk On
2
3
(SPY) 3/$140-$145 call spread
(IWM) 3/$82-$86 call spread
(F) 3/$11-$12 call spread
30.00%
20.00%
10.00%
4
5
6
7
8
Risk Off
(FXY) 3/$110-$115 put spread
-20.00%
total net position
40.00%
Strategy Outlook-sitting on my hands
run all existing positions to March 15 expiration
*Too late to buy, too early to sell
*Volatility is too low to sell, but may go lower
*Capitulation top in stocks now underway
*Roll forward short yen position on
any 2 point pop in (FXY)
*Can’t establish put spreads in (SPX) or (IWM) as long as upside breakout
underway
*Only add very deep OTM call spreads with room for a 10% correction
*Single stocks too risky because of greater volatility
Performance Year to Date- +27.8%
Biggest Performance Burst Since Launch
30.00%
25.00%
20.00%
15.00%
Series1
10.00%
5.00%
0.00%
12/31/12
1/7/13
1/14/13
1/21/13
1/28/13
2/4/13
2/11/13
2/18/13
2/25/13
Performance Since Inception-Gone Hyperbolic
+37% Average Annualized Return
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Series1
The Goldilocks EconomyNot too hot, not too cold-95% of data points positive with no inflation
*Global synchronized recovery in play
*FEB US car sales +3.7% YOY to 15.4 million
*Sequestration bluff is called, -0.25% GDP
only big military states affected
20% for VA and MD versus 2% for NY
*Europe IFO Index jumps from 104.3 to 107.4
*Jan non defense cap spending +6.3%
FEBRUARY CHICAGO PMI 55.6 TO 56.8
*CPI YOY 1.6% = Goldilocks
*Q4 GDP update from -0.1% to +0.1%
*China February PMI 52.3 down to 50.4
4 month low
Weekly Jobless Claims
-22,000 plunge to 344,000 is very market positive
Bonds-More of the Same
*Ben Bernanke says he may never sell treasuries
will keep the $3.5 trillion he has until maturity
*Smart money is shortening duration and de-risking
great reallocation into stocks is from cash, not bonds
*Sending money abroad looking for non US
correlated yield curves
*$85 billion a month in bond buying
is still huge support
*New 10 year Treasury range is 1.80%-2.50%
*Sell every substantial rally in Treasuries,
corporates, and municipals
(TLT)
Short Treasuries (TBT)
See the 1:4 reverse Split—5% annual cost of carry
Municipal Bonds (MUB)-3% yield,
Mix of AAA, AA, and A rated bonds
(JNK)-chase for yield continues
Stocks-1,600 Not Looking so “Mad”
*Drift up at multiyear highs is incredibly bullish,
the dip that never comes
*Too many investors frozen out of the
market by the rapid market move
*Speed gave individuals a big advantage
*M&A Boom is creating equity shortage,
takeover at triple 2012 levels
*Heinz, AA-US Air, and Comcast deal took $53 billion
in stock out of market, today its Office Depot/Office Max
*Earnings multiples expanding faster than fundamentals, always ends in
tears. Setting up the 2013 top-don’t forget to sell “Sell in May, and go away”,
Part 5
Welcome to Fair Value
2009 low was a 2X event
*Traditional bear market
market drops 25%
GDP falls -2%
lasts 1 year
*2007-2009 bear market
market fell 57%
GDP dropped 4.6%
lasted 18 months
*Today
GDP growing 2%
(SPX) earnings of $100
Multiple 15X, versus 9-22 historic range, so overvaluation is next
but interest rates at 0%, govt. running $800 bil deficit, so higher before lower
Dow Average
(SPY)Long the 3/$140-$145 call spread
Long 3/$155-$158 put spread
(SPX)-The 30,000 view
Fail
here
Trading Market Tops-(SPX) H1, 2012
Long Put spreads
and
Call Spreads
Long Puts
and
Put
Spreads
Long
Call
Spreads
Volatility
Collapses
The Next Trade
March $155-$158 Bear Put Spread, roll out to
April $158-$161 and May $161-$164
*Profits in at all price points below $158 by April 19,
or 32 trading days
*Profits in modestly rising, sideways, or falling market
*Mitigates some downside risk
*10% weighting =($0.30 X 100 X 37) = $1,110, or 1.11% for the
notional $100,000 model portfolio, 100% = 11.1% a month
*Could be our core trade March-August
*We are closer to the top of the four year move than the bottom
(QQQ)-Finally Waking Up?
Awaiting a rotation-Apple stopped going down, others up
(VIX)-Dying a slow death
headed for the 9% handle
(AAPL)-dead in the water,
putting in a bottom
(BAC)-Buy the Dip
Ford Motors (F)-the bottom is in
long the 3/$11-12 call spread
Russell 2000 (IWM)
Long the 3/$82-$86 call spread
Shanghai-Still on Fire
China (FXI)
Japan Nikkei-up 30% since October
(DXJ)-the only way to play Japan
-Nikkei with hedged yen
Y150 targets (DXJ) at $80, up 100%
Welcome Back King Dollar!
*Our position weathers an intraday, four handle move from $104 to $108,
is the way to manage low volatility markets, the prudence of not chasing
*Dollar strength spreads to Euro and sterling
*Haruhiko Kuroda appointed new BOJ governor appointment
Yen breaks down to ¥94.60, new 3 year low
Gives nod to ¥120/$
Yen breaks to new low on Euro/Yen and Ausie/Yen crosses
*Is the start of a multiyear run to ¥150
*UK debt downgraded from AAA
Austerity is not working, sterling craters.
*These trends will continue with only minor blips
Long Dollar Basket (UUP)
Euro (FXE)
Looking for a $1.38 top
Australian Dollar (FXA)
Commodity Bust Hits Ausie
Japanese Yen (FXY)-worth the chase
long (FXY) 3/$110-$115 in-the-money bear put spread
use any yen strength to roll over into April
(YCS)-break to new high
EnergyCommodity Bust Hits Oil
*Acceleration of the US economy is the main driver
*Spill over into China demand
*Volatility has collapsed thanks to new balance
*Rising gasoline prices could add 0.5% to CPI
*Commodity weakness has spilled over into oil
*Natural gas stuck in narrow range
Crude
(USO)
Natural Gas
Copper (CU)-Demonetization risk could cap moves
China growth rate may cap at 8%, not 13%, so slow grind up
Precious Metals-Ouch!
*Technical picture looking terrible
*Capitulation sell off below $1,500 setting up
*Who needs inflation hedge during deflation?
*Monetary expansion still flat suddenly
accelerated, but gold still dead
*Only platinum and palladium held up
by car industry
Monetary Base
Weekly December, 2011 to Feb, 2013
Gold
200
Day
MA
Silver
(Platinum) (PPLT)
Palladium (PALL)
Ford Motors (F)-the bottom is in
53% move from October
long the 3/$11-12 call spread
The Ags-A bounce at last
*Corn finally bounces after worst move in 50 years,
trend is still down
*High prices are curing high prices
*Awaiting next spike
up or down to tell us what to do
*All the action is long cotton or
short coffee
*Too many other things to do now
(CORN)
Soybeans (SOYB)
DB Commodities Index ETF (DBC)
Real Estate-the bounce continues
*Jan Existing home sales -1.2% to +0.4%,
pending home sales +4.5%
*Case Shiller up 5.9% YOY top 10 cities,
3 month old data
*Inventories still an overhang
*Biggest price gains in worst hit markets
+23% Phoenix
+14% Detroit
+13% Las Vegas
*New York and Chicago are the weakest
Real Estate
-don’t touch the housing stocks-the risk/reward is terrible
Biggest Bounces YOY
Phoenix, Arizona 24.2%
Boise City, Idaho 17.2%
San Jose, California 16.8%
Detroit, Michigan 14.4%
Las Vegas, Nevada 14.2%
Oakland, California 14.0%
North Port, Florida 12.9%
Cape Coral, Florida 12.7%
San Francisco, Ca. 12.6%
(ITB)-US Home Construction Dow Sub index
Trade Sheet-No Change
“RISK ON” has returned big time
*Stocks- buy the dips, running to a new high
*Bonds- sell rallies under a 1.90% yield
*Commodities-stand aside until global sell off ends
*Currencies- sell yen on any rallies
*Precious Metals –stand aside, wait for rebirth
*Volatility-stand aside, will bounce along bottom
*The ags –has gone dead, low priority
*Real estate- rent, don’t buy
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