Gundlach Sees No Lost Decade for Stocks

Bloomberg "Gundlach, 52, is following Bill Gross, manager of the world’s largest bond fund, in flirting with stocks as the biggest bears wager that markets won’t fall back to their March 2009 lows. Gross’s Pacific Investment Management Co. three years ago started an expansion into equities in anticipation that their returns will beat those of bonds over coming years. Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK), the world’s biggest money manager, has been urging investors to get out of cash and bond securities and put money into equities."

Trading 101 - The Mad Hedge Fund Trader

Trading 101. By The Mad Hedge Fund Trader on September 7, 2012 A number of readers have asked me why I’m not trading now. Since I put out my calls to sell Treasury bonds in August (click here for “The Great Treasury Bond Crash of 2010” ), and buy US stocks in September (click here for “My Equity Scenario for the Rest of 2010” ), I have mostly been sitting on my hands. I usually try to catch three or four trend changes a year, which might generate 50-100 trades, and often come in frenzied bursts. Since I am one of the greatest tightwads that ever walked the planet, I only like to buy positions when we are at the height of despair and despondency, and traders are raining off the Golden Gate Bridge. Similarly, I only like to sell when the markets are tripping on steroids and ecstasy, and are convinced that they can live forever. Some 99% of the time, the markets are in the middle, and there is nothing to do but deep research, looking for the next trade. That is the purpose of this letter. Over the four decades that I have been trading, I have learned a number of tried and true rules which have saved my bacon countless times. I will share them with you. 1) Don’t over trade. This is the number one reason why individual investors lose money. Look at your trades of the past year and apply the 90/10 rule. Dump the least profitable 90% and watch your performance skyrocket. Then aim for that 10%. Over trading is a great early retirement plan for your broker, not you. 2) Always use stops. Risk control is the measure of the good hedge fund trader. If you lose all your capital on the lemons, you can’t play when the great trades set up. Consider cash as having an option value. 3) Don’t forget to sell. Date, don’t marry you positions. Remember, pigs get slaughtered. Always leave the last 10% of a move for the next guy. 4) You don’t have to be a genius to play this game. If that was required, Wall Street would have run out of players a long time ago. If you employ risk control and stops, then you can be wrong 40% of the time, and still make a living. That’s little better than a coin toss. It you are wrong only 30% of the time, you can make millions. If you are wrong a scant 20% of the time, you are heading a trading desk at Goldman Sachs. If you are wrong a scant 10% of the time, you are running a $20 billion hedge fund that the public only hears about when you pay $100 million for a pickled shark at a modern art auction. If someone says they are never wrong, as is often claimed on the Internet, run a mile, because it is impossible. 5) This is hard work. Trading attracts a lot of wide eyed, naïve, but lazy people because it appears so easy from the outside. You buy a stock, watch it go up, and make money. How hard is that? The reality is that successful investing requires twice as much work as a normal job. The more research you put into a trade, the more comfortable you will become, and the more profitable it will be. That’s what this letter is for. 6) Don’t chase the market. If you do, it will turn back and bite you. Wait for it to come to you. If your miss the train, there will be another one along in hours, days, weeks, or months. Patience is a virtue. 7) When I put on a position, I calculate how much I am willing to lose to keep it. I then put a stop just below there. If I get triggered, I just walk away. Only enter a trade when the risk/reward is in your favor. You can start at 3:1. That means only risk a dollar to potentially make three. 8) Don’t confuse a bull market with brilliance. I am not smart, just old as dirt. 9) Tape this quote from the great economist and early hedge fund trader of the thirties, John Maynard Keynes, to you computer monitor: “Markets can remain illogical longer than you can remain solvent.” Hang around long enough, and you will see this proven time and again (ten year Treasuries at 2.4%?!). 10) Don’t believe the media. I know, I used to be one of them. Look for the hard data, the numbers, and you’ll see that often the talking heads, the paid industry apologists, and politicians don’t know what they are talking about (the Gulf oil spill will create a dead zone for decades?). 11) When you are running a long/short portfolio, 80% of your time is spent managing the shorts. If you don’t want to do the work, then cash beats a short any day of the week. 12) Sometimes the conventional wisdom is right. 13) Invest like a fundamentalist, execute like a technical analyst. 14) Use technical analysis only and you will buy every rally, sell every dip, and end up broke. That said, learn what an “outside reversal” is, and who the hell is Leonardo Fibonacci. 15) The simpler a market approach, the better it works. Everyone talks about “buy low and sell high”, but few actually do it. All black boxes eventually blow up, if they were ever there in the first place. 16) Markets are made up of people. Understand and anticipate how they think, and you will make a lot of money. 17) Understand what information is in the market and what isn’t and you will make more money. 18) Do the hard trade, the one that everyone tells you that you are “Mad” to do. If you add a position and then throw up afterwards, then you know you’ve done the right thing. This is why people started calling me “Mad” 40 years ago. 19) If you are trying to get out of a hole, the first thing to do is quit digging and throw away the shovel. A blank position sheet can be invigorating. 20) Making money in the market is an unnatural act. We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years. Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue. This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts. Some people are born with this ability, while others can only learn it through decades of training. I am in the latter group.

Super America ?

Here Comes the Next Peace Dividend. By The Mad Hedge Fund Trader on September 3, 2012 his in Newsletter When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, you don’t think I talk to all of those generals because I like their snappy uniforms, do you? The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head a la Gaddafy. It couldn’t happen to a nicer guy. The geopolitical implications for the U.S. are enormous. With Syria gone, Iran will be the last rogue state hostile to the U.S. in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran. Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The antigovernment sentiments that provided the spark never went away and they continue to percolate just under the surface. At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy IPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires When Syria collapses, the Iranian “street” will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. Secretary of State Hillary Clinton has stiffened her rhetoric and worked tirelessly behind the scenes to bring about the collapse of the Iranian economy. The oil embargo she organized is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%. Iranian banks are about to get kicked out of the SWIFT international settlements system, which would be a deathblow to their trade. Let’s see how docile these people remain when the air conditioning quits running this summer because of power shortages. Iran is a rotten piece of fruit ready to fall off its own accord and go splat. Hillary is doing everything she can to shake the tree. No military action of any kind is required on America’s part. The geopolitical payoff of such an event for the U.S. would be almost incalculable. A successful revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters. Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming supply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic $1.66 trillion tax cut for not just the U.S., but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%). Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry’s worst nightmare. At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet. The implications for the financial markets will be enormous. The U.S. will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom. A collapse in oil imports will cause the U.S. dollar to rocket. An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the U.S. government gone as a major new borrower, interest rates across the yield curve will fall further. A peace dividend will also cause U.S. GDP growth to reaccelerate from 2% to 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food. The Dow will soar to 20,000, the Euro collapses to parity, gold rockets to $2,300 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends. Some 1 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak these well-trained and motivated people right up. We will enter a new Golden Age, not just at home, but for civilization as a whole. Wait, you ask, what if Iran develops an atomic bomb and holds the U.S. at bay? Don’t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime. The head of the miniscule effort they have was assassinated by Israeli intelligence two weeks ago (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!). If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN’s benefit, and comprise no credible threat. I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years. If the collapse of Iran was going to lead to a global multi-decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, led by the technology sector, offering no substantial pullbacks for latecomers to get in. That is exactly what they have been doing since mid-December. If you think I’m “Mad”, just check out Apple’s chart below.

Martin Armstrong- Debt is destroying everything

Indeed, it is the debt that is now destroying all liberty. There will not be HYPERINFLATION for the bankers are in full control of Congress and the Fed. They are forcing austerity and higher taxes. The excuse is put forth that government will collapse if they cannot pay their debts. The fact that nearly 70% of the total national debt is past interest payments, we are in the last throes of this very dangerous debt implosion. The problem we face, it is EVERY country in Europe including Germany and across the globe to Japan. This is simply the way things are. The bankers are advising against HYPERINFLATION because they do not want funny money. So we have to be concerned about STAGFLATION, rising costs with collapsing economic growth. We are living so far beyond our income that we are living completely unconnected to any productive capacity. The debt can no longer be paid off. It is beyond several generations. Charles Dickens wrote in Little Dorrit that “[Credit is a system whereby] a person who can't pay, gets another person who can't pay, to guarantee that he can pay.” Back in the good old days when the national debt was just $1 trillion instead of $15, President Ronald Reagan made it clear: “We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much.” History has proven he was right!

The carpet baggers are coming for us

Martin Armstrong: We are on the verge of a systemic global meltdown and if you do not understand what we face, you will lose your shirt, pants, wife, kids, and the farm. This whole nonsense of HYPERINFLATION PRESUMES government will just continue to print forever. They do not even address the reality that the bondholders are the very people who are demanding to raise taxes and impose austerity to ensure what they are paid back and not with devalued funny money. They warn government that their future borrowing capacity is at stake and unless they do as the bankers say, the world will end for they will no longer be able to borrow continuously. This is the inherent check against HYPERINFLATION that is ignored by all this hype. The average person is being squeeze both in taxes and in interest rates. The banks have positioned themselves as the necessary evil and eliminating Glass-Steagall was critical to their agenda. They can now dominate the financial world pushing more and more debt controlling government and keeping spreads between cost of funds and lending rates at record highs.

On Indian Finance Minister- PC Chidambaram- screw savers to help yourself !

PC's comments are useless. He knows MoF does not control RBI. RBI will not let interest rates fall with such high inflation otherwise from stagflation we will get closer to hyperinflation (?). The wealth disparities will go through the roof. Reckless overambitious fat cats borrowers will benefit. Conservative savers will ofcourse get screwed. It is very regrettable that PC can not come up with any new ideas other than the same old rut. It looks like the whole lesson of US has not filtered down to these chaps !!! Their debt is already downgraded. What will you do when every one is hugely indebted and ET THERE IS NO GROWTH ? The govt borrowing costs will go thru the roof (as no one will lend beyond a limit) and the govt will default (because of high interest payments). Why can't he focus on rapid liquidation of defaulted cos instead?

Judiciary - for whose protection ?

The Indian judiciary will never takes action in time till some 70 year old man goes on a hunger strike and lacs of people come on the roads. As soon as things cool down they too will cool their heels. The Bhopal Gas tradegy victims after 30 years of a court fight got a princely sum ……of few dollars, awarded by the courts ! Any guesses as to how much the bast%$d lawyers got PER HOUR fighting this case? The Italians who shot Indian fishermen were asked to pay peanuts by the court to release their ship. Readers are nuts if they expect justice. Its your own job to take care of yourself. Madoff too was let to operate for SEVERAL years. Man Financial CEO is still moving freely after stealing hundreds of millions off customer dollars. This is like HDFC Securities punting money, loosing and taking customer’s money (as an example only)! Peregrine did the same. Rajat Gupta and Anil Kumar too were cheating on the system. Several are still in the open. So this is a WORLDWIDE problem. The Indian judiciary is only for lawyers to make money. They will NEVER give justice. What is the use of justice after 15-30 years of waiting? The defendant might die by then.