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Please Stand By forJohn Thomas
Wednesday, October 10, 2012, San Francisco, CAGlobal Trading Dispatch
The Webinar will begin at 12:00 pm EST
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The Mad Hedge Fund Trader“Treading Water”
Diary of a Mad Hedge Fund Trader
San Francisco, October 10, 2012
www.madhedgefundtrader.com
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MHFT Global Strategy LuncheonsBuy tickets at www.madhedgefundtrader.com
2012 Schedule
October 19 Washington DCOctober 26 San FranciscoNovember 7 HoustonNovember 8 OrlandoJanuary 3, 2013 Chicago
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MHFT Global Strategy LuncheonsBuy tickets at www.madhedgefundtrader.com
San FranciscoOctober 26
Washington, DCOctober 19
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Trade Alert PerformanceNew All Time High!
*October MTD +0.39%
*2012 YTD +20.5%, Beating the Dow by 9.6%
*First 98 weeks of Trading + 60.6%*Versus +10.9% for the Dow AverageA 49.7% outperformance of the index87 out of 125 closed trades profitable
69.6% success rate on closed trades
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Portfolio Review
Mad Hedge Fund TraderTrading BookAsset Class BreakdownRisk Adjusted Basis
current capital at risk
Risk On
(GLD) $157-$162 Calls Spread 10.00%(GLD) $160-$165 Calls Spread 10.00%(GOOG) $650-$680 Call spread 10.00%(SLV) $28-$31 call spread 10.00%(AAPL) $525-$575 call spread 10.00%
Risk Off
(SPY) $150-$155 bear put spread -20.00%(CORN) $50-$55 put spread -10.00%(USO) $35-$32.50 put spread -10.00%
total net position 10.00%
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Performance Since Inception-New All Time High+33.1% Average Annualized Return
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Testimonial
I have been religiously following your letter for the past four years. I value your opinions, knowing they are truly independent and not beholden to a mutual fund or investment bank. Your ability to recognize, and put out actionable advice during market extremes is unique in my experience.Your recent (TLT) long recommendation was a great example. On the heels of the sharp August sell-off, when CNBC and company worried (TLT) was going to 112 and points below, you advised going long based on your IRA account suggestions, I chose the (TLT) October, 2012 $122 calls at $2.76 and then sold them at $4.90 only eight days later for a 77% profit.
On a related note, I’ve learned a great deal about reducing portfolio complexity, how to structure and execute conservative trades and manage risk based on your advice and recommendations. Please keep up the great work!Regards,Kevin MurtaughTampa, Florida
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The Economy-bad data still coming through
*September nonfarm payroll was huge,down from 8.1% to 7.8%
*Weekly jobless claims up +4,000 to 367,000
*QE3 earning expectations are very low
*Is Q3 the trough for earnings?
*World Bank downgrades China growth8.2% to 7.7% 2012, 8.6% to 8.1% in 2013
*IMF says global growth prospects are bleak
*September motor vehicle sales a weak +3.1%,Toyota down 40% on China trouble
*All consistent with a low 1.5% GDP growth rate,or lower
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German ManufacturingWhy Europe is in a World of Hurt
How long until it spreads to the US?
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Weekly Jobless ClaimsTrapped in a Sideways Range
Break 400,000 and the rcession threat is on
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Bonds-Still churning at the top
*the 1.40% - 1.90% range holds, could be ourrange for years
*Look to sell spread spreads outside these ranges
*Is the final top in?
*$40 billion a month in MBS buyingscares investors out of Treasuries
*Record junk issuance continues
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(TNX) 1.40%-1.70% Range Holding
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(TLT)
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Short Treasuries (TBT)See the 1:4 reverse Split
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Junk Bonds (HYG)
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Municipal Bonds (MUB)-3% yield,Mix of AAA, AA, and A rated bonds
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Stocks-The Gridlocked Market
*Buyers and sellers have gridlocked market
*QE3 raises the floor below stocks, but they won’trise much either
*Instead of a Dow 10,000 floor, it is morelike 12,000, the June low
*$10 trillion in cash sitting in US bank accounts
*$390 billion in stock buy backs supporting market *Romney bump in polls hurts all “RISK ON”assets. No Obama means no Bernankemeans no QE
*Investors still chasing yield
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(SPY)-Did we just get a double top?Is the (IWM) warning us of trouble?
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Buy the November, 2012 (SPY) $150-$155 Bear Put Spread20% Portfolio Weighting
Buy 23 November, 2012 $155 puts at………..…….$9.66Sell short 23 November, 2012 $150 puts at…….$5.22Net cost……………………………………………..………….$4.38
23 contracts for a 10% weighting in the model $100,000 portfolioProfit: $5.00 - $4.38 = $0.62(23 X $0.62 X 100) = $1,426 = 1.43% return
Profitable with the (SPY) at all points below $150.62,
(SPY) now at $146.4
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Short (SPY) 12/$150-$155 Put Spread
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(QQQ)-NASDAQ
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(VIX)-Going to sleep
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(AAPL)-Long the 1/$525-575 Call spread
buy this dip
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(GOOG)-Long the December $650-$680 Call Spread
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(FCX)
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(CAT)
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(BAC)-augurs for double top scenario
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Russell 2000 (IWM)
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Shanghai-Not yet for the double bottom
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My Post Fed Shopping ListStocks to buy on the dip
November, December, January Deep in-the-money Calls Spreads
Apple (AAPL)Google (GOOG)Disney (DIS)JP Morgan (JPM)Boeing (BA)Merck (MRK)
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The Dollar
*QE3 is hugely dollar negative
*Euro is rolling over again
*Missed the Euro short at $1.32
*Yen is still stagnating, gettinga weak dollar push-BOJ says no QE
*Ausie rolled over once again onweak China market
*The competitive devaluation is on,the race to the bottom
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Long Dollar Basket (UUP)Close to the May bottom
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Euro (FXE)
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Australian Dollar (FXA)Heartbreak Alert!
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Japanese Yen (FXY)Look to sell $127-$130 September call spread again
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(YCS)Bailed at the Top
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Energy-sell oil rallies with (USO) put spreads
*Israeli PM asks for snap electiona vote for war?
*Iraq-Turkey pipeline bombedis a 1 million b/d pipeline
*US sending troops to Jordan-Syria border
*Go short on every way rumor, Israeliintelligence told me they will wait until nextsummer to see if Iran sanctions work
*Oversupply is overwhelming demand
*Slowing China is a big factor
*Futures structure says that prices are headed lower
*Huge short cover in natural gas, rising at the expense of coal, rumor Obama will ban fracking if elected
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Crude-waiting for QE3
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(USO)
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Natural Gas
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Copper (CU)-China bounce
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Precious Metals-Run longs in limited risk positionsLong (GLD) 12/$157-$162 Bull call spreadLong (GLD) 12/$160-$165 Bull call spread
Long (SLV) 12/$28-$31 Bull call spread
*”RISK OFF” hits the precious metals
*Traders selling big winners going into year end
*The sideways chop scenario is still on
*Emerging market central bank buying is continuing
*Romney bump in polls is triggering profit takingin precious metals. No Obama means no Bernankemeans no QE
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Gold-long the December $157-$162 call spreadlong the December $160-$165 call spread
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Silver-long the December $28-31 call spread
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(Platinum) (PPLT)
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Palladium (PALL)
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The Agslong the (CORN) 11/$50-$55 bear put spread
*Charts are clearly rolling over
*Trade is out of season
*No Major Dept. of Agriculture reports due
*Summer Draught boosted prices to very high levels
*From hear on extreme weather affectsnext year’s crop, not this year’s
*Obama win means ethanol subsidybecome a big target, is 40% of UScorn consumption
*Is a short term trade only
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(CORN)
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Soybeans (SOYB)
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Real EstateNo longer a drag, but a modest positive
Rally will end when recession hits in 2013
“Twist” was extended to mortgage backed securities.The 30 year fixed has plunged from 3.75% to 3.40%, lower to come
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Trade SheetThe bottom line: Wait for the Fed
*Stocks- stand aside, wait for correction to finish*Bonds- sell rallies over a 1.50% yield*Commodities-short oil, stand aside related China commodities*Currencies- sell next big rally*Precious Metals – buy the dips aggressively, loves QE3*Volatility-stand aside, will bounce along bottom*The ags – stand aside, has gone dead*Real estate- rent, don’t buy
Next Webinar is on Wednesday, October 2412:00 noon EST from San Francisco, California
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To buy strategy luncheon tickets Please Go towww.madhedgefundtrader.com