It’s Official: I’m Out of Ideas.

madhedgefundtrader's picture Submitted by madhedgefundtrader on 10/11/2010 22:47 -0500

Australian DollarBank of JapanCanadian DollarCentral BanksJapanMean ReversionPolandPrecious MetalsYenYuan

September turned out to be the best trading month of my career. Not only did my longs go up and my shorts go down, there was panic buying of virtually every asset class I have been herding readers into. Only my short on the yen stood out there flaunting a middle fingered salute, threatening new highs as I write this, despite two healthy rounds on intervention by the Bank of Japan. In a profession where you are only as good as your last trade, the question arises of what to do now?

How about precious metals? Last month, the sector rocketed, with gold (GLD) up 6%, silver (SLV), 16%, platinum (PPLT), 9%, and palladium (PALL), 16%. Individuals, institutions, and central banks alike fought with each other to acquire positions in this space. Hmmmm. I don’t think I’ll load the boat here.

How about emerging markets? I hear that’s the place to be. A quick look at the charts show that Chile (ECH) jumped by 10%, Singapore (EWS), 10%, South Korea (EWY), 15%, South Africa (EWA) ,17%, Indonesia (IDX), 17%, and sausage eating, beer drinking Poland (EPOL), up an unbelievable 18%. It seens that the more abuse about a recommendation I made, the faster it went up. I’ve spent so much time writing about Asia that I now have to douse my food with soy sauce for it to taste right. Gulp. I don’t think I want to buy on top of these meteoric moves.

The US government’s policies out to be knocking the legs out from under the dollar pretty soon. Maybe I should buy some foreign currencies? My top pick in the currency arena, the Australian dollar, leapt 10% in September, followed by a 4.3% move in the Canadian dollar. These are enormous moves over such a short period. Even the Chinese Yuan managed a lethargic 2.1% move. I have been singing Waltzing Mathilda in the shower so often that my neighbors are threatening legal action.

How about looking in a nook so obscure that it is unlikely anyone has found it yet, like rare earths? But a quick typing in of the symbols in my charting software reveals that Molycorp (MCP) exploded up 76% in September, Avalon Rare Metals (AVARF) popped 46%, and Lynas Corp. (LYSCF) rose 65%. As much as I like the long term case for these metals, it would be nuts to establish new positions here.

OK, maybe the problem is that I’m obsessing about financial markets, and should look at the food sector for some bargains. Everywhere I looked, the moves were just as impressive, with corn (CORN), wheat, and soybeans (35%), just posting record consecutive limit up moves. Coffee (JO), cotton (BAL) (46%), and sugar (SSG) (94%) posted equally impressive moves. I look at moves like these and my inner trader says “run, Forest, run!”

When I was running my big hedge fund and delivered outsized returns like this, I went 100% into cash, embarked on a long vacation, and waited for my performance bonus to clear the bank. I took the QEII (the nautical kind) to England, loaded up on new Sea Island Silk shirts at Turnbull & Asser on London’s Jermyn Street, and mount my annual attempt to summit the Matterhorn, only to be turned back by weather at the Hörnli Hut. My investors loved it.

I went on these extended sabbaticals because whenever I brought in stellar gains, mean reversion had the nasty habit of taking them away. Is QEII (the monetary kind) already priced in, but may not happen? You have to ask the same with a Republican win in November. Cash looks like the best investment of all right now. Better to lock in that performance, keep you powder dry, and live to fight another day.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

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by alexwest
on Tue, 10/12/2010 – 04:59

#was running my big hedge fund and delivered outsized returns like this,



Login or register to post comments by alexwest
on Tue, 10/12/2010 – 04:59

#was running my big hedge fund and delivered outsized returns like this,



Login or register to post comments by alexwest
on Tue, 10/12/2010 – 04:59

#was running my big hedge fund and delivered outsized returns like this,



Login or register to post comments by Leo Kolivakis
on Tue, 10/12/2010 – 07:00

Umm, most hedge funds are underperforming, and are going to squeeze as much beta juice as possible going into yearend. Chew on that while you smoke your dry powder!

Login or register to post comments by Robslob
on Tue, 10/12/2010 – 07:12

Leo….shame…we expect better from a person of your stature.

Login or register to post comments by SamuelMaverick
on Tue, 10/12/2010 – 07:29

Yeah, go into cash as the dollar continues to tank. Are you freakin kidding me ?   Yours, Maverick



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