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Message: madhedgefund

August 8, 2011 – Buy the Sun Hats When It’s Raining

Featured Trades: (BUY THE SUNHATS WHEN IT’S RAINING), (SPX),
(RIP FOR AMERICA’S TRIPPLE A RATING), (TLT), (TBT),
(THE JULY NONFARM PAYROLL: ROCKETING BACK UP TO ZERO)



1) Buy the Sun Hats When It’s Raining. I don’t think that we are going into recession immediately. I believe that we can eke out a few more quarters of 2% ish type growth before we put in the final top of the great bull market of 2009-2012. I think a real crash of the 50% variety will be a 2012 affair, not something that is on the plate in front of us staring back.

There are two big positive developments which the lagging economic indicators have yet to see. The Ford and GM earnings told us that a serious recovery is going on in the automobile industry. Total car production of 13.5 million units for the US market is looking like a sure thing this year. Also, economic data from Japan show the second half of the “V” type recovery is starting earlier than expected. I think that the macro statistics may begin to reflect these turnarounds from September. This is what the July nonfarm payroll told us.

If we really were in recession we would already see it in hundreds of leading indicators, from rail car loadings, to FedEx deliveries, to sea container utilization rates. But the signs are just not there. Recessions don’t pop up out of the blue; they are lumbering, slow, developing behemoths, like turning supertankers.

If that is the case, then stocks are a screaming “BUY” here after a gut churning 17 point, 12.6% plunge in the (SPY) in a mere two weeks. I think that much of the decline can be attributed to program and high frequency trading, margin calls, forced liquidation, and other Wall Street fun and games. Investors also have a bitter aftertaste from our near miss with default and the bilious negotiations that increased the debt ceiling. Everyone is trading like a repeat of the 2008 debacle is imminent, and will probably continue to do so for the next 20 years. This is what people who were in the market from 1930-50 tell me.

Notice that today the low of the S&P 500 September futures was at 1,166. This was not just some random number. It exactly corresponds to a 61.8% retracement of the entire move from August, 2011 to the April 29, 2011 top. A ton of technical buying kicks in here.

Lift their heavy hand off the market, and it should bounce back up, like holding a basketball under water. If I am wrong, then you should at least expect an oversold technical bounce back up to the (SPY) 200 day moving average at $128, and then fail. If I am right, then the market will make it up to the last high at $135, and then double top, or make a new marginal high by year end. That leaves a potential 16% to the upside, something certainly worth taking a bite out of.

So it might be worth sticking your toe in the water here and start picking up some small, limited risk positions in equities, such as through the options. That way, if it gets bitten off by a shark, at least you still have nine left.

In the Marine Corp., after you crash a plane, the first thing they do is stick you back into another one, once you have been found to have acted responsibly. If they don’t, the fear takes hold, and you stay grounded for life. The same is true for trading.

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It’s the Second Mouse That Gets the Cheese

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