Thoughts from TheMadHedgeFundTrader.com

Watch Out for the “Anti-Growth” Trade! 

Now that most big hedge funds have completed their race to get neutral, they are holding raucous in-house debates over placing size bets on a double dip recession. This would involve reversing every trade that I have been recommending for the past 18 months, in  which the hedge funds have also been running gargantuan positions, flipping from longs to shorts. On the table are new shorts in commodities, energy (USO), emerging markets (EEM), the industrial white metals of silver (SLV), platinum, (PPLT) and palladium (PALL), junk bonds (JNK), and corporate bonds.  This view has traders going long the dollar and the yen (YCS) and shorting the euro (FXE), pound (FXB), and the commodity producing Australian (FXA) and Canadian dollars (FXC). Long positions would be established in the dollar, Treasury bonds, and volatility (VIX). This is not exactly a low risk trade, as it goes contrary to every long term global macro trend currently in place. If you get the double dip recession that Europe, China, and more recently, British Petroleum (BP) are trying their best to deliver, they hit a home run. If the recent diabolical market action turns out to be just a vicious head fake, then they would be selling into a hole and getting killed on the next whipsaw. They don’t call these guys the Masters of the Universe for nothing. Suffice to say that you should only entertain such a position if you run a global 24-hour trading desk, have a blind former frat brother for a margin clerk, and a Harvard educated legal department to make up the appropriate excuses when things blow up. Three year lock ups on client funds would also be good to have. If you don’t have all of this in place, then better to just read about it in the tabloids. The Internet is a great leveler, and enables legendary hedge fund trader, Paul Tudor Jones, and his 300 man staff to compete head to head against you. I can tell you who will win that one every time. I can’t wait to see who actually straps this one on.

Why the Euro Crisis Could Go On for Five Years    You often hear the expression that a camel is a horse designed by a committee. The dromedary that the European Central Bank has is spitting mean and ill tempered. Europe does not have one guy like Ben Bernanke who can take bold, imaginative action in an emergency and has the powers to enforce them. Even the ECB's mission is diluted when compared to Federal Reserve. While the Fed's is charged with maintaining economic growth while keeping inflation under control, the ECB is only interested in the latter. While Bernanke can call all the major bankers into a room over a weekend and announce a bailout on Monday morning, ECB president Jean-Claude Trichet is limited to making a few feeble, non-credible statements, leaving the EC's 27 members pointing fingers at each other. The problem for us is that European disarray is no doubt shaving economic growth points off of America's. That is what the stock market has been telling us all week. In Cambodia, they used to tell us newbie war correspondents to never stand next to a dummy, because the enemy may aim at him but hit you. While we have already survived the weeding out of our subprime banks, our cousins across the pond have only just started culling their subprime countries. Although a large part of the demise of the euro is already in the price, the headline risk is going to remain for a long time.