INTC’s upbeat words and renewed M&A in the tech sector generally have increased the probability of a volatile upside thrust to global equities as the positive seasonal bias takes hold. We reiterate our idea of 10/8’s note that upside calls, many of which are trading below realized volatility, represent great value/limited risk ways to play for year end acceleration as SPX is primed to test its downtrend line from 2007 (see below).

Interestingly this morning, gold is flat in a positive stocks/weak US$ tape, contrary to the recent correlations. As was the case in late 1999, a technology led equity rally may have the “psychological power” to reallocate funds from other asset classes and other equity sectors.

SPX in an uptrend

It's Miller Time, says Barron's. Huh?

Lose 72% in 18 months and make the cover of Barron’s…  Is this a great country or what? 

Barron’s gushes about Miller’s rebound.  Read my “ciphering” below for more on that:

DON’T WRITE OFF Bill Miller quite yet.

The aggressive manager of the Legg Mason Value Trust, whose remarkable run of success preceded a more recent patch of dreadful yearly returns, is again near the top of his peer group in 2009. Through last Thursday, the Value Trust (ticker: LMVTX) was up a whopping 37.52% so far this year, putting it in the fifth percentile (top 5%) of all large blended-fund returns. It’s an amazing about-face from early March, when his fund had lost 72% of its value in a matter of about 18 months.

So let’s run the numbers.  If Miller was off 72% at his nadir, then:

• that’s 28% of his high water, so
• add his astronomical 2009 returns of 37.5%, thus
• 28% * 1.375 -> Miller’s at 38.5% of his high water mark, and
• In plain English, he’s still off 61.5% from his high!
• He’ll need to post three additional stunning 37.5% years just to recover his losses. (38.5% * 1.375 *1.375 *1.375 = 100%).

Here’s a “Growth of $10,000″ chart for Miller’s fund:

"Growth" of $10K in Bill Miller's Value Trust. (Click for more...)

Now remind me again why Bill Miller’s a genius? 

Without a a 100% objective risk management process, it’s not a matter of if, but when, you will blow up.  Beating the S&P for 15 years means nothing if you’re below where you started from 10 years ago.  In inflation adjusted terms, his results are much, much worse.

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I am posting this for a friend as an experiment to see who we can find via social networking. 

If you qualify, send your resume to the email address below.  Don’t bother me or you will make yourself persona non grata.  I mean it.

DIRECTOR OF OUTREACH COMMUNICATIONS

The Company

The company provides investor and shareholder relations for China-based, US-listed companies. As a premier corporate communications firm, the company maintains offices in New York, Florida, California, and Shanghai, China.  The company has positioned itself as an industry leader and has built a reputation for delivering tangible, measured results through a team of dedicated, experienced and performance-minded professionals. Over the next several years, the firm plans to accelerate its growth while continuing to offer innovative services to its client base.

The Opportunity

A motivated, high-performance leader who will assist with client management responsibilities while focusing the majority of their efforts on effective outreach to fund managers, sell-side analysts, brokers, high-net worth investors, family offices, and various financial publications. The role includes arranging non-deal road shows for clients, which consists of frequent travel throughout the United States and Canada for both meetings and investor conferences. Acting as a liaison, this role demands a strong communicator who will be a value-add during all client interaction, including the associated follow-up and due diligence requests.

The Candidate

The candidate will have at least five years experience in the financial industry, serving as either a licensed retail or institutional broker or sell-side analyst. This person should understand all aspects of a business plan, in addition to a Company’s financial model and statements, and be able to communicate this data clearly and concisely to professional investors. This position requires a relationship-oriented individual who holds themselves accountable for execution and meeting strict timelines, while maintaining the highest level of integrity. Dedication to improving the client’s image and communication capabilities is a must. International experience and exposure to China not required, but favored. Conversational or fluent in Mandarin a plus, but not required.

Starting Salary: $110,000/yr plus equity participation and bonus opportunity

Location: New York City.

STRICTLY NO PHONE CALLS.

Send resume via email to hciprofessionals@gmail.com.

 

MysteryHedgie observes: SPX bouncing off the trendline…

The vigorous bounce in markets from their “March reflation trendlines” touched last Friday (see SPX chart below; many asset markets look similar) raises the possibility that the combination of normally bullish November and December for equity markets, easy earnings comps basis last year’s dreadful Q4 and continued government stimulus result in higher volatility “lift-off” rather than a gentle grind. Out of the money call options, many priced below realized volatility levels, represent great value if you believe this scenario is a possibility. For those comparing the March 2009 low to the historic July 1932 low, it should be noted that stocks advanced 87% over the next 10 months (versus the present 60% in SPX) even as unemployment rose to it’s 24.9% peak in 1933….

SPX Bounces From TrendLine

MysteryHedgie Calls the Lines in the Sand…

Everything to its trendline….With this morning’s well telegraphed (thanks, GS!) weak NFP, the SPX and Copper have both traded to their “uptrend lines” drawn from the spring lows, while the US$, DXY has traded to its downtrend line (see below).

The lines have held… If you were fortunate enough to have hedged profitably over the last week as we suggested, consider “ringing the register” on a portion of your hedges. If the bear case has merit it must reassert itself quickly, before the Q4 bullish bias materializes.

October is rarely dull, and the next week will be no exception… the trends remain intact but the lines are clearly drawn.

Lines in the Sand: Dollar's Down Trend, SPX and Copper on their uptrend lines

MysteryHedgie draws our attention to the flattening yield curve and its implications…

Not widely discussed is the flattening of the US yield curve (see below – 10 year less 2 year yield), caused primarily by the rally in the “long end”, as the Fed has stated its intention to leave short rates close to zero for an extended period.

Intuitively this flattening could be viewed as a sign of economic softness ahead. This is all the more interesting given that there have been whispers that Friday’s NFP could be a positive number, as against expectations of -200k. Expect equities, commodities and the US$ to take their cues from the bond market in coming days; Friday’s report is more important than usual.

The Yield Curve Flattens

 

I am sitting in a new office surrounded by seas of boxes.  But MysteryHedgie has been hard at work on the Right Coast, solving a Chinese puzzle…

Here’s his latest:

China… as global equity markets have made new highs in September, China lags noticeably, see below.  Connecting the dots between GAME (Shanda) trading below today’s IPO price (Citi reiterates a sell recommendation, true Wall Street!) weakness in highfliers like BIDU and GAME’s lead managers, GS and JPM,  and the strengthening Yen, now below 90 ¥/$…..We expect the  discomfort of the past 3 days since Wednesday’s post-Fed  asset  market reversals to continue next week and refocus on Chinese shares.  FXI as a hedging vehicle seems sensible, especially given that option prices remain near their lows.  

SHASHR Tests Support

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Sorry to all you MysteryHedgie fans: we moved offices today and so I was unable to get this posted until now.  Sorry for my tardiness. 

Take it away, MH…

To hedge or not to hedge?  Yesterday’s post-Fed reversals in stocks, the $, bonds and weakness in commodities have left many wondering if the recovery has been fully discounted.  Perhaps  you’ve hedged once or twice since the March lows; puts expiring worthless, reduced longs keep running, shorts run even harder. 

By the numbers, options aren’t cheap (see chart), the spread of implied to realized volatility is very wide as it frequently is near turning points.  We suggested yesterday that copper was once again becoming a lead barometer; below $2.66 lb. turns the picture negative; gold continues to act queasily and overowned…. Hedging has been costly since March, but if it  is part of your risk management framework, it is time to consider defense once again.  Thoughts?

Insurance Isn’t Cheap Here

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“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, assistance to foreign lands should be curtailed lest Rome become bankrupt, the mobs should be forced to work and not depend on government for subsistence.”

Marcus Tullius Cicero

2000 year old Cicero quote reads like Glenn Beck: 

- Marcus Tullus Cicero (106-43 B.C.)

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We’re moving (imminently) – about a mile north – from Del Mar to Solana Beach, and much nearer to our favorite Yew Nork style pizza place (Bongiorno’s) and our favorite taco shop (Rudy’s Taco).

New Intergalactic Headquarters of FractalBox Advisors, LLC

Certified Feng Shui Space

See you on the flip side!