Are Hedge Funds Now Worthless on Average?

Provocative post title, hehe :-)) I was doing some financial reviews and saw that my core indexed holdings returned 17.1% in 2006. I call them the "Krypto Fund" after my dog, Krypto, who is paid dog biscuits to push the key on my keyboard to do the asset reallocation. The Krypto Fund excludes all my active trading, long-term "alpha" stocks & my commodity trading returns; it's purely diversified index funds and gold & silver. The CS/Tremont Hedge Fund Index showed a return of 13.86% for 2006 - not so good versus the Krypto Fund. The difference between the Krypto Fund return and the hedge fund index return is accounted for the huge fees their management slurps down. This isn't really surprising since the huge number of hedge funds and their trillions really can't beat the averages anymore - they are part of the averages. They just churn & churn & feed at the trough. Spare me the comments how SAC & some others are super - no doubt they are. So was Peter Lynch in the mutual fund universe. Superstars in investing, like supernovae in the universe, do exist, but they are very few and scattered sparsely around in space & time. QED.

India

India seems to be super long term bullish story. India has favorable demographics, many people speak English, the government seems to have moved away its prior hard core socialism, and its growth is excellent and seems to be in the early phases. The government is spending on infrastructure that will generate growth. India is a democracy with a 50+ year track record and a court system (not perfect - which is?) that draws much from British traditions. S&P raised India's sovereign debt rating to investment grade overnight, bringing it in line with Moody's and Fitch; hence India is no longer split rated. I have a substantial "alpha" investment in India-oriented stocks in the amount of 5-7% of core holdings. [For me, an "alpha" holding is over and above the core indexed assets. I'll write more on this technique later.] A good place to get information on India-oriented stocks is http://www.globaltechstocks.com/ where Jay and Lovaii provide insight and current information. There's good insight on many tech stocks from Jay and on option trading there from Adam, too. Also see http://in./finance.yahoo.com/ for pricing and other news.

Congress' Ethanol FUBAR?

So Congress in its wisdom has put on large ethanol mandates & subsidies & protective tariffs, causing huge corn demand. Corn has run from the lower $2 level to over $4. The all-time high for corn is around $5.50 in the summer of 1996 (some cash markets hit $6). Corn stockpiles are tight as last year's crop was hurt by drought. So a BIG 2007 crop is necessary - farmers are expected to expand acreage significantly. Let's do a "gedanken" experiment. Suppose we get a cold, wet spring and planting of this big crop is delayed, or maybe even some planned acreage expansion doesn't occur. And suppose this late crop gets hit by major heat in the crucial pollination phase in late July (late crop pollination period gets pushed into late July-early August heat) and has trouble. Some good forecasters see a long, hot summer. How high can corn go? Well, $5.50 would be easy - I figure $10 might get hit. What would happen? Corn is a crucial element in the food chain affecting meat, pork, chicken, sweeteners, cereals, etc. Massive press coverage would be shrill, that's for sure. The "blame-sters" would be out in force. [I have long corn & deferred livestock futures positions I am trading around, plus DE common stock I expect to hold awhile.] [PS: Writing this column made me realize I needed a way to make more if this scenario is realized - I bought some December Corn calls way, way out of the money.]

Gold Trade

You know I'm long term bullish on gold. The chart (April futures) looks promising for trade, as an intermediate term ascending triangle combined with a possible "second mouse" setup from the pullback the last few days from the breakout line. The beefers were adding to their net long position in the latest Commitment of Traders report as of 1/23 (Tuesday), but are not close to an extreme. So I bought some April gold this AM early. Whenever the beefers are playing, there's risk they might hit gold on a dollar play. (I wonder why they do that, why not just play the dollar if you are a dollar bull?) So watch your stops (or mental sell points) - you can always re-buy later.

Big Business in the Tank II

How sweet it is! A few days after my post on big business colluding with environmentalists to pump global warming to stifle competition, another aspect of their efforts to stick their hog snout in the global warming trough is revealed. The Wall Street Journal on page A10, upper right, January 26, 2007 issue points out that most of the big business collaborators have alternative energy divisions and investments that need government protection and subsidies. I am very happy to see my instincts confirmed.

Hillary the Grifter

I suppose it's no surprise that Hillary was deeply involved in the payoffs for pardons scandal of the last days of hubby Bill's administration. Thanks to Investor's Business Daily (page A18, 1/29/2007), I found out how her brother Tony Rodham seems to have gotten a VERY favorable "loan" of $109,000 from a felon who miraculously received a pardon from Bill. Very good terms on that loan - no payment ever required. A tiger never changes its stripes - Hillary received a $100,000 payday scantily disguised as cattle futures trading profits over 25 years ago, and her trail of corruption has never stopped.

Buying a Stock on Good News

A super stock trader posted this trading tactic in a chat room a couple years ago - he said others should pass it on so here it is. (I used it this morning successfully for CAT on its earnings report.) If a stock has significant news AND you like the news & want to enter a position, watch the opening five minutes. Take the high of that five minute bar and subtract the prior day's close. Then compute Fibonacci buy points using the 23%, 38%, 50% and 62% retracement levels (I use two digits for simplicity). Subtract from the five minute bar high price mentioned. These are your buy limit prices. Allocate your desired position according to your risk & perception of getting the stock you want, placing limit orders. This morning I just used the 50% level as I already had a 1/2 position & the stock is very liquid. I got a good fill on the bid side very quickly & could have gotten more about 30 minutes later. Put stops as you need them if you are a short-term trader, possibly at the prior day's close. There are two other ways to do this that seem to work OK, too. I'll post those later. (This can work for commodities, too, sometimes on a multi-day basis.)