Friday, October 28, 2011

Bunga Bunga! La Dolce Beta?

Debt relief celebrations have commenced in a spectacular fashion as a liquidity tsunami was unleashed on global capital markets on Thursday, driving up all risk assets. Stocks surged, extending the biggest monthly rally for the Standard & Poor’s 500 Index since 1974, and the euro strengthened as European leaders agreed to expand a bailout fund to stem the region’s debt crisis. Treasuries sank, while metals and oil led a rally in commodities. Emerging-market stocks which got clobbered in Q3 are now approaching a bull market, with the benchmark index up 20 percent from Oct. 4.

Thursday's price action might have caught some off-guard but it didn't surprise me one bit. I was well positioned to capitalize as I knew that European leaders would finally hammer out some deal or risk global depression or worse. There is only one trade you should all be positioned for in the next few months, the "RISK ON" trade.

Why am I so confident? You can keep reading the gloom & doom on blogs like Zero Hedge who are paid shills for hedge fund managers like Eric Sprott, Jim Chanos and Hugh Hendry, talking up their book and spewing hot air on solars and warning of China's imminent implosion or you can read my comment below and find out the real truth from the world's best and most underpaid independent pension & investment analyst -- someone who doesn't shill for any hedgie or pension fund, big or small. And unlike the clowns on Zero Hedge, I actually have to trade to survive and don't like to bullshit anyone, especially investors who have been frightened away by these volatile and crazy markets (on days like Thursday, I have to be ready for the big beta boost!).

And to all you stupid pension funds paying 2&20 to hedge funds that are selling beta as alpha, I want you to pay particularly close attention because you've all been hoodwinked, distracted and scared shitless while elite hedge funds, short sellers and high-frequency trading scam artists rob you blind.

What does a day like Thursday mean? Is it just another short-covering rally which will fade as the market resumes its downturn? Should you stay on the sidelines and wait for a better time to buy? You could do that but let me explain to you why you should be playing this rally and buying the dips hard. There are deep psychological forces playing on money managers who are seriously underperforming their benchmarks. They are all suffering from performance anxiety, just as they did back in June 2009, and need to make up for those savage Q3 losses and are looking for a mega beta boost from the markets.

And what about that $2.5 trillion or more in hedge fund assets? Hedgies are also looking for a big beta boost or risk seeing massive redemptions at year-end. Most of the money in hedge fund land is with L/S equity funds which are basically all long small cap stocks and short large cap, but the truth is they're mostly long all caps which is why the majority also underperform when markets head south. The same goes for the prop traders at big banks, they too need a beta boost.

So how do you position yourself for the massive counter trend rally that I believe lies straight ahead? As I stated in my last comment, you go long/overweight sectors that got clobbered in Q3 (like tech, financials, mining, metals, material and energy shares) and short/underweight sectors that did relatively well (ie. defensive sectors).

Below, I have put together a sample of stocks I track and trade in various sectors which outperformed the overall market during Thursday's powerful rally. Broke them down into financials, tech, coal, mining and metals, energy and solars (click on each image to enlarge):






As you can see from the images above, big money is hungry for big beta. Where are they looking for this big beta boost? From the stocks and sectors I posted above. These sectors will offer investors that extra beta juice they're desperately seeking to shore up their returns.

It will be volatile, there may be more unforeseen negative surprises like some stupid ratings agency downgrading the US once again, but I would seriously keep on buying the dips on risk assets and riding 'La Dolce Beta' wave higher. Summer is over and sectors that are most leveraged to the global economy are heating up again, so keep calm and get ready to party like it's 1999 again as I see another melt-up forming here. Below, some music to brighten up your mood after that euro debt fiasco (images have been approved by the Italian PM's office).


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