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Mad Hedge Fund Trader

Mad Hedge Fund Trader

John Thomas, The Mad Hedge Fund Trader is one of today's most successful Hedge Fund Managers and a 40 year veteran of the financial markets.…

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Bernanke Says Buy Stocks, Or Else!

I believe that the risk markets are discounting a recession that isn’t going to happen. Not yet, anyway. So I am going to start adding some small, limited risk call options here.

After analyzing the statement from the Federal Reserve yesterday, it is clear that Ben Bernanke is holding a gun to your head, threatening to pull the trigger if you don’t buy stocks.

By taking the ten year Treasury bond yield down to 2.0%, some 80% of equities now have dividend yields greater than bonds. A substantial number of companies are paying dividends double or more the ten year yield. This is unprecedented in economic history. Take a look at the yields of some of the most conservatively run companies:

AT&T (T) 6.2%
ExxonMobile (XOM) 2.70%
Procter & Gamble (PG) 3.50%
Wal-Mart (WMT) 3.00%
Johnson & Johnson (JNJ) 3.70%
3 M Co. (MMM) 2.80%
Dupont (DD) 3.70%
McDonald’s (MCD) 3.00%

There is something else important that no one is focusing on. The 25% crash in the price of oil from $100 a barrel equates to one of the largest tax cuts in history for consumers. Each dollar decline in the price of gasoline adds $10 billion a month to the purchasing power of American consumers, and $40 billion a month to consumers globally. You can make the same argument for other commodities as well, which have all suffered enormous declines.

In fact, today’s surprise draw of 5 million barrels in inventories reported by the Department of Energy suggests that the economy is stronger than perceived, not weaker. Someone is going to notice this soon.

Since the July peak to the Asian bottom, the (SPX) has plunged 23%. This is with an economy that is growing at a 2% rate. During the 2008-2009 crash, the (SPX) fell 52%, when GDP was shrinking at a 6% rate, we had just lost several major financial institutions, the credit markets had seized up, and the ATM’s were two weeks away from shutting down.

Am I the only one that sees a mismatch here? Have the markets just imagined a phantom disaster?

I think the no brainer here is for the (SPX) to rally back up to the 200 day moving average at 1289. That is up 170 points from this morning’s opening. Get even a piece of that and it will boost your performance nicely.

S&P 500

S&P 500 Large Cap

By. Mad Hedge Fund Trader


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Leave a comment
  • Anonymous on August 11 2011 said:
    Sorry, It's been demonstrated beyond a shadow of a doubt that Wall Street is run by criminals. I would not and will never trust these vermin with a dime ever again.
  • Anonymous on August 14 2011 said:
    Gold has and will continue to outperform both. Unfortunately theres very little incentive for authors like this one to recommend gold as then clients cant be charged fee after fee for constatly changing asset classes based on guesses of the future. Buy gold and silver bullion from northwest territorial mint. If you dont know why then pull your head out of the sand and start loking around

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