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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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Watch out for the Black Swans

It is not my intention to ruin your day. But I may well do that if you read this piece. While traders pile on their longs with reckless abandon, and retail flows into equity mutual funds turn positive for the first time in two years, I am hearing a rising tide of negativity from the jungle telegraph. There are “black swans” circling out there everywhere, and the risk is that they alight upon us in great unexpected flocks, like a scene out of Alfred Hitchcock’s classic film, The Birds.

Let me give you a list of things that can go wrong this year:

*The ten year Treasury bond spikes to 5% and money gets expensive. 

*Crude soars to $120 a barrel and gasoline rises to $4 a gallon.

*Europe blows up again, sending the dollar through the roof.

*Seeing stock prices soar, Ben Bernanke ends QE2 early, paring it down to QE 1 ½.

*The high frequency traders and quants hungry for a mean reversion smell blood in the water and trigger another “flash crash.”

*Retails investors conclude they were right to stay away and bail on what they have remaining.

And here is the scariest thing of all. All of these black swans could hit at the same time and reinforce each other, possible around March or April, triggering the recurrent double dip fears. Could this be the third consecutive “sell in May and go away” year? This conjures up the vision of a “ground hog year”, where 2011 is a carbon copy of 2010.  A strong first quarter is followed by two dead quarters, and then a strong year end finish. This is what “lost decades” look like. Look at the 20 year chart of the (SPY) below and tell me this isn’t happening.

Of course, this is just one of many possible scenarios that could play out this year. As for me, I’m booking my chalet in Zermatt in the Swiss Alps now to beat out the rest of you.

By. Mad Hedge Fund Trader


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  • Anonymous on January 26 2011 said:
    Sorry, chum. That chalet in Zermatt is reserved for the next 200 years by one of the many royal families from the Persian Gulf. But there are many openings still available in the Paris and Detroit vicinities. :eek:
  • Anonymous on January 27 2011 said:
    I think in their heart of hearts everyone knows we're in for it. "Birth pangs" is a better description, I think. The labor that brings forth the inevitable. As Solomon once wrote: For man also knoweth not his time: as fish caught in an evil net, and as the birds that are caught in the snare; so are the sons of men snared in an evil time, when IT FALLETH SUDDENLY UPON THEM. (we are not in this time yet, but it is coming)
  • Anonymous on January 27 2011 said:
    :-x What about the continued pressure on Consumer Prices at the pump and at the grocery store? What about CA filing for bankruptcy? or Illinois? or Nevada? What about an EU nation such as Spain becoming illiquid when the bond vigilantes send financing rates to 15%+? What about the discovery that most of Congress is populated with earth-destroying aliens???
  • Anonymous on January 30 2011 said:
    I don't know what to believe any more. I read all the doom and gloom stuff in 2010 and bought into it. Lost a bunch of money while most others were making it. My problem was Elliott Wave convinced me they had it figgured. Believe me they couldn't have been more wrong. They specialize in it looks like this is happening, while saying something else may be happening, always leaving the door slightly open to say they were right when basically they were wrong. I had to quit following them because their suedo-science sounds so convincing. You will go broke waiting for them to be right.

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