Chart o? the Day: Bond Fund Flows are Hilarious

Hugh L. O?Haynew (and there ain?t none other), one of our partners in crime here at Oakshire Financial, ascended to the heavenly realms of stock trading glory just a few weeks back with his two-minutes-to-midnight short call on Tesla Motors (NASDAQ:TSLA), a trade that returned nearly 100% booty in a mere seven days.

We call it ?two-minutes-to-midnight? because Hugh stepped up to the plate just a day before Tesla?s quarterly earnings report, timing that could equally have marked blastoff day for that already high flying, popular stock.

But it wasn?t. And Hugh?s call was prescient. Traders who went with him saw their money double in five trading sessions, and I, too, earned small sum for piggybacking on the idea.

A Win is a Win is a Win

Small or large, though, a profit is a profit, and in the aftermath of our first Tesla win, we got to wondering if that same Studebaker of a stock might offer us another round of juice if we played her again. Daily moves in the shares are huge, and if we just got the direction right, we thought? well, we, too, might find ourselves under the lights of stock advisory stardom.

So we looked at the charts.

First the weekly, as it offered us a definitive big-picture look at trading in TSLA ?

People ask me about my most profitable investment.

It was an investment I made back in October 1999. Today, it pays me a yield equivalent to 27%, and it has forever changed how I look for income opportunities.

In 1999, I was speaking at an economic conference in New York. During one of the breaks, I struck up a conversation with two gentlemen who both happened to work in the oil and gas business. At the time, I was doing some consulting work for a lawsuit involving a number of large oil companies and had been knee-deep in oil price and production data.

Oil and natural gas prices had been on a steady 20-year decline following the "oil shock" of 1979. By the time 1999 rolled around, analysts had universally soured on the sector. Prices were going lower, they said. In March 1999, The Economist devoted a whole issue to the glut of world oil.

Discussing the future price for oil, The Economist said, "$10 [per barrel] might actually be too optimistic. We may be heading for $5."

In October 1999, I didn't agree with the analysts or the common view that oil prices were going to sink lower. As it turns out, neither did my newfound friends at the conference. Over the course of the meeting we exchanged information and data to back up our thesis.

Immediately following that conference, I made an investment in Burlington Resources, an oil and gas company that was later bought by ConocoPhillips (NYSE: COP).

?Tis the season to shop. Daniel Gross at The Daily Beast suggests you give the gift that keeps on giving: LED bulbs.

Quote of the day

Geert Rouwenhorst, ?People have difficulty buying things for diversification purposes. But negative correlation is what it is. When one thing goes up the other thing goes down. You can?t have it both ways.? (FT)

Chart of the day

How good is Carl Icahn? Aside from the fact that he is now the wealthiest investor in the world, having surpassed George Soros this year with $8 billion in gains for calendar 2013 (according to Bloomberg), just look at how he plays his cards at the table.

The mark of a truly great investor is someone who can set themselves up to win even if they lose. Some call that ?optionality? or a ?margin of safety.? I call it genius, especially when the stakes and dollar amounts and visibility are this high.

That?s exactly what?s going on with Carl Icahn?s position in Apple. The stock?s been shooting straight up since his arrival and its trajectory has almost nothing to do with any of his proposals. The company has independently embarked on the largest share repurchase plan in history but Carl wants them to do more. And they may ? or they may not. It doesn?t matter. He can make money regardless thanks to the iPhone 5S, the new iPad products and whatever else they roll out in the future (TV, networked home, Internet of Things, iTunes payment processing etc).

Icahn has announced a softening in his stance re: how big the buyback he?s seeking needs to be. He?s filed a proxy motion for a precatory vote of shareholders on his proposals ? precatory meaning non-binding on the company, just a suggestion. Will he win? Who knows. Adam Lashinsky at Fortune is characterizing this move as the investor having ?blinked? in his game of chicken.

No, Adam. I don?t think so.

Why would he blink when he?s not in any danger at all. Isn?t that how a game of chicken works ? both parties have equal amounts of risk should they continue? What is Carl?s risk? Reputation? Please. He?s just allowing the investment to play out.

It is entirely conceivable that shareholders do not vote his way but that he wins anyway in the only way that truly matters ? making money. He lost his proxy fight with LionsGate but he still made money in the stock. With Netflix, he barely had to clear his throat. What?s the difference?

Carl is the king.

If you think that an energy shortage is bad, it will pale in comparison to the next water crisis. So investment in fresh water infrastructure is going to be a great recurring long-term investment theme. One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights.

Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. In places like China, with a quarter of the world?s population, up to 90% of the fresh water is already polluted, some irretrievably so. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years.

Aquifers in the US, which took nature a millennia to create, are approaching exhaustion. While membrane osmosis technologies exist to convert seawater into fresh, they use ten times more energy than current treatment processes, a real problem if you don?t have any, and will easily double the end cost of water to consumers. While it may take 16 pounds of grain to produce a pound of beef, it takes a staggering 2,416 gallons of water to do the same. Beef exports are really a way of shipping water abroad in concentrated form.

The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the 2008 US stimulus package was similarly spent. It says a lot that when I went to the University of California at Berkeley School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds!

At the top of the shopping list to participate here should be the Claymore S&P Global Water Index ETF (CGW), which has appreciated by 14% since the October low. You can also visit the PowerShares Water Resource Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VE), Tetra-Tech (TTEK), and Pentair (PNR). Who has the world?s greatest per capita water resources? Siberia, which could become a major exporter of H2O to China in the decades to come.

Every time the price of oil spikes, we learn vast amounts of information about the global reach of this indispensable commodity. It?s like taking a non-core elective in geology at college. So I was fascinated when I found the chart of relative sector winners and losers below.

No surprise that energy does best from sky-high crude prices. It is followed by telecommunications and health care. You would also expect consumer discretionary stocks to take it on the nose, as high energy prices almost always lead to a cyclical downturn in the economy.

Who is the worst performer of all? Europe, which makes the recent weakness even more understandable.

In their century long coverage of exotic places, cultures, and practices, National Geographic Magazine inadvertently sheds light on broad global trends that deeply affect the rest of us. Plus, the pictures are great. A recent issue celebrated the approach of the world?s population to 7 billion, and the implications therein.

Long time readers of this letter know that demographic issues will be one of the most important drivers of all asset prices for the rest of our lives. The magazine expects that our planet?s population will reach 9 billion by 2045, the earliest date that I have seen so far. Can it take the strain? Early religious leaders often cast Armageddon and Revelations in terms of an exploding population exhausting all resources, leaving the living to envy the dead. They may not be far wrong.

A number of developments have postponed the final day of reckoning, including the development of antibiotics, the green revolution, DDT, and birth control pills. Since 1952, life expectancy in India has expanded from 38 years to 64. In China, it has ratcheted up from 41 years to 73. These miracles of modern science explain how our population has soared from 3 billion in a mere 40 years.

The education of the masses may be our only salvation. Leave a married woman at home, and she has eight kids, as our great grandparents did, half of which died. Educate her, and she goes out and gets a job to raise her family?s standard of living, limiting her child bearing to one or two. This is known as the ?demographic transition.?

While it occurred over four generations in the developed world, it is happening today in a single generation in much of Asia and Latin America. As a result, fertility around the world is crashing. The US is hovering at just below the replacement rate of 2.1 children per family, thanks to immigration. But China has plummeted to 1.5, Europe is at 1.4, and South Korea has plunged as low as 1.15.

Population pressures are expected to lead to increasing civil strife and resource wars. Some attribute the genocide in Rwanda in 1999, which killed 800,000, as the bloody result of overpopulation.

?Apple will never be a consumer products company,? said John Sculley, the Apple CEO who fired Steve Jobs in 1985. Today Apple is the world?s largest and most profitable consumer products company.



go to the Mad Hedge Fund Trader's website

Highly recommended, unconventional trading service:

Trading Coach Sam Johnson demonstrates the #1 Passive Income Strategy for Traders

Stuff I?m Reading this Morning?

Late last night we got the official news on the Apple ? China Mobile deal. How big is this? Potentially explosive. (WSJ)

Meanwhile, do NOT miss the explosive TIME cover story on Carl Icahn. (TIME)

Also, here?s why sad Obama can?t have an iPhone. (Reuters)

The thing about explosive up-25% years in the stock market. (PragCap)

Explosive returns require equally explosive corrections. (Ivanhoff)

Bitcoin is exploding in China. (Xinhua)

Some really bad advice for investors in the WSJ. (RandomRoger)

Indonesia and Brazil are probably the most f***ed EM countries when the tapering begins, says JPM (I?m paraphrasing). (ETFTrends)

Secret docs leak from hot start-up Uber and now we know explosive their growth is. (ValleyWag)

Japanese stocks: Headfake or Bull Trap? (iBankCoin)

New evidence rocks scientists? conceptions of the early mating habits of humans. We were into some freaky stuff back in the day, turns out. (WSJ)

Explosive gift ideas for the techie on your list. (GQ)

Have you voted yet for this year?s Finance Charlatan of the Year? Every vote counts. (SurveyMonkey)

My book, Backstage Wall Street, available at Amazon


The Reformed Broker

The Chart of the Day is Coca-Cola Bottling Company Consolidated (COKE). I found the stock right at the top of the New High List when I sorted it for frequency. Since the Trend Spotter signed a buy on 10/17 the stock is up 8.46%.

Coca-Cola Bottling Co. Consolidated is engaged in the production, marketing and distribution of carbonated and noncarbonated beverages, primarily products of The Coca-Cola Company. This is the bottler headquartered in Charlotte, not in Atlanta.