For aggressive traders only, focus here

I felt it was so critical for investors to understand the big-picture macro
potential top and global bear market in stocks developing in the late 1990’s
that in 1998 I wrote my book The Hedge Fund Edge, that described what was
happening and how stocks would ultimately be hard-hit, and how investors could
avoid much of the pain. I also felt this was the case just after the 2000 peak
in the market, when, at the TradingMarkets conference in Las Vegas in 2001, I
told investors I felt that tech and internet stocks in particular had made a
“generational peak.” It is interesting how increasingly frequent these big
picture macro shock-waves have become, and how much more important an
understanding of the force behind them now is.

I wish I could go on to explain the precarious situation of the global financial
markets in this column, but unfortunately this column is far too short for me to
be able to impart to you the true story in a way that could be understandable.
It is for this very reason that I have just completed and updated the “2006
Investment Roadmap.” See the end my article for details on how to obtain it.

I can remember very vividly two times when beautiful short-term trading
methodologies I was using were overwhelmed by major shock-waves that negatively
impacted my trading in ways that could have been avoided and substantially more
profits garnered if I had only understood the big-picture background at the time
completely. The first was 1981, when I had slowly and meticulously built a short
pyramid in OJ futures and they had begun to plummet beautifully. Don’t forget
this Rule: Never short OJ in the winter, and never do so without understanding
the weather situation and the potential for problems. One Friday in January a
major breakdown looked underway. And then there was a FREEZE over the weekend.
Limit up for over a week. Riches to barely affording UC Berkeley in about two
weeks.

The second time was 1987, and in many ways it was even more frustrating. I
understood the forces that were leading to that panic and had built a nice short
position in Eurodollar futures, along with those forces. I was out of stocks
watching and waiting. But what I failed to understand was how major shocks can
impact virtually every market and invoke unanticipated responses from the powers
that be. The response to the October market crash was NOT INITIALLY a run to the
quality of bonds BY THE MARKETS THEMSELVES. However in thin Asian trading,
massive volume bond and Eurodollar purchases by the Fed helped trigger a
“perceived” flight to bonds that led to a gap up in Eurodollars beyond the last
several months of market decline Monday morning. My position was smaller and the
impact merely to erase most of a profit, but the frustration was even greater in
many ways because I felt I was on top of the situation more thoroughly.

My point is that when real and major shock-waves triggered by big picture huge
macro forces hit, I don’t think there’s a trader in the world who doesn’t
benefit by having understood the precarious nature of the big picture
vulnerabilities before-hand, as well as what the reaction of the authorities to
such panic are likely to be. Because of knowing this, I did much better in 1998
and in 2000.

We live in interesting times. Ones that I believe more than ever REQUIRE a full
understanding of the big picture macro environment and its vulnerabilities. The
most massive fiscal and monetary stimulus since Hitler has been injected into
Japan, a major economy with global implications. The most massive CONCERTED
GLOBAL central bank stimulus program since WWII is winding down. In my opinion,
there has never been a time in my life when understanding the macro situation
has been more critical than in the period of the next few years ahead.

And so I have spent much time and analysis in trying to explain our global
predicament to investors and traders in the “2006 Investment Roadmap.” For full
details on how to receive it, see the information at the end of this article.

I will continue to do my best to help investors through potential storms with
this column, but without a thorough understanding of what is happening and why,
something I just can’t cover in this amount of space, I cannot do justice to the
critical nature of the macro environment.

In this regard the Wall of Worry continues to be climbed by global markets this
week. Bonds are still staying precariously close to the critical 4.9% yield that
will BEGIN to trigger problems for global stocks should they be breached. The
EUR and Yen continue to oscillate in ranges, with big implications upon an
ultimate breakout. We continue to like industrials, healthcare, networks,
(bottom in natural gas stocks and trusts here?), China, Indonesia, Telecoms, and
Aerospace on the long side and (we suggest some hedging here for those with
close to normal exposure) we like on the short-side big cap internets and
General Merchandise, as well as some interest-rate sensitive, and big-cap
growth. Aggressive traders could position with strong groups over weak ones, but
with more cautious allocation than normal.

Our model portfolio followed in TradingMarkets.com with specific entry/exit/ops
levels from 1999 through May of 2003 was up 41% in 1999, 82% in 2000, 16.5% in
2001, 7.58% in 2002, and we stopped specific recommendations up around 5% in May
2003 (strict following of our US only methodologies should have had portfolios
up 17% for the year 2003) — all on worst drawdown of under 7%. This did not
include our foreign stock recommendations that had spectacular performance in
2003.

Mark Boucher has been ranked #1 by
Nelson’s World’s Best Money Managers for his 5-year compounded annual rate of
return of 26.6%.