Follow The Hot Money
- Posted by Jeff Carter
- on May 10th, 2013
One of the ways to make money in the market is momentum trade. Plenty of people try it. Richard Driehaus built an empire momentum trading. It’s not easy. In this age of computerized trading, even tougher to execute.
However, there is such a thing in the market called “hot money”. Hot money is in all markets, equities, securities, commodities, startups. Sometimes it’s smart money, sometimes it’s just following the herd.
For example, in the startup world, you’ll hear about new paradigms. Or, one company like a Facebook ($FB) will be highly successful and a hundred me too companies will start up looking to get funded. “My app does this, and it has a social network.” In the mid 2000′s, there was a lot of hot venture money pouring into clean solar and wind tech. Today, it’s photo apps and Uber Airbnb look alikes.
If you can guess where the hot money will flow before it gets there, you can ride a trend and make some easy money. Enter too late, you are buying a top and you get slammed.
Looking backward, we can see where the hot money flowed in the American economy. In the mid nineties, it began to flow into the NASDAQ ($NDAQ). The $QQQ still hasn’t hit it’s all time high, even in this artificially juiced up market. When the internet busted, money exited.
It made it’s way into real estate. Everyone thought that the sanctity of a home was worth something. Government incentives hyperfueled that demand. Then 2008 happened-which really became apparent in August of 2007. Money flowed out of real estate into?
Commodities. Corn, wheat, meat, oil. Commodities became regarded by some money managers as an “asset class”. Some sold blocks of commodity funds calling them “investments”. Other pieces of the hot money crowd ignored the commodity boom and instead made direct investments into farmland. Farm land value increasing is sort of a derivative of the commodity boom.
The only thing that didn’t go up in the commodity boom was the price of the largest trading firm in the world of commodities, $CME.
The other path hot money wound it’s way was into the US Treasury market. Bill Gross has famously called bullshit on this movement. But, hot money is also wounded money right now and thinks it’s found a safe haven in the United States government.
The market is just starting to see hot money leak out of commodities. Volume of trade is down. Jon Corzine put a lot of artificial risk into the market. Prices of commodities are down as well. That “investment” thesis doesn’t work out so well when prices fall on a buy only fund.
Recently, I have seen certain farmland prices begin to drop. It’s a sign to me that speculators aren’t buying property. Farmers are selling smaller parcels, 20, 30, 40 acres at a crack. Higher capital gain rates are also contributing to the drop.
The hot money is running into the stock market. The S&P ($SPY, $ES_M) is up over 14% this year. Yet, yesterday at the Ira Sohn conference, I didn’t hear a lot of happy talk or rosy outlooks for the world economy. The Fed has devalued the national currency and so the risk to buy stocks has dropped.
Don’t get caught when the merry go round stops.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
Tags Cloud#eastwooding $3.1 billion $100 billion Anderson Auburn Austin billionaires Bryan Johnson Cloud computing CoinDesk COST David Meerman Scott Democratic Party (United States) Department of Justice DNA Dry Creek Valley EAA AirVenture Oshkosh Euroland Genetically Modified crops Gibson Harvard Business School Hog Futures Jacob Leinenkugel Brewing Company Kobe Loan Michael Dell National Collegiate Athletic Association Newt phlx Populism PR Newswire Product (business) Providence Equity Partners Quora Same-sex marriage San Diego Police Department Shaving Small Business Administration Social Security Medicare Sport Statue of Liberty sub pennies Todd Ricketts Vimeo Ychart
Becker Posner Blog
Ben Horowitz Blog
Betting the Business
Black Line Review
Blue Sky Innovation
Both Sides of the Table
Business News Network
Chicago Booth Graduate School of Business
Cooler By The Lake
Daily Economic Release Calendar
Doug Ross @ Journal
Economics of a POW Camp
Foundation for Families
Garden and Gun
George Stigler Institute
Good Beer Hunting
Great Food In Chicago-Steve Dolinsky
Hyde Park Angels
Illinois College of Business
John Taylor's Blog
Legal Issues in Angel Funding
Macroblog-Federal Reserve Bank of Atlanta
Microbrews in Chicago
Mike And G
Milton Friedman Institute
National World War Two Museum
Notes From Underground
Ronald Coase Institute
Senate Banking Committee
The Alpha Pages
The Big Picture
The Clubber Fund
The Daily Crux
The Grumpy Economist
The Jack B Show
The Minimalist Trader
The Musings of The Big Red Car
The Polsky Center
The Streetwise Professor
Tough Love Marketing
US Federal Reserve Bank
US House Financial Services Committee
World War Two Blog