Dennis Gartman Starts Hedge Fund: River Crescent Fund

Noted trader and author of The Gartman Letter, Dennis Gartman is now set to do something he has dreamed about for some time: start a hedge fund. Gartman started his hedge hedge fund, The River Crescent Fund on August 17th and is trying to raise $200 million over an elongated time period. While Gartman would not name names, he has said previously that some "well known hedge fund managers" have already invested.

His fund will essentially run based off the recommendations he has made daily in his Gartman Letter. It is currently long soybeans and short wheat in an agriculture trade. In currencies, he is short the euro but long gold. This is Gartman's forte as he is always hedging his bets and playing two sides of a trade. His hedge fund will trade equities, crude oil, metals, agricultural commodities and more. So, it seems as if he'll take a global macro approach to running the fund due to the multitude of asset classes he'll be trading. Back in June, we saw that Gartman sees both inflation and deflation and so it will be interesting to see how quickly he moves in and out of positions as he is not a daytrader and typically holds positions for numerous days or even weeks. Additionally, back in February he said he saw gold becoming the world's second reserve currency. His current long gold position certainly reflects this view.

While this most likely means we'll be seeing much less of Dennis Gartman in the media, we'll still keep an eye on his movements regardless. After all, he is 'old school' in his ways and that's why we follow him. He's given great advice in the past, telling people to watch the base metals for signs of economic recovery. Additionally, he's laid out his rules of trading here and we highly recommend reading them. You can certainly bet that he's implemented those as founding principles of his new hedge fund.

Dennis Gartman Sees Both Inflation & Deflation

It's been a while since we last covered Dennis Gartman so we wanted to catch up with some of his latest commentary and post up what he's seeing in the markets. If you're unfamiliar with Gartman, he is a noted trader, a hedger, and author of The Gartman Letter. He always likes to run a balanced book and this is why we keep track of him. To get a better view as to his style, check out his excellent rules of trading. This time around, Gartman is out saying that he sees both inflation and deflation. Confused? Don't be.

He explains that due to the weak US dollar complex, commodity prices are going up, indicating inflation in assets. He specifically cites the action in grains, crude oil, and copper. In fact, in the past, Gartman has even said he could see gold being the world's reserve currency. So, while those assets are signaling inflation, he cites deflation in employment and labor prices. Additionally, he points out that housing prices are in a deflationary spiral and he says that, "homes are not going to go up for a long time." Curiously enough, Gartman thinks that the impact on the consumer will be negligible. We're not exactly sure how his rationale behind that works out though.

Gartman likes to play pairs trades as we all know and he notes that it's a bit harder to play the deflation side of this trade. For the inflationary portion, he says he can simply buy copper futures or Freeport Mcmoran (FCX) or Southern Copper (PCU), etc. But, on the deflationary side of things, Gartman has trouble going long bonds to place that bet. In the past, we've laid out scenarios for investing in both inflation and deflation, a resource readers can use to place their own wagers. This debate will surely wage on for a few more quarters (or even years), as the United States' fate slowly begins to play out.

In terms of economic recovery and world strength, Gartman thinks that the United States and Europe are the only two that will still truly be in the house of pain. He sees economic recovery beginning to occur in the emerging market nations such as China and Brazil, while other countries are beginning to benefit such as Australia. However, he thinks the US and Europe will be up a creek for a while longer. You can put on this pairs trade by simply going long Australia, Brazil, Canada, or any other number of world markets, while simply shorting the US markets or those of Germany, France, and Japan. Simply put, Gartman likes being long the 'new world' commodity exporters and short the 'old world' commodity importers.

We've highlighted some of Gartman's major activity in the past here on the blog as well. Back in April, Gartman had said to watch base metals as a leading indicator. And, copper exploded to the upside for numerous reasons. This call was in addition to his tendency to use the transports and baltic dry index as other solid economic indicators. After all, the economy can't truly recover unless we see it 'going through the motions' and transporting the goods that make the world tick. The month prior in March, Gartman was long 'cheap' retail and short the malls.

He definitely is a swift trader and likes to cut his losses short and let his winners run. We track him because he runs a truly hedged book and often has cutting market insight. We'll continue to monitor him and post up his moves when we can find time to pry ourselves away from our hedge fund portfolio tracking series.

Trader Dennis Gartman Says Watch Base Metals (Copper) As Leading Economic Indicators

We just wanted to post up a quick update in regards to Dennis Gartman's latest ideas and positions. Dennis Gartman says he has survived this mess because he is a hedger. We track him on the blog because he is long something, and short something against it (or vice versa). We run our portfolio in a similar manner and believe that if you're going to try to run a hedge fund-esque portfolio, you truly need to be hedged. So many funds these days have employed leverage and have ran such concentrated portfolios with 'all-in' bets that they have deviated from the original defintion of a hedge fund. We hope to highlight what a hedge fund should be in the true sense of the word. (Like Steinhardt, we like to keep it old school). Gartman is a noted trader and publishes the Gartman Letter. To get a better idea as to his style, view his rules of trading as well.

Back in March, we noted that Gartman was long cheap retail and short malls. He has recently been out listing his preferred positions for spring time. Over various media appearances we have noticed a few recurring messages. Gartman wants to be long: copper & Alcoa (AA). Gartman wants to be short: the Japanese Yen (forex or FXY).

In terms of copper, Gartman uses this base metal as an economic leading indicator. We've written in the past that Gartman likes to use the Baltic Dry Index and the Transports as signs we are recovering economically. When these indexes start to shoot higher, it is most likely a positive sign. (And, the Baltic Dry Index had shot up, only to recently taper off). Not to mention, the transports have seen some bullish action the past few days with a steady uptrend and now some consolidation into an ascending triangle. This pattern typically likes to breakout to the upside. But, as always, be nimble and play a break of the trend in either direction. Our man Stewie posted up this chart last night:

(click to enlarge)

He treats copper in this same regard and thinks that a rise in base metals signals to him that economic growth could be making a comeback. Gartman notes that after a long period of decline, Copper has been increasing. As an indicator, he likes to think of Copper as a Master's degree in Economics. He also goes on to say that you can monitor all base metals as a collective whole for the PhD in Economics. Gartman prefers these commodity indicators to raw economic data, citing that these metals moved downwards long before the data signaled weakness in the global economy. This makes perfect sense, as these metals are used for the construction of physical objects that are often used in infrastructure and other global growth sectors. The metals are definitely leading indicators, while often raw data (such as unemployment figures) are lagging indicators. As you can see below, Copper has definitely been moving much higher the past two months:

(click to enlarge)

Turning his focus to the Japanese Yen, Gartman has focused on being specifically long the Canadian Dollar (forex or FXC), the Australian Dollar (forex or FXA) and short the Japanese Yen (forex or FXY). He is in these positions under the notion that commodity prices will get stronger and he wants to own the currencies that will benefit from this (due to commodity exports). He dislikes the Yen because of Japan's large status as a commodity importer. Interestingly enough, Gartman has also stated in the recent past that he sees Gold becoming the world's second reserve currency. Time will tell if drastic change such as this is necessary.

Dennis Gartman: Long Cheap Retail, Short Malls

Dennis Gartman says he has survived this mess because he is a hedger. He is long something, and short something against it; or vice versa. And, we track him on the blog for this exact reason. We run our portfolio in a similar manner and believe that if you're going to try to run a hedge fund-esque portfolio, you truly need to be hedged. So many funds these days have employed leverage and have ran such concentrated portfolios with 'all-in' bets that they have deviated from the original defintion of a hedge fund. We hope to highlight what a hedge fund should be in the true sense of the world. We like to keep it old school.

Noted trader and author of the Gartman Letter, Dennis Gartman, recently sat down and basically said that he likes being long Canada and short the US. Gartman likes Canada's commodity exposure and so he is bullish on Canadian equities, relative to the US, as well as the Canadian dollar compared to the US dollar. If you're unfamiliar with Gartman, check out his Rules of Trading to get a better idea of how he thinks and positions himself.

In terms of specific equities, Gartman likes Family Dollar Stores (FDO) in that they are the cheapest of the cheap. From the beginning of this recession, we here at Market Folly have preached that you want to be long the cheap goods and short the expensive. We've been long Walmart (WMT) and McDonald's (MCD) and short the retail indexes, some discretionary retailers, and commercial real estate plays that focus on malls and retail such as Simon Property Group (SPG). Gartman harps on this point and claims that FDO is the lowest of the low in terms of cheap retail and says he likes to be long the cheap plays. Additionally, he has joined us on our 'short the malls' play and is short SPG as well, as mall traffic and consumer spending continue to decline.

He also mentioned to keep an eye on the Yen/Euro Cross in forex markets. This pairing began to rollover as the crisis began and he has postulated that the recent turning in this cross could possibly be bullish for markets. He cautioned to monitor it carefully, as it could just as well rollover yet again and signal another leg down.

In terms of Canadian equities, Gartman specifically likes Canadian banks. He is long the Royal Bank of Canada (RY) because of the technicals. He stated that there is no way he can go in there and examine every little detail of their balance sheets. That's the big mystery of financials; their balance sheets are like an abyss. He's simply gauging the price action and has noted that the chart has shown some signs of improvement. He also mentioned that he was looking at CIBC and BMO. Plus, he's bearish on US banks, so that sets up nicely.

He has liked being long infrastructure and short the general markets. But, that position started to move against him and he has now shifted into a long Copper position. He sees this as an alternative infrastructure play for the mean time and would like to move back into his infrastructure play.

We've covered Gartman numerous times on the blog before, as he recently said he saw Gold becoming the world's second reserve currency. He has also mentioned to keep an eye on the Baltic Dry Index and Transports, as they are leading indicators of global economic activity.

Dennis Gartman Says Gold Becoming World's Second Reserve Currency

In his most recent Bloomberg interview, trader, economist, and author of the Gartman Letter, Dennis Gartman has claimed that Gold is becoming the world's second reserve currency behind that of only the US Dollar. He cites that all major currencies are so weak and so people are moving away from paper money and into gold. And, with gold hovering around $1000, things could get interesting. Dennis says the 'trend is up and will likely continue to be up.' Basically, he likes to buy dips here and ride the trend. He had talked gold in a previous interview as well.

He currently says to sell the yen due to the stifled economy and weakness of their administration. There are simply too many problems in Japan and the charts point to that in the Yen. He also likes to watch the EUR/JPY cross as an indicator of markets. When that currency pair has headed south over the past year, the markets trend the same way.

If you're unfamiliar with Gartman, then we suggest you check out his rules of trading so you can get an idea as to his style. We've also covered Gartman's thoughts on the Baltic Dry Index.

Here's the full video interview at Bloomberg.

Dennis Gartman Talks Gold

Dennis Gartman, noted trader and author of The Gartman Letter sits down with Bloomberg to talk gold, amongst other things. (Video)

Dennis Gartman's Rules of Trading

I've seen these rules numerous times but have never posted them up. So, I have to give a hat tip to Todd Sullivan over at Value Plays for posting them up recently and reminding me of them again. If you are unfamiliar with Dennis Gartman, he writes the famed Gartman Letter. Taken from his site, "The Gartman Letter is a daily commentary on the global capital markets subscribed to by leading banks, broking firms, hedge funds, mutual funds, energy and grain trading companies around the world." He also talks about his trades/plays and walks you through his thought-process. We definitely enjoy his commentary and if anyone is a subscriber, let us know. To the rules:

DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING


1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.

3. Mental Capital Trumps Real Capital: Capital comes in two types, mental and real, and the former is far more valuable than the latter. Holding losing positions costs measurable real capital, but it costs immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling High; it is, however, a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or Neutral, and in bear markets, one can only be short or neutral. This may seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent.” These are Keynes’ words, and illogic does often reign, despite what the academics would have us believe.

7. Buy Markets That Show the Greatest Strength; Sell Markets That Show the Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.

8. Think Like a Fundamentalist; Trade Like a Simple Technician: The fundamentals may drive a market and we need to understand them, but if the chart is not bullish, why be bullish? Be bullish when the technicals and fundamentals, as you understand them, run in tandem.

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

14. Be Patient with Winning Trades; Be Enormously Impatient with Losing Trades: The older we get, the more small losses we take each year… and our profits grow accordingly.

15. Do More of That Which Is Working and Less of That Which Is Not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut back or eliminate losing ones. If there is a “secret” to trading (and of life), this is it.

16. All Rules Are Meant To Be Broken…. but only very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.