January 20, 2021
What the USA, and World, will look like by Mid-Summer?
After the coming end to a year of a massive consumer lock down…and with a return to a normal Presidency, including a normalization of international trade (and diplomacy wherein Putin is no longer our principal “ally”)…and with vaccinations now going forward with an administration that does not DENY the pandemic…and Democratic Congress stimulus packages (whether you like them or not)…and the better weather of Spring and Summer…AND with what the equity market rallies HAVE BEEN, for months, “predicting” about the future, IT IS MY VERY FIRM OPINION THAT BY AUGUST OF THIS YEAR THE UNITED STATES ECONOMY WILL BE VIEWED AS THE HOTTEST ON THE PLANET…and one of the major benefactors of that evolving global realization will be an ongoing flood of funds into our currency, the US Dollar, as, if you want to invest here, it takes Dollars. And quite simply, if on balance the world is BUYING DOLLARS, the value of the US Dollar will be going up…and in fact, in my opinion has already begun to do so.
Therefore…I RECOMMEND BUYING THE DOLLAR FUTURES CONTRACT
However, as the Dollar options market is too thin to be viable…
MY PRIMARY RECOMMENDATION IS TO BUY PUTS IN THE EUROCURRENCY
(as it moves dead opposite the US Dollar and being short the Euro is the same as being long the Dollar)
With my long stated belief that market movements are more a function of mob psychology than anything else…of funds chasing and then FLEEING media generated popular ideas…part of my thought process involves just listening to the proliferation of opinion provided by all of those supposed expert brokerage house analysts, “strategists,” and internet yakheads who profess to understand the markets (and whether an individual wants to believe it or not, these “experts” ARE the sum total source of what investors base their decisions on) and keep my antenna up for those inevitable occasions when they ALL are mouthing the same sheep-herd “logic” about a particular market…And then think in terms of going the other way.
And no, I don’t just sit here thinking and fabricating conclusions about “what everybody thinks.” I am constantly trying to take the charts, news, events, mass opinions and “fundamentals” into account, and together with my 40 years of experience (good and bad), IMAGINE what, as I led with above, the markets and the world will look like, not tomorrow, but months or even years out into the future…And as I said, part of figuring that out IS just listening…and waiting, as they say in the sports world, “for the game to come to you.” And that IS the way it goes when it comes to mass media OPINION. Every so often, to me, it just becomes OBVIOUS that the whole investment community is on one side of an idea…And right now…You can read and hear, EVERYWHERE, “the weak (weakening) Dollar,” with the supposed logic being: Revolution in the streets! Job Losses mean the Fed keeps rates low! Our horrendous response to the pandemic…LEADING the world in new cases! The Democrats are going to spend us into oblivion!, etc…That the Dollar is trash…and can ONLY be heading lower!
AND TO BE CLEAR. I TOTALLY DISAGREE. THE DOLLAR IS A BUY. I THINK A MONSTER BUY. RIGHT HERE. RIGHT NOW.
Any time I trade the currencies, I always have to remind you that Alan Greenspan himself, while having more information, supercomputers, and expert help than anyone on Earth, on various occasions while Fed Chairman, point blank stated (paraphrasing), “ALL OF THE EXPERTS ARE BASICALLY FOREVER WRONG IN THEIR PREDICTIONS OF CURRENCY VALUES”…And even more specifically, he also stated that all of the factors they cite to base their conclusions have basically proven useless as a currency predictive factor, and in reality, were no better than tossing a coin…So, if this is true…and I have seen it be so for decades, whenever I do detect that all of the know-nothing Wall Street guys are unanimously (and pompously “certain” of their logic) on one side of the Dollar, I DO go the other way…Call me stupid if you like, but this is, after all, like all this stuff, just a piece of paper and its “value” IS determined by mob psychology…of, one more time, money chasing…and then fleeing…popular ideas….So, put YOUR ear to the ground and see what YOU hear. Do you detect ANY bullish sentiment towards what is STILL the number one reserve currency on the planet?
The vaccine IS here…and whether or not its acceptance or dispersal is stumbling out of the gate, vaccinations WILL go forward, and as time goes by, adjustments WILL be made and we WILL put Covid behind us…even if annual shots become necessary…VERY IMPORTANTLY, Covid is no longer a surprise and WILL now be combatted (NOT denied by the new administration)…AND AS THIS CLOUD IS LIFTING (ALREADY) I SAY THAT THE PUBLIC, AND ECONOMIC GROWTH, ARE GOING TO BE ROARING TOWARDS LIVING AGAIN AS THE MONTHS GO BY…THAT CONSUMPTION AT EVERY RETAIL AND INDUSTRIAL LEVEL IS GOING TO BE EXPLODING ON THE UPSIDE…AND IT OBVIOUSLY WILL BE BULLISH FOR THE USA…and yes, my “logic” suggests, FOR THE US DOLLAR.
THE DOLLAR LONGER TERM
THE EUROCURRENCY -WHICH MOVES DEAD OPPOSITE THE DOLLAR…AND WHERE I AM POSITIONING…
Here is my immediate recommendation…
Maybe I am dead, dead wrong, but I do look at that chart, and DO recognize that a 6 or 7 point move is NOT a big deal…REALLY.
I AM EQUALLY BULLISH THE MEAT MARKETS
BUY LIVE CATTLE, FEEDER CATTLE AND LEAN HOGS
More specifically…Yes, I caught the bull move in Corn, Soybeans and Wheat from the lows but absolutely missed the super surge in late November and December…but I do think those markets are now “done” for a while…that with EVERYBODY now on the bullish bandwagon, the trade in them will be choppy, sideways, and potentially lower in the months to come…And beyond them, my guess is that the majority of the commodity bull markets that are making headlines as indicative of coming inflation…Copper, Gold, Silver, Crude, Lumber, etc. will settle down and do the same over the next few months…that is, drift lower.
BUT THE MEATS, WHICH HAVE BEEN SIDEWAYS TO SLIGHTLY HIGHER,
For almost a year now…
COULD NOW BE WHERE THE NEXT BULLISH EXPLOSIONS OCCUR
As noted, I think the public is going to SURGE out of their year-long confinement. And while behaviors won’t immediately return to old norms, I have little doubt that the coming back of jobs (galore), together with people just getting OUT of their houses, and the ability to have social gatherings…and actually dine in the 1000’s of now closed restaurants can ONLY represent a massive increase in the demand for Pork and Beef…not to mention what is also happening in our export markets vis-à-vis China’s stepped up imports. Without getting complicated, I will just say that by August, I think there is an excellent chance that we will be looking at Cattle and Hog charts that look very much like what we have recently seen in, for example, Corn and Soybeans (charts following)…that is markets that have truly EXPLODED on the upside.
And yes, I got off far too early…And no there is nothing that say that the markets I am recommending will make the same types of move, but I DO believe that what happened in Corn and Soybeans (and other markets) is indicative of what one should be expecting in just about any market that “gets going” in the current overly FLUSH capital environment the Fed has provided.
FEEDER CATTLE – LONG TERM
My specific recommendation…
LIVE CATTLE – LONG TERM
Buying this call…
LEAN HOGS – LONG TERM
STILL LONG AND STILL BUYING COTTON
As I have repeatedly noted, Cotton has continued its months long STEADY climb with virtually zero analysts in the very small Cotton world YET to become bullish…And as you Cotton guys must know, when Cotton IS ready to quit, all of those same guys who have essentially been saying it can’t go higher (for 30 cents now) will be ALL OVER the bullish side, talking 15 cent leaps and saying, “You gotta be LONG.” But as of now, they still are NOT bullish…And when you put that together with worldwide vaccinations leading the global economy vigorously out of its Covid induced contraction, and again, I believe, manifesting in an absolute EXPLOSION of activity (look at what’s going on in building, for example, which has a direct correlation to cotton use…carpets, furniture, etc.)…AND if you throw in the possibility that $14.00 Soybeans and $5.00 Corn WILL suck away some Cotton acreage??? I THINK COTTON CAN ONLY BE GOING SHARPLY HIGHER…AND ACTUALLY, IN MY MIND, MAY BE RIGHT WHERE CORN AND BEANS WERE 6 WEEKS AGO…In other words, after crawling higher for months, Cotton could be at that stage where it lifts truly lifts off and bolts 15-20 cents FROM HERE…as all of the naysayers finally come charging in on the bull side and the final FAST 20% of this bull market takes place. I have been calling for the Mid 80’s for months…but as noted below, have now shifted my opinion towards a higher target. I THINK WE WILL TRADE THROUGH THE $1.00 MARK…WITH MAYBE SOMETHING LIKE $1.10 AS A DEFINITE POSSIBILITY.
COTTON – LONG TERM
My current recommendation…
As always, I encourage you to consider taking all of these trades as one “unit,” which at these prices would be about $6350 for all 5 contracts…and then count on that if at least ONE of them works, it could pay for TOTAL losers in the others. Obviously, the objective is hit on them all, which certainly can happen…but I am obligated to say it is also possible to lose on them all, meaning you could lose 100% of what you have on the table…It’s all in the math which you can do for yourself…If my overall scenario is correct, it could be very good. If not? You can lose all or part of what you invest…And finally, one alteration would be to pick just one of the Cattle contracts, thereby reducing the overall cost a bit.
A last note: After two weeks away from the markets…and a truly unforgettable 25 mile bone-crushing back pack with my wife and two sons to the bottom, and back up, of Grand Canyon…I feel fresh, extremely objective and ready to go…It is my VERY firm belief that all of these trades have the potential to be big winners (obviously they may not), and if they do start working, I intend to do everything I mentally can to just let them happen…
Would love to hear from all of you…and get your outlook as to how you think this year will unfold…So whether you want to trade or not, do pick up the phone and call?
Thanks…Happy New Year,
All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurocurrency, Feeder Cattle, Live Cattle, Lean Hogs, Cotton