A preface…One, if you do not want to receive this newsletter, please let me know. Two, if you think my work is worthwhile, please do pass it along to anyone who might be interested. Three, if you think any of these ideas make sense, and you have the risk capital, do something about it. And four, do understand everything here is the opinion of Bill Rhyne. If I am right, hopefully you can make some money acting on what I think. And if I am wrong, you will assuredly end up losing money.
January 24, 2013
I Still FIRMLY believe one of the monster trades
in 2013 will be Short the Precious Metals
Let’s start with this recent January 18th headline about Silver, the “poor man’s gold”.
“U.S. Mint Silver Coins Run Out as Fund Buying at 5-Year High”
I apologize for constantly repeating it, but I always have to remind people the markets ARE a mob psychology game. No values are real. No values are scientifically arrived at. Even though supply and demand come into play, prices, and more importantly, price changes, are more a function of speculative buying and selling than anything else…especially, I would add, in something like Gold or Silver, where investor perception represents, I believe, 95% of their value.
And in this giant game, one forever recurring event is seeing the trading masses get absolutely clobbered after they have finally, and unanimously, arrived on one side of a market…and it then goes the other way…and blows them all totally out of the investment waters…Whether it stocks, or a stock, or real estate, or Bonds, or a commodity market, if you are taking the time to read this letter, you certainly can cite any number of examples in which you remember exactly the sort of boom, bubble and collapse I am talking about…
I started this newsletter with the headline about “running out of Silver” because I have long viewed the poor man’s gold as something of a “false” indicator in the metals…What I mean is, it’s a lot easier to go out and pay for an ounce of silver than an ounce of gold, and any time I see experts rhapsodizing about silver leading gold…or the MASSES buying so much that the U.S. Mint can’t keep up…I can’t help but be looking at the short side.
Then there’s this…Ownership in gold based ETF’s hit record levels in December…If I pointed out you that 99 out of 100 investors owned a hot stock, or if I told you that 99 out of 100 stock analysts were recommending a particular stock…would you go buy it? All I can say is, “I hope not”. And then I’ll tell you this is exactly what I believe you now have in the precious metals markets…From what I can see, THERE ARE NO BEARS IN GOLD…and if you can find anybody who is any degree of negative, they probably still “would be buyers at $1550” or something along those lines. Really. Who’s bearish out there? Who ISN’T bullish? And again…HOW MANY TIMES DO YOU NEED TO SEE THIS SORT OF SET UP?
As I’ve written before, “Buy Gold” IS the single most popular commodity idea I have EVER seen in this business, and that being said, I consider any down day as potentially the beginning of a massive, massive sell off which could EASILY take Gold to below $1000 an ounce.
We just went through “The Great Recession”. A year or two from now I think you’ll be hearing about, “The Great Liquidation”, in Gold.
A few years from now, I’d guess there will be 1000’s of investors, thinking, “Why didn’t I see it? IN RETROSPECT, it was so obvious. EVERYBODY was saying ‘Buy it. You gotta own it’.”
Want more evidence of this trade’s popularity? While No indicator is an absolute in this business…They are only clues…But I do look at the following Commitments of Traders chart, with Gold at $1700 an ounce, and see that the “little guy”, truly the epitome of futures markets fodder, is basically more long than at any time in history.
This may look like a tiny detail on the chart…but see for yourself. Decide for yourself if this is, or is not, significant…
Or how about this…? In Platinum, the level of speculative longs has gone through the roof in recent months…
And just as a reminder of how totally one sided opinion is in this market, I’ll reinsert all those blueblood bank and brokerage house predictions in Gold from my December 13th newsletter…the point again being, how many times do you have to see ALL the brokerages UNANIMOUSLY saying, “Buy This”, to know you need to run the other way?
Think about it. The big three so loudly proclaimed reasons why “Everybody ought to own some Gold” have proven to be bogus:
The world did NOT fall off a cliff economically.
The world currency system is still solidly intact.
And Inflation has not even REMOTELY reared its head (nor will it).
I CONTINUE TO BELIEVE GOLD IS THE MARKET WHERE PEOPLE OUGHT TO BE THINKING ABOUT “CLIFFS”.
I THINK ANY NUMBER YOU WANT TO IMAGINE ON THE DOWNSIDE IS POSSIBLE WITHIN THE NEXT FEW YEARS.
I CONTINUE TO RECOMMEND SHORTING FUTURES AND BUYING PUTS IN BOTH GOLD AND SILVER.
I think you need to be in this position now…and stay in this position.
Every time I look at this chart, at this market which I believe is priced on 95% emotion, I think: In Futures, the bigger they are, the bigger they DO fall…and I do expect you will see some $150-$200 down days at some point when this thing starts falling apart.
Has an automobile gone up this much in value in the last 10 years? Real Estate? Computers? Food prices? Is there anything you can think of that has multiplied in value this much…and is still there? And what can you do with Gold…other than look at it?
Here is an option I like at current levels…
And here’s the long term look in Silver, maybe the most overvalued, over hyped commodity on the planet…My opinion, of course, but I find it difficult to believe this stuff is even above $10.00, much less at $30.00.
Here’s a little example of why I do consider trading nothing more than a game…
An option I like here…
Still Shorting Corn, Wheat and Soybeans
We have had seemingly nothing but bullish USDA reports and unceasingly bullish news in Corn, Soybeans and Wheat for many months now, yet all three are still miles below levels any typical analyst would have thought possible six months ago. Two weeks ago we had another supposedly bullish report and all three markets have had their usual “Get on now!” rally…which I believe has ended…and will now be followed by truly sharp moves into new lows.
I CONTINUE TO SEE CORN, WHEAT AND SOYBEANS AS BEING IN THE EARLY STAGES OF SEVERE BEAR MARKETS.
My basic premise is: Users of these commodities have long ago been scared into covering their needs (buying) far into the future, while farmers, who also believe “prices can only being heading higher”, are still sitting on massive supplies from last fall’s harvest…which they WILL be SELLING, quite possibly in a panic, at lower and lower prices as the year progresses. South America’s crops will soon be coming out of the field, and farmers here, and for that matter, all across the northern hemisphere will be right behind them planting everything they can, on every acre over which they can run a tractor.
I strongly believe ANY shortages in any of these crops was built into prices last year…and all the talk after every USDA report about “prices having to go up to ration supplies” is nothing more than the normal gibberish you hear on the way down in every agricultural bear market.
AGAIN. ANY SHORTAGES HAVE BEEN ACCOUNTED FOR BY THE MARKETS. THERE IS A TON OF PRODUCT THAT FARMERS NEED TO SELL BETWEEN NOW AND HARVEST LATER THIS YEAR.
Think about it. There has been a steady drumbeat of nothing but bullish news for months…and where are all three markets? They ALL made new 6 month+ lows a few weeks ago. It’s the way this stuff always works…
Be short Corn, Wheat and the Soybean Complex.
DO go back and take some time to look at what the history of this market has been…And if you have any sense at all about how the markets work, you must know that at EVERY one of those Soybean market peaks, the rhetoric was the same as we are hearing today. All bullish. And all so “logical”. But WRONG.
I think this put represents a lot of leverage….
And this could be big too…
We are still long Cotton
Cotton appears to be on the move but I am tired of thinking and writing this newsletter so I’m just going to throw out the chart…and also remind any of you who follow Cotton that during the past few months I have seen statements on Cotton speaking of “the most bearish USDA report ever”, along with other reports that “China has enough cotton to last them for 6 years!”, but even so, this market has been rallying…Just one more example of how this really is just a great big real money GAME.
And we are still long Lumber
Lumber cranked up a good $60 pop on the upside, then had what I’m assuming was a $30 “correction”. Just taking a little experience in hand, I’m going with the idea every violent bull move (which is what I’m looking for) has maybe one hard core correction…and then they just go. I don’t know if this is the case here but I am definitely a buyer of call options, at the market, in Lumber right now.
And for the record, I am STILL Bullish the stock market.
And for the record, I exited my last long Eurocurrency position during the first week of January. In general, I think the Eurocurrency move is “done”.
And one more time…Regarding being short these markets that the whole trading world seems to be so bullish on…
As I stated above in paragraph one, no price in futures is “real”. There is no way you can tell me there is any rational explanation, other than, “This IS a game”, for seeing Silver go from $26 to $48 in 3 months, then be back at $32 two weeks later. The fact that today’s marketplace values Gold at $1670 or Silver at $32 is meaningless. Those numbers are going to change and they are probably going to do so dramatically…So…The question becomes, “Which way will it be?”. Will it be on the upside, and meaning just about every brokerage house on the planet has miraculously (and unanimously) handed you a recommendation that truly makes a lot of money? Or will it be the same, same, same story of the public getting it handed to them?
I tell people, you put this on. You wait. It may start today. It may start a month, or three months from now. Or six. But it WILL happen…in my opinion…and the hard part will be just hanging on and letting it go…
Give me a call if you are interested in anything here…
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Gold puts, Soybean Meal puts, and Corn puts.