March 28, 2014
Long Term Interest Rates Are Headed Lower
I continue to recommend: BUY TREASURY BONDS
I feel like a broken record but I will say it again: Virtually ALL of the TV and Internet Opinionaters are perennially backwards about what they think. They all sound good. They all look professional. They all seem to make so much sense…but when they are ALL chattering in the same direction, you’d better be positioning for the opposite of what they are thinking. I have been in this business for over three decades and I will tell you the OVERWHELMING majority of individuals in and around the markets don’t have the vaguest clue as to where any stock or commodity is going. Like I said, they all sound polished, and knowledgeable, but THEY DON’T KNOW. I personally have a few “heroes” I respect but they are few and far between and even they can be dead, dead backwards…And no, I don’t sit here and say, “I DO know. Follow me in the markets”, but my I will tell you if you can detect when the tube boobs are semi-unanimously singing the same song, you will be one giant step closer to making smart trading decisions.
So…Do you hear ANY of the Yakkity Yaks saying “Buy Bonds. Rates are headed lower”? Oh, I’m sure there are a few oddballs on the wagon with me, but in general, the whole analytical “expert” community is fully bearish on Treasury Bonds, fully certain that the Fed’s “tapering” can only mean Treasury Bond prices have to fall, and fully, I believe, totally backwards (as usual) regarding the current direction of interest rates…On January 1st, Treasury prices started heading higher (and rates lower) and I believe this will continue to happen, more and more dramatically so, until well out into next fall.
Take a look…
What have futures done since tapering began? Bonds were “supposed” to go down…
And this is interesting…As I have noted on numerous occasions, Small Speculators generally are nothing but fodder in the markets…They are forever on the wrong side of what is happening (being heavily influenced by the supposed experts/talking heads and other media sources…their only real source of “knowledgeable” opinion) and are therefore perpetually losing money. Back in January, dead on the lows in the interest rate markets, I pointed out their short position in Ten Year Notes (what all the pundits prattle about) was the heaviest it had been in over 8 years…AND…with Treasuries having rallied ever since? SMALL SPECS HAVE BARELY BACKED OFF OF THEIR SHORTS…As can be seen on the next chart, THEY ARE STILL EXTREMELY SHORT…STILL MORE SHORT THAN THEY HAVE BEEN IN 6 YEARS.
This chart feels a little too “busy” and maybe hard to decipher. Bottom line is the little guys still have a major bet that Notes (and Bonds) are going down…
And I believe they are about to REALLY get it handed to them. I honestly think Bonds are JUST BEGINNING their bull move and some degree of a DYNAMICALLY straight up trade is now dead in front of us. Everybody is still short and we have possibly reached the point where the “grind” of forming a bottom has been done…and now the market can more easily shift into a higher gear. Sometimes markets crawl…and sometimes they RUN…and I think RUN, HARD, is what we get next.
I CONTINUE TO SEE TREASURY BONDS AS A BUY. I CONTINUE TO SEE AN EVENTUAL TARGET OF SOMEWHERE NEAR THE 150 LEVEL.
I AM NOT JUST HOLDING WHAT I OWN. I AM BUYING MORE.
We are still Short Cocoa
Plain and simple, Commercial Hedgers still have a record short position in this market versus Speculative Traders still having record longs. Commitments of Traders Reports (chart following) are by no means a perfect instrument for predicting markets but I have seen this sort of set up result in massive sell offs too many times to ignore what I can only classify as overwhelmingly bearish numbers. Again, however, this does not absolutely mean Cocoa is going in the tank. Commitments are only an indicator…often an excellent one, but nevertheless, they just present “clues”.
Additionally, as reported in my January 29th newsletter (can be found in our crokerrhyne.com newsletter archives), 20-25% selloffs in Cocoa, more often than not happening within a few months duration, are almost common…and I see no reason to expect otherwise when/if this market does start to break. With this in mind (20% would be 600 points or $6000 per futures contract) my approach here is to absolutely own puts here until it does happen. I may be dead, dead wrong…there could be more upside here, which would definitely mean losing money…but this is a risk-reward situation in which I am more than willing to be involved.
WE OWN PUTS HERE AND WILL CONTINUE TO DO SO…TO SEE THIS MARKET BACK AT 2200-2300 WOULD NOT SURPRISE ME AT ALL.
Still Short the Cattle Complex
“Bubble” is a word that gets thrown around a lot nowadays but I don’t seem to hear it used about the Cattle market…which I personally believe HAS hit somewhat ludicrous levels…and owing to what are supposedly “the most bullish fundamentals in decades”, is a market now WIDELY regarded as having no real downside at all…
Well, remember $150 Crude Oil in 2008 and the “peak oil” story that we were in danger of “running out of oil reserves”? But somehow, within a year Crude had dropped to $35 a barrel? Or Gold a few years back, at $1900, with nearly every brokerage house and bank on the planet predicting nothing but higher, higher and higher prices? And then it dropped to $1200? Or $18 bulletproof Soybeans that somehow dropped back to $13? Or $8.50 Corn, and supposedly headed for $10, that within a year lost almost 50% of its value? Or Cotton, rocketing to $2.25 a pound, and then, within a year, being back under $1.00?
All of those moves, and many others of like magnitude , have taken place in the past 5 years…and MY BET IS EXACTLY THE SAME THING IS FAIRLY IMMINENT IN THE CATTLE MARKET. I don’t care what the story is, or what the numbers are…or anything “logical” anyone wants to throw at me as to why “Cattle are going to stay up”. These markets go up AND down. No price of any market we trade is based in any formulaic reality. It’s all mob psychology. All the markets are perennially bouncing between too far up and too far down…and to me, Cattle have become one of the more extreme “too far up” cases I have ever seen. I AM SHORT THIS MARKET AND WILL STAY SHORT. I do not say this because I have a bullheaded, “I know I can’t be wrong”, sort of attitude, but simply because pretty much every time I have seen this “CAN’T go down mentality” in the marketplace, it has been a precursor to an eventual price disaster…And I don’t think this will be any different.
As I’ve told a few of you, the hard part in these trades is not in spending the money. The hard part will be hanging on when/if they start working. The hard part will be not wanting to “take profits” after Cocoa drops 200 points, or Cattle drop 7-8 cents, and you start thinking, “I’ve got a double” (or whatever). What if it bounces back up?” , instead of just sitting…and letting the trade truly unfold towards some of the objectives indicated on the charts above.
I would also point out that all of these trades are perfect for the “2 & 1”. Writer’s fatigue prevents me from outlining those strategies here but I can easily lay them out for you on request.
And for the record, I am still recommending buying Puts on the Dow Jones. Until the Dow can close at a new high, I will remain on the sell side. If it CAN close into new highs, I will exit any shorts and reassess where I want to be…but I am pretty sure new highs would not put me in what I perceive to be a VERY crowded bullish camp.
It goes without saying, all of the above are only my own opinions, and however strongly I express myself, it does not mean I will be right. And if I am not right, you will probably lose money.
But I do think these are all killer ideas. Give me a call if you have an interest…or just to say hello. I always enjoy hearing all of your voices and knowing what you are up to.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Treasury Bonds, Cocoa, Feeder Cattle, Live Cattle.