April 9, 2024

Another Big Short…?

As a 30 year old international hippie shoemaker, a bigtime commodity broker hired me straight out of the Piedmont Arts and Crafts show in August, 1980…literally…to go to work at Merrill Lynch Commodities in Atlanta. Yep. True story and more to it than just that one statement obviously, but at the very TOP of the commodities markets, after a decade of major inflation, with OPEC having lifted Crude from $2 to $35 a barrel, and with Gold having skyrocketed from $100 to $875, Merrill Lynch was hiring any halfway intelligent individuals they could find, looking to turn them into salesmen and brokers…their idea being, “This bull market will never stop! We need more salespeople!”

Broker material? Believe me…My parents were definitely thinking, “Oh no. What drugs is he taking now?”, when I called them to tell them I had been hired by Merrill Lynch.

Gold, which was trading at about $700 when I started, had peaked out 18 months earlier at $875, and when this rookie got on the phone cold calling potential commodity investors, 99 out of 100 people I talked to had some number between $1000 and $2000 that Gold was “definitely headed for.” I mean, EVERYBODY knew the bullish story, that being “inflation!”, and I do not exaggerate, nobody was even remotely thinking that Gold could actually be going down from there.

As an aside, I, who had never even heard of the futures markets before I was hired (for real), naively assumed that if literally ever single investor I talked to said Gold was headed higher, how could it not be so? And it was not until Gold had traded under $300 less than 2 years later that I began to understand something of how this game really works…that when the whole world is clearly on one side of a market, you’d damn well better not be betting with them…and I don’t give a damn HOW strong the logic seems to be.

Concurrent with the whole “inflation is here to stay” mentality, I don’t remember exactly when, but it was sometime during my first year in the business that Merrill Lynch came out with their “Natural Resources Trust,” a fund that was kind of like today’s ETF’s, that would basically be long various commodity related stocks and thereby “allow individual investors to capitalize on commodity price inflation.” And I don’t know how much of the fund they sold, but you can bet that every Stock Broker they had was pushing this HOT product, which, in that inflationary environment, was probably an easy sale and generated boatloads of revenue for the house.

And what happened? Hyper Inflation died and settled into a 2-3% range for decades…And commodity (Natural Resources) prices, as defined by Gold on the chart above, basically trended lower for the next 20 years…And that fund, CREATED FOR THE MASSES AT THE TOP OF THE COMMODITY MARKET, most likely basically NEVER again was prices anywhere even close to where it was when they first started marketing it.

Want one more very recent example of Wall Street’s foisting of a “no brainer” investment on the public?

I remember when the first LONG awaited Marijuana business IPO’s and ETF’s first became legal here in the USA in early 2021…with the Wall Street hype being in full blown marketing gear, to the extent that, even though I’m a futures guy, I was getting “What do you think? What ETF’s should I buy?” calls from all over the place…And everybody was gleefully buying them…

And then what happened?

What’s the point?

Gold, Commodity Funds, and Cannabis ETF’s are just a few examples (and oh yeah, don’t forget all those SPAC’s a few years ago before the NASDAQ dropped 37% in just 19 months), but in my 4 decades of being around this stuff, I will say that ANY time Wall Street’s banks and brokerages get on board with a new product, invariably something that has become “hot,” which nowadays comes in the form of market sector ETF’s, you’d better run in the opposite direction…and I KNOW I’ll get some rabidly opposed comments on this one…but good luck to you if you don’t recognize that the AVALANCHE of Crypto and AI related ETF’s that your friends in New York are pushing isn’t a massive “Sell” signal…that if you really think that there’s basically easy, BIG money to made in buying stocks based on $60,000 tokens, go right ahead and dive in…Don’t get me wrong, crypto is here to stay, but believe me, this is just another symbol on the board…and yes, a very hot one, but all the talk about “halving,” or mining, or replacing the Dollar, or the “new gold,” is just the usual bluster that is there for EVERY bull market…and in the long run, has NOTHING to do with what that market’s “value” is…or will be…And so, however many times you hear, “Crypto has these big sell offs, but ALWAYS comes back, and goes even bigger the next time!”, do know that this “logic” is, I promise you, no different than all the chatter I heard about Gold in the early 80’s, and then watched it go down for two decades…not to mention the 100’s of other supposedly “can’t lose” bull markets I’ve seen go down the tubes…WITH EVERY ONE OF THEM, AT THEIR TOP, HAVING HAD SOME FANTASTIC STORY TO “JUSTIFY” THEM GOING EVEN HIGHER.

To me, it’s more of an EXTREMELY expensive accounting mechanism, that does have its uses (primarily in the underworld?) but the simple fact that it’s “value” is in itself expressed in actual Fiat currencies…like the Dollar…would argue that it is essentially useless UNLESS it can be converted into one of those government backed currencies…So, that being said, is it a currency…or just an electronic form of “script” (all of which have historically disappeared sooner or later)…or another version of “Tulip Mania?”

All of the above is obviously arguable…And like I said, I don’t think Crypto is going away…but I assure you that just because it’s gotten to here…or that you could have made billions if you bought it at 10 cents or 10 Dollars…has NOTHING to do with its future value…And, I still say, it is NO different than any symbol on any exchange anywhere on the planet, and with Wall Street having just jumped MASSIVELY on the Crypto Bandwagon, if you buy it here, it’s going to cost you…and my guess would be it will cost you for YEARS upon YEARS to come. After all, one of the basic elements of smart investing is to buy when nobody else is…and if you think that a bajillion people now buying ETF’s (not even the real thing) is the time to be getting on the same bet…I’d say you’re kidding yourself…I’d add that just because a lot of famous people, even very smarts ones, are on the train IS meaningless, which is evidenced by the FACT that there have been innumerable major investment downturn/debacles that 99% of the world’s brightest investors TOTALLY did not foresee (anyone remember 2008?). As I am forever pointing out, all of the markets ARE ruled by mob psychology…and as an impartial observer (I am…I don’t care which way any market is going. All I try to do is make the read as to what it’s going to do next.), buying Cryptocurrencies here…all 13,000 of them…are the epitome of the same misguided, false “logic” herd mentality that exists at every top…and I DO THINK CRYPTO IS THE VERY SAME SHORT AS GOLD IN 1980 OR CANNABIS IN 2021…THAT IT WILL BE YEARS BEFORE/IF THEY EVER GET BACK TO THEIR CURRENT LEVELS.

And here’s a quick (incomplete) list of financial products that came up with a search for “Crypto ETF’s”…I am certain it does not contain all of them and I don’t know how many there actually are, but one thing I do know? They ALL come from the same Banks and Brokerage Houses whose real business is selling whatever “services” and financial products to the masses that they possibly can…Like I said before…You buy markets when nobody else wants to…NOT when it’s THE most popular game in town…And especially when “popular” IS a gigantic understatement.

So…I recognize that this entire newsletter is probably wasted energy, and with pretty much the only way do this being the Micro-Mini Futures Contract, my therefore “useless” recommendation is to Short Bitcoin Futures while it’s up here in the 70,000 area. If you think this is a worthwhile idea, and want some numbers vis a vis the risk vs reward, give a call.

With this market opening and trading wildly day after day, I expect no takers here…irrespective of opinion…so I recognize that this whole newsletter has probably been just an opinion piece more than anything else…And I am not trading this myself…So I’ll just end by going back to this: If you buy something when it is on its highs, and ALL OVER THE HEADLINES…and especially if Wall Street is NOW acting as your “croupier,” I THINK YOU ARE JUST ASKING TO LOSE MONEY.

Back to Cattle, Corn, Soybeans and Cotton…

Call anytime…I’d love to hear what YOU think,

Thanks,

Bill

770-425-7241

866-578-1001

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: None