April 23, 2014
Still Buying Treasury Bonds
More so than ever…
A headline story yesterday…
In other words, 100% of economists surveyed are telling you to do exactly the opposite of what I am doing. They are UNANIMOUSLY telling you to Sell the Treasury Bond market. I am telling you to BUY BONDS with both hands.
While the natural inclination is to assume (perhaps) that anybody with a degree in Economics must be smart about the markets, my experience has forever been that those guys are perennially about the worst group of “experts” you could EVER listen to when deciding which way to trade…Even so, they DO get consulted and they DO get listened to, and they, and their followers, are the same sheep who NEVER see the big crash coming, or for that matter, the big rally…or the big anything. As I always point out, the markets are a gigantic mob psychology game…and just because some guy works for a big name firm, or looks and sounds intelligent, or is on TV & the internet all the time does NOT mean he knows what is coming…and in reality, VERY few ever do…So, when you can line 67 of them up and they are ALL saying exactly the same thing? As I’ve written over and over, when you see this sort of unanimity, you’d better be running, as fast as you can, in the opposite direction…ESPECIALLY when it is some crystal clear…67 OUT OF 67? That is mind boggling to me…
I have done this stupid job for a long time…”stupid”, because I live on the edge of my chair 24-7, 365 days a year…Always winning or losing with no in between…Ugh!...At any rate, I HAVE done this for almost 34 years and while I can sometimes look like a complete idiot, those years have presented me with an encyclopedic list of “market setups I have seen before”, as well as some inkling of an idea as to how to handle them when they do appear…And though it by no means guarantees I will be right on this one---as you have read a 1000 times, I might be dead, dead wrong---I HAVE SEEN THIS SET UP, IN THE BOND MARKET, MANY TIMES BEFORE…where the market was clearly (in my opinion) trending higher while the WSJ was publishing lists of economist’s bearish bond market predictions that almost unfailingly turned out to be backwards.
See on the chart following for yourself…Bonds have been going up since January (dead opposite what virtually every analyst on Wall St. had been predicting), and to me, after drifting sideways to slightly higher for the past 3 months, now appear poised to begin a potentially somewhat vertical upside move...in other words, go relatively STRAIGHT UP.
Basically, since January (and for years before) the whole analytical world has been quite typically dead, dead wrong about the Treasury Bond and Ten Year Note markets…And as can be seen on the following Commitments of Traders chart, indicating the net positions of Commercial Hedgers, Large Speculators and Small Speculators, those Small Specs, notoriously nothing more than fodder in the markets, are still the most short they have been in 8 years …and most likely sitting on losing positions…Aside from what I believe are very BULLISH fundamentals for Treasury Bonds (see previous long winded newsletters in the crokerrhyne.com newsletter archives), there should come a time when you get all of those SHORT losers running for the exits…AS BUYERS…which often can be one of the driving forces behind dynamically bullish moves. This is a busy chart but hopefully you can grasp what I am trying to show here…
Here’s the long term look…Believe me, there is no law that
says rates HAVE to go back up. They WILL fluctuate, up and down, but they can
(and I believe, will) trade here between 130 and 150 for YEARS to come…
As stated above, I have seen this set up many times before and “have some inkling of an idea as to how to handle them when they do appear”. So what do I mean?
For me personally, this is one of those moments when I look at the trade and think, “This has big hit potential”. Some trades ARE better than others and as my old sage partner Ed said a few weeks back, “You don’t want to see sh*t when it ain’t there, but when you do see it lined up like this, you GIT ALL OVER IT”, which is exactly my perspective right now. It does NOT mean I will be right, but in fact, I don’t think my opinion can get any stronger than it currently is for this market…I want to be in it. I want to immediately get as much of it as I “reasonably” can…and I want to very definitely add to the position if and as it presents “confirmations” I am right.
I DO SEE TREASURY BONDS TRADING, MINIMALLY, TO THE 140-142 AREA WITHIN THE NEXT FEW MONTHS, AND IF IT DOES HAPPEN, I WANT TO BE THERE ALL THE WAY. If it does, and I do stay the course, the returns could be fairly substantial. If I am wrong, I will lose, as will you if you follow me, potentially everything you put on the table.
Plain and simple. Take the other side against all those experts whom you also have seen be so miserably wrong SO many times…and see what happens. Yes, it tough to go directly opposite what an army of “professionals” are telling you to do, but in my experience, especially in the bond market, this is what works.
Here are a few ways to get started…
ALL OPTIONS PRICES AND STRATEGIES IN THIS NEWSLETTER INCLUDE ALL FEES AND COMMISSIONS.
Here is the smart trade…
I think the odds are quite strong this market is either going to bust out and head for the 140’s…or it’s going to fail here, in which case rocking back to 131, just 3 points away, could be easy. Using the 2&1 shown here (real numbers), at 131 you would actually have been wrong and still come out a little ahead. Conversely, if we’re going up, as I keep saying, I DO SEE IT HEADING FOR THE 140’S. PERIOD.
For more leverage, this trade can be done with 3 calls and 1 put…
And by the way, if you ever put any faith in technical analysis, to me, Treasury Bonds currently represent the highest probability chart I know. Doesn’t mean it WILL go, but I maintain, this is THE PERFECT CHART TO TRADE ON THE UPSIDE…And as a worthwhile digression, I’ll tell you this chart goes hand in hand with several of my personally fabricated “reminders” posted on the wall right behind this screen:
THERE IS NOTHING WHICH MATTERS MORE THAN THE CHART. ANYTHING YOU HEAR, OR READ, OR FEEL IS IRRELEVANT TO WHAT THE CHARTS SAY, AND GENERALLY, THE DIRECTION IT IS POINTING.
THE BEST WAY IS GOING WITH IT (Take positions in the direction the market is moving).
And while I am at it, I might as well throw in a few more “rules” I’ve written to myself to remind me of lessons I have learned (all of them too many times).
THE BIGGEST MISTAKE YOU HAVE EVER MADE IS NOT USING THE BOTH SIDES STRATEGY ON EVERY TRADE.
IF YOU ARE NOT WILLING TO BUY BOTH SIDES, DO NOT DO THE TRADE.
There are more, all worth heeding…but back to options I like here…
Ed’s Explosion Position
There are any number of ways to put together leveraged positions similar to “Ed’s Explosion”, all of which can add puts to the equation as defense.
Here are a couple of straight up calls…
I never know what I will uncover as I go through the process of writing this newsletter...taking ideas and expectations out of my head...and there are often times when I get surprises. This is one...This July option, which will expire in June, could be deep in the money by then and could therefore be held beyond expiration as a futures contract…all the way into September. And interestingly, with the cash market in Bonds currently trading about 135, this means you are basically talking about an at-the-money option for $1000. VERY ATTRACTIVE I think.
Ok…that’s all I can stand to write…There ARE lots of ways to do this…and all sorts of leverage at hand here I think…But that’s your call from here. Maybe I’m right. Maybe I’m wrong, but mentally, and a little bit financially, I AM “all in” on this one.
I laid much of this out for Ed last night, and among other comments, he wrote back: “Buy here, lots, plenty of time.....a little insurance........new highs ......falls back in action........negative news.......damn 100%.......jeez...where did you find that headline???? Write the damn check.......might not work but will never, never, never be any better than this..........”.
And I totally agree with him.
It’s up to you from here. I DON’T think it gets any better than this.
Give me a call. I always like talking to all of you, whether you want to get on board or not.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Treasury Bonds