June 14, 2012
NEVER seen it this one sided…
Last weekend I attended a neighborhood party at which a couple of guys cornered me with questions about commodity trading and the markets. At social gatherings, my usual response to, “Tell me about commodity trading”, is to change the subject as quickly as I can. I live and breathe this stuff in my head almost 24-7 and the last thing I want to do at a party is pontificate about the markets. However, these two guys were persistent, so I spent about 10 minutes “explaining” how all the markets were just a big mob psychology game, and that nobody, all the way to the top of the economic information chain, ever knows what is going to happen (if they did, for example, the Fed and/or financial powers that be would have headed off the Dotcom, Mortgage and European Crises long before they occurred). I added that whether you are Ben Bernanke, George Soros, or Bill Rhyne (no, I’m not inferring I am in their class), sometimes they are right and sometimes they are just dead, dead wrong. And again, I emphasized, the whole damn thing is a game dominated by mass hysteria, media headlines, fear, greed, whatever. All the little price numbers we follow are nothing but a perception…Anyway, they eventually got to the inevitable question, “What are you doing in the markets now?”…and I truly, truly wish I had a video of both their faces when I answered, “Well, a few days ago, I started aggressively buying the Eurocurrency”. I mean, they were both almost comically stunned, and both actually exclaimed, in unison, “WHAT???”, and then proceeded to tell me that I must be out of my mind. “Don’t you know” this and “Don’t you know” that? “Come on, Bill. You must be joking”.
BUT I’M NOT.
I am right and wrong in this stuff. But one thing I know: The absolutely BEST trades ARE those where the average guy just thinks you have to be insane to take the position you are taking…And as I wrote in my last newsletter, I have never, ever seen opinion as one sided as it now is in the Euro.
I’m not going to rattle on about why I think the idea of Europe collapsing is about as absurd as saying the USA is about to do the same. Folks, the world IS moving forward. This “crisis” has been hyped to hell and back, and I fully believe the WORST has already been fully discounted by the markets. I would guess that even if 100% of the Greek population voted to leave the EU this weekend, IT WOULDN’T MATTER TO THE MARKETS.
I THINK STOCKS ARE GOING UP. I THINK TREASURY BONDS ARE GOING DOWN.
AND I THINK THE EUROCURRENCY IS POISED TO ABSOLUTELY EXPLODE ON THE UPSIDE.
Here is why….Two pictures that are worth a 1000 words…
What you see here is almost dumbfounding….In the past few months, as depicted by Futures Open Interest (bottom part of this chart) the number of “players in the game” has almost doubled…to RECORD LEVELS.
And Commitments of Traders (bottom part of the following chart) shows you how all those players, broken down in three categories, are positioned in the markets…
I won’t go into any long detail here and just say: On balance, Specs are short out the yin yang. Commercials are on the other side…and again, I HAVE NEVER, EVER SEEN OPINION AS ABSURDLY ONE SIDED…AND “CERTAIN”…ABOUT THE OUTCOME OF AN EVENT AS IS THE CASE NOW WITH EUROPE.
AS ALWAYS, MAYBE I AM DEAD, DEAD WRONG BUT I SEE THE EUROCURRENCY AS A SCREAMING, ROARING BUY…TODAY…BEFORE THIS “SO IMPORTANT” ELECTION THIS WEEKEND IN GREECE.
REMEMBER, THIS IS A GAME…PLAYERS GETTING IN AND OUT ARE ULTIMATELY ALL THAT DETERMINES WHERE A MARKET IS GOING. SOMETIMES THE MOVES ARE GRADUAL….AND SOMETIMES THEY ARE EXPLOSIVE/INSTANTANEOUS…WHICH IS WHAT I THINK WE ARE ABOUT TO SEE HERE.
Here is what I am doing with Eurocurrency options today….
The markets are open, and moving, until 5:00 pm…so the prices on these options will most likely have changed by the time you read this…
Or this…less time…more leverage
Bottom line is, I think the Eurocurrency will be substantially higher within the next 2-3 months. Immediately, I think it could positively explode by Monday, initially driven by the fact SO many specs are all over the short side of this trade (to get out, they have to BUY…and there is a LOT of buying they might have to be doing).
I’d also say I see this as the perfect set up for buying call options with a small percentage of puts as defense---I think the last thing we’ll see out of the Euro going forward is sideways.
Maybe I’m wrong but I do think there is a BIG move coming…one way or the other…and as I see this definitively as a classic case of “Who’s the last fool?”, I have no idea how big or fast this thing could go from here…
Give me a call if you are interested. There are all sorts of ways to go about this…