July 13, 2012
There is no hope? I pulled this headline from a major news website yesterday, which, to me, so clearly defines the rampant doubt everywhere regarding stocks and the world economic situation…
One, I don’t think we need “saving”. I continue to emphasize my belief the recovery is fully underway, that, as I pointed out in a series of economic charts recently, http://www.crokerrhyne.com/newsletters/07-03-12.htm , everything I see indicates we are headed firmly in the right direction…which is all that counts.
And two, this headline also expresses the “NO HOPE-All the problems can’t be solved!” sort of mentality that is everywhere in the media…which, again, I think is totally backwards….
Think about it. Look at all the reasons being given as to why you SHOULDN’T buy the stock market, reasons NOT to be optimistic about the future:
Job Growth is too slow. The economy isn’t recovering fast enough.
The “fiscal cliff” is going to kill jobs.
Election uncertainty is not good for the economy.
Europe won’t survive. Europe! Oh God! Europe!!!
China is slowing down. Maybe going in the tank…
Japan may be the next Greece.
If you pay any attention to the news, you certainly have heard every one of those sentiments, and many more, all expressing nothing but pessimism as to where the world is heading. To an extent, I would I almost say there is really NOTHING positive being said by anybody, anywhere…Obviously, this is not the case, but I do believe you’d agree that the general media driven outlook concerning Stocks and the economy is essentially OVERWHELMINGLY NEGATIVE…And I think all that opinion is way, way off the mark.
I CONTINUE TO BELIEVE THE WORLD IS ON THE CUSP OF AN ECONOMIC BOOM…AND THAT THE STOCK MARKET IS PRIMED FOR AN UPSIDE EXPLOSION.
In previous newsletters I have written at length as to why I use the term “boom”, but this time around I just want to show you few more “pictures”.
The economy is on the rocks? Why then, and this will probably come as a major surprise, are roughly half of the 30 stocks in the Dow Jones, right now, DEAD ON THEIR HIGHS? If the stock market is any sort of barometer of future economic activity at all, with all the pessimism out there, why are these companies all poised, in my opinion, to rip higher?
See for yourself…You tell me…Do these 14 globally recognized and quite diverse companies look weak? Is there anything here that jives with all the pessimism in the media?
So what do I see here?
If all these stocks were on their highs and I could hear all those talking heads screaming, “Buy now. Buy stocks NOW!”, it would be one thing…But the truth is (in my opinion), these 14 stocks (almost half the Dow) all look set to bust out on the upside (or are already doing it) and all I hear is, “It’s bad out there!”. I would also add, of the other 16 stocks in the Dow, 14 appear to have experienced “normal” corrections, and only 2 look “bad”.
While these charts do not give you some magical perspective as to the future of the markets or the economy, all I can say is, in my old hack opinion, they do seem to directly contradict this ever bleated (as in sheep) media idea the world is headed down the tubes…Au contraire, to me, THESE STOCKS LOOK LIKE NOTHING LESS THAN A ROARING BULL MARKET…and while they have all been “crawling” higher in the face of a steady drumbeat of ever negative press, I firmly believe, at some point, any day now, we WILL see the “crawl” turn into an explosion in which the Dow (as one measure) tacks on two or three thousand points in a few months time…and all of those doubters, like clockwork, will then suddenly decide, “My goodness. Everything is OK!”.
HOW MANY TIMES TO YOU HAVE TO SEE IT TO KNOW WHAT TO DO? THE WORLD IS NOT FALLING OFF A CLIFF. WE AREN’T. EUROPE ISN’T. CHINA ISN’T. ETC.
I CONTINUE TO RECOMMEND BUYING FUTURES AND CALL OPTIONS IN THE STOCK INDICES. I MAY BE DEAD, DEAD WRONG BUT I DO THINK WE COULD SEE THE DOW PASS THE 15000 MARK BEFORE WE GET TO ELECTION DAY...I’d also say, there will be lots of pundit “logic” expressed about what the outcome of the election will “mean”,…and I would ignore all of it.
Updating other markets…
I still see Treasury Bonds as a tremendous sale…
Buy the Eurocurrency…
As I have been noting, speculative traders have the largest short Eurocurrency position EVER...This IS a game...They will, in my opinion, end up losing BIG...and in a hurry.
Buying Corn and Soybeans…and what the drought can mean, now and later…
This is an extremely fluid situation…I am handling it on a day to day, week to week basis…and I will not even try to write everything going through my head…but here are a few quick notes.
I am still long, and still adding new positions in both Corn and Soybeans. I see these both as markets that “won’t stay where they are”, that if the drought does not break, in today’s environment of so much hot money chasing speculative ideas everywhere on the planet, there is no telling where you could end up on the upside…And I mean that…We COULD see some prices that most traders would consider unthinkable. Conversely, when the weather does improve, or when the markets have accounted for the crop damage done, primarily in the Midwest, we could also see equally breathtaking moves to the downside.
The point is, I see this as a two tiered trade…I am long now but later expect to be short. Weather generated bull markets are “usually” (there IS no norm in futures) quite fast on the upside, as straight up as anything ever happens in this business, but they “usually” are temporary. They DO end and often go almost all the way back down to where they started.
With this in mind, and having been through this a few times, I know these markets can turn from going up big, to going down big, in the space of a single day, and therefore am absolutely using the purchase of some put options as defense while I am long…
I am generally using two approaches…But, everything I do really comes down to the math…This market is here. It could go there. What is this in dollars? On a option? On a futures contract?
One is buying futures, then buying short term puts against them.
The other is buying “units” of two calls to every put.
I am basically trading volatility, assuming big moves for at least the next 2 to 6 weeks, and even the concept of buying units of one put and one call makes a lot of sense. Again, it’s all about the math…If I pay 50 cents to own both sides of the market, what does it mean if the market moves a dollar? What does it mean if it goes nowhere? (You lose).
I DON’T KNOW HOW THE WEATHER IS GOING TO DEVELOP, NOR DO I KNOW HOW THIS IS GOING TO PLAY OUT…BUT RIGHT NOW, I AM JUST GOING WITH IT, ASSUMING SOMETHING BIG ON THE UPSIDE.
What I am writing here on a Friday night could be irrelevant by Sunday night when the grains reopen, so any of the prices or parameters I show here may not matter by then. But the approaches will be the same…with the number one rule being, whatever you do, cover yourself in the other direction.
Feel free to call this weekend if you want to talk about any of this…
Here is one example in each market using the September options…As there are also August options, with two weeks to expiration, there are any number of strategies you can put together (like futures with August puts for example).
Having seen $150 Crude oil (when $40 used to be high), $1900 Gold, $2.25 Cotton, $4.50 Copper, etc...all of which were unfathomable (to me) 5 years ago, I constantly remind myself that “high” can be meaningless. There is no telling where continued drought, or an end to it, might take either of these markets…So let me be clear about one VERY important aspect of these ideas : There may be a lot of opportunity here… but these markets can also entail tremendous risks (which I try to manage), so do not even consider getting involved with this unless you are truly understand you can win big…or lose big.
Again, there are any number of approaches to these markets…Give me a call if you want to take a look at possibilities…
And if you are a farmer producing Corn, Wheat, or Soybeans…
Give me a call if you want an outside opinion about marketing your crops…for this year’s crop and/or whatever you plan to do in 2013…Weather IS the driving force behind these rallies, and it is important to understand the hedging opportunities offered….really out of nowhere when you get down to it…are usually temporary. You do want to have some sort of plan in place, using either forward contracts, futures or options…and, in spite of my currently bullish opinion, if you are a producer, I believe you should already be taking some sort of action to lock in these prices on some percentage of your production. Don’t just sit there and think you’ll know exactly when to sell. You won’t. So it makes sense to be selling some on pre-planned basis….As I told one farmer with irrigated corn, if you contract on 20% of your September, 2013 Corn today, and a week from now it’s 50 cents or a dollar higher, you WON’T be crying about having booked 20%...and you’ll book some more…On the flip side, if it rains, or this rally just ends, you are going to feel pretty lousy if you didn’t sell something into the rally…So call me if you want ideas…and I promise you I’m not going to sit here and tell you, “You need to open an account”. Most likely, all I’ll really be telling you is to book some percentage of your production with your elevator….TODAY.
Enough said…Again, call if you want to this weekend…
Old Hack Bill (Rhyne)