August 3, 2012
I wrote the text and created the long term charts for this letter yesterday. All of the daily charts with options prices were done this morning while the markets are open so prices on options may have changed in the last hour or so in which I finished this…In all of these markets I am using various combinations of options and futures to take positions (beyond the single option possibility I have shown on each chart), so if you ARE interested in anything here, give me a call and I can maybe give you an approach that suits your wallet and risk tolerance…
Everything written here is only Bill Rhyne’s opinion…meaning…there are definitely no absolute “truths” in this newsletter.
On the financial front, my opinions remain the same…more so than ever….
Sell Treasury Bonds
Buy the Eurocurrency
As I have repeatedly stated, all the hype about Europe collapsing and dragging down the planet is ludicrous, no less so than if you were to suggest the same thing (collapse) could happen here in the USA. Yes, they have problems, but they WILL be solved. Europe is NOT going under. The Eurocurrency is NOT going out of existence.
As I also have repeatedly stated, regarding our own stock market, all the economic “worries” hyped in the media (slow job growth, too slow economic growth, election uncertainty, fiscal cliff, missed earnings, etc.) as supposed reasons to fear buying stocks are nothing more than the typical negative chatter that accompanies every equity bull market….WE ARE IN A BULL MARKET…Believe me, three to four months from now when the Dow is pushing 15-16K (my opinion), all the angst about stocks and the economy will have turned to exuberance…All will be well and those hoards of bearish “experts” and talking heads will have quite typically erased their previous pessimistic “logic” and become bullish.
As evidence of those “worries”, here are just a few headlines I collected during the past week...To read them, you would think the Dow was back at 6500…not essentially at 3 year HIGHS, and when you get down to it, NOT that far from new all time highs…
And note my underlining of the last week’s biggest outflows from equity funds in two years…As I’ve pointed out before, the public has been exiting stocks for some time now (as they have climbed higher and higher) and POURING money into the “safety” of Bonds, setting them up, I believe, for the worst of worst case scenarios…that is, they will be out of stocks as they blast higher out of a 13 year consolidation (see chart below)…and HEAVILY invested in Bonds at their all time highs, which are essentially yielding a zero return, and in my opinion, about to fall off a cliff…a BIG cliff.
I CONTINUE TO RECOMMEND BUYING FUTURES AND CALL OPTIONS ON THE STOCK INDICES…AND I CONTINUE TO RECOMMEND SELLING FUTURES AND BUYING PUTS ON THE TREASURY BOND MARKET.
I DO SERIOUSLY LOOK FOR THE DOW TO BE AT LEAST SEVERAL THOUSAND POINTS HIGHER LONG BEFORE WE GET TO 2013…I would also say I don’t think it matters who wins the presidency or what the precise make up of the next Congress will be.
I’d also add, I WOULD be worried if the Dow was on its highs…and all those negative headlines were instead screaming, “Get in NOW!”, but they are NOT...You KNOW this. The stock market is a buy…
The idea of a collapsing Eurocurrency is still the most one sided opinion I have ever seen in this business....
And I will repeat it for the 100th time: The markets ARE nothing but a mob psychology game. Even though there may be commodities, companies or even countries underlying all these instruments we trade, we are still only trading pieces of paper (for example, futures contracts, stock certificates, currencies, bonds etc.) and their value on any given day, week or month is a function of nothing more than the investing world's cumulative perception...So I will continue to point out that speculative traders have the largest short position in history in this market, and I may be dead wrong but I STRONGLY believe they are going to absolutely get it handed to them...I will NOT be out of the long side of this market.
I CONTINUE TO LOOK FOR AN EXPLOSIVE RALLY IN THE EURO. TO SEE A 10-15 POINT RALLY WITHIN ANY 1 TO 2 MONTH PERIOD WOULD NOT SURPRISE ME IN THE LEAST.
AND HERE IS A PICTURE I THINK IS WORTH MORE THAN A 1000 WORDS…
When you think of Europe, with the ongoing avalanche of negative “logic” as to how bad it is, how this entire continent is supposedly going down the tubes, and maybe taking the world economy with it, you would think its equity markets would look like road kill. Right? Well take a look a this…The following chart compares our Dow Jones, which I think is about to rocket higher, with a European index (STOXX 600) which is the equivalent of our S&P 500 Index. The STOXX 600 is composed of 600 quality companies who are spread throughout Europe.
Take a look for yourself at these two charts…and the first, and very obvious point I’d make is: THEY ARE VIRTUALLY IDENTICAL.
What is the significance here?
I ‘d start by repeating my fervent belief our stock market and our economy are definitively in the beginning stages of a dynamic upswing…The next thing I’d say is: If Europe truly is on the edge of potential oblivion, why is the STOXX 600 pretty much dead on its highs and looking exactly like our own equity market? Why, if it SO bad in Europe, isn’t this index 50-100 points lower? And where will this index be….when the news gets “better” over there? Europe is going under? I say, NO WAY. To me, Europe today feels like our stock market in March, 2009, when the Dow was at 6500 and all the experts were yapping about “systemic failure”.
The European stock market should look like road kill…And it doesn’t…And to me, this is one further reason to think the Eurocurrency, that everybody is SO SHORT, is primed and imminently ready (like any given day) for a massive rally.
Again, I will not be out of this trade. I can easily imagine turning on this machine any morning now and going, “Holy cow. Look at the Euro!”
Still Long and Still Buying Corn and Soybeans
I know the rally in both of these markets can end at any second, but considering the current weather situation, I am still going with the perspective there is no telling what sort of price Corn and Soybeans could hit within the next 3-6 weeks. As I have recently written, having seen some incredible price moves during the last five years ($150 Crude, $1900 Gold, $50 Silver, $2.35 Cotton, 153 Treasury Bonds, $1.60 Feeder Cattle), driven, I believe, by an international unlimited supply of “hot” speculative capital, I have been “taught” that almost no price is an unrealistic possibility when this flood of global funds starts pushing a market. Therefore, I AM STILL A BUYER IN CORN AND SOYBEANS, and I have no particular targets in mind.
From a defensive standpoint….Past history, though by no means an absolute predictor, has also shown that weather inspired bull markets tend to first go straight up…then go straight back down…Literally from one day to the next…Taking this into consideration, I am basically trying to protect EVERY long position I take by owning some puts. I am also primarily using very short term options as I “know” (you really “know” nothing in this business) both markets can move MANY Dollars, literally, in a matter of weeks.
I think I have said it before but I will say it again: I have long believed the biggest thing we ever get in futures is a drought in the Midwest, as more or less, you “overnight” take the basic fundamental supply-demand equations for Corn, Wheat and Soybeans…and turn them completely upside down, usually resulting in EXTREME volatility…and I do mean EXTREME…so this is not a trade for the faint hearted.
Give me a call if you are interested…I think these are five fantastic ideas…As always, maybe I am wrong, which means losing money, but I do think these are all quite dynamic situations.
Old Hack Bill