August 21, 2018
Still Short Gold and Silver.
Still think a massive,
liquidation is dead ahead.
This is strictly an observation from my old salt listening post out here in the boonies, but I do distinctly believe that the OVERWHELMING majority of recommendations in Gold…again for Years…has been nothing but “BUY!.” And for this and other reasons, I am firmly convinced that what we are now in the middle stages of a CLASSIC years-in-the-making massive liquidation of the, I believe, antiquated idea of Gold as being something “every portfolio needs to own.”
Maybe this is something akin to Crude Oil back in 2008 when it hit $145 a barrel and every analyst on the planet was talking about “peak oil”, the idea being we had reached the peak of world production (forever) and there was no end in sight for prices on the upside…And six months later the market was back at $35, fully $130 lower…And no, I’m not saying I think Gold is in the process of losing 75% of its value, but I do say that where it could go on the downside for the balance of this year is probably FAR beyond what the average New York genius would ever think possible…BUT…that IS the way this stuff works. In my experience, it IS the norm for prices to ROUTINELY go for miles beyond what anyone is expecting…And therefore, with my observation of NOBODY EVER REALLY RECOMMENDING ANYTHING BUT THE LONG SIDE IN GOLD…AGAIN FOR YEARS…I CANNOT HELP BUT THINK WE HAVE REACHED THE POINT IN THIS TRADE WHERE THE DOWNSIDE ACTION COULD SHARPLY ACCELERATE…I CONTINUE TO MAINTAIN THAT THIS MARKET IS LOADED WITH INVESTORS WHO HAVE DONE NOTHING BUT LOSE WITH THIS IDEA…And in the age old way of the commodity markets, sooner or later they WILL say, “Sell! Just Sell it all!”
I mean, really, if all of the global trade war turmoil of the past 5 months hasn’t been able to lift this SAFE HAVEN (which is supposedly the principal reason to own it), what will?
Guys…As I have written hundreds of times, the markets are nothing but a giant mob psychology GAME…and I continue to make my strong bet that the next play in this game is to see years of buying finally give up on this idea…in a BIG way.
And as referenced above, bigger moves than anybody ever expects are ROUTINE in this business, and this example following is just ONE of them.
So, here we are now some $600-$700 off the highs and my sense is that, STILL, all your hear from the brokerage house nitwits is, “You have to own it”…or most recently, with it making new 1 ½ year lows, that oftentimes sign of market death, “We must be close to the bottom in here somewhere.”
Here is the trade I am recommending at today’s levels…
My primary focus is to remain SHORT CORN
For many months now, I have seen virtually nothing but bullish recommendations in Corn from the agricultural analyst community…based on the idea of “strong demand”…so I am pretty sure my recommendation to CONTINUE to be short this market will surprise just about anyone who does follow this market.
I was fortunate to catch the down draft in Corn and Soybeans several months ago…thanks to DT’s “trade war” skills (?) with China…and am still essentially bearish on both markets…but am currently only maintaining short positions in Corn….And I am doing so AGGRESSIVELY.
Several months ago, after hearing via the media, that “100% of grain analysts” are bullish the Corn market, I started shorting it, literally, the very same day…And here we are now approaching the bearish pressures of harvest…and I am STILL hearing that those same analysts, after totally missing the sell side, are now recommending that farmers “store corn until after the harvest and wait for higher prices.” And I could not disagree more…Maybe those farmers who “hold on” will eventually get better than today’s $3.80 a bushel, but I can easily envision them having to wait 9 months to do so…or maybe just to see it only get back to $3.80…and AFTER perhaps watching Corn trade down to the $3.00 area (not fun), and maybe even scare them into selling at $3.00 instead of today’s $3.80.
I REMAIN SHORT CORN AND SEE THIS TRADE AS HAVING MAJOR LEVERAGE/POTENTIAL BETWEEN NOW AND YEAR END.
I think the shocker for analysts and farmers will be when the lows at $3.50 from July don’t hold…and the next target will then be somewhere in the low $3.00 range…with a decent chance of seeing a price UNDER $3.00. Obviously, I don’t know that this will happen…Predicting where prices will be at some point in the future IS a guessing game, and anyone who thinks all you have to do is calculate supply vs demand to determine what the price of any market is going to be is just plain naïve….I have seen a 1000 markets go to levels that 95% of the trading world would have thought impossible…and right now, I’d guess that’s what they would say about $2.80 Corn.
I see Cotton as a fantastic 2&1 on the LONG side here.
They have chewed up all the bulls and spit them out.
I AM BUYING COTTON HERE.
I THINK CONDITIONS ARE RIPE FOR A
BLISTERING 15-25 CENT RALLY…RIGHT HERE. RIGHT NOW.
Cotton IS one of the markets that think actually does sometimes get manipulated…or at a minimum, pushed around by powers behind the scenes.
I’m not going to get into the specific fundamentals of what moves Cotton…except to say that world demand is quite strong, and weather out West, and elsewhere on the planet, has been disastrous in places...to the extent that during the past few months, just about every analysis I could find was almost blindly looking for $1.00-$1.20 a pound…right up until just a few weeks ago…But NOW?
What I have observed is that after crashing back down almost 9 cents in the past few weeks, and fairly raping (one more time) anybody who was bullish this market (which was everybody), I now see predictions everywhere calling for prices to basically go NOWHERE…to remain soft.
Guys…and especially any of you Cotton farmers who are reading this…as I am forever pointing out, where prices go is more a function of mob psychology than anything else. There is NO formula that determines what the price of any commodity should be…or WILL be…For sure, supply and demand do affect the overall strength or weakness of the markets, but in the end, it’s all about the money that is sloshing around and participating in this GAME of BUYERS AND SELLERS, SPECULATORS AND HEDGERS…FEAR AND GREED…and I maintain that most of the time the markets are doing exactly the opposite of whatever the current “groupthink” is…And right now, my guess is that everybody who trades and opines on Cotton would be scared to death to buy it.
I DON’T KNOW WHAT IS COMING BUT I AM BUYING IT HERE…ABSOLUTELY USING THE 2 & 1 THING…AND AM DOING SO WITH THE IDEA THAT WHAT JUST MIGHT HAPPEN NOW IS A PRETTY MUCH STRAIGHT UP MOVE TO THE $1.15-$1.20 area.
It’s been up for a few days now…after having taken out supposed “support” last week…and again, I’d just about bet that nobody out there believes that, RIGHT NOW, it is going ANYWHERE on the upside.
I see this a classically perfect 2&1…in that I believe the odds are quite low that it’s just going to sit here at 82-83 cents a pound for the next few months…that either I am right and it’s about to take off on the upside…OR…it’s going to crack hard again on the downside…in which case I should have a decent chance to recoup 100%.
Here’s one way to do it here…
And here is the big picture…
Three great ideas here I think…Give me a call if you want to talk about any of them…
A lot happening these days…Get ON something.
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Gold, Silver, Corn, Cotton