October 2, 2017
Why this is not just a “pullback” in Gold…and Bonds…and the Japanese Yen
I continue to think the economy is SURGING…and would point out that this is happening irrespective of the fact that Congress is also now gearing up to pile on even MORE economic stimulation through tax cuts AND ramped up spending (and borrowing) on infrastructure…And as a result, I therefore continue to see the stock market’s likely response being an upside eruption AHEAD of the stronger and stronger economic statistics I believe we will be seeing in the months to come.
In other words, contrary to the angst Wall Street has been pushing for years, I say, “All’s right with the world”, and that as all of the brokerage house misinformation about Chinese, European and USA economic crises fades into the past, a major BEARISH impact is going to be felt in the three markets commonly regarded as “safe havens”, and as such, have been the bullish beneficiary of all that financial fear mongering …those markets being Gold, the Japanese Yen, and Treasury Bonds.
To clarify, in this global mob psychology investment GAME (I always think it is important to reiterate this), in recent years, any time the financial industry geniuses decide there is a crisis supposedly brewing somewhere, Gold, Bonds and the Yen have then been touted as places to park funds “safely”…in lieu of leaving those funds in stocks and thereby risking the possibility of a money losing sell off, correction or crash…And as a consequence, during the past few years, and particularly in 2016 when banks and brokerage houses were basically saying, “SELL STOCKS!”, for the ENTIRE year, these three markets thus became supported by fear based buying…and subsequently rose in price due to short term FEARS, as opposed to rising due to longer term INVESTMENT fundamentals.
My principal point is here is that safe havens are TEMPORARY…and I will repeat, inspired by FEAR…and therefore, sooner or later, become subject to LIQUIDATION (SELLING), and along with that, generally DECLINING PRICES.
OK, all of that may come off as gobbledygook, but here is a picture worth 1000’s of words…and maybe dollars…
It should be easy to see that these three "safe havens" have been trading in lockstep for the past few years as Wall Street has been forever warning about failures in the USA and World Economies AND Stock Markets...none of which ever materialized...Nevertheless, as noted on the charts, this FEAR based trade reached its peak in July, 2016, when Brexit was erroneously being touted as a threat to bring down the entire European continent…and the rest of the planet right along with it...The result was that Gold, Bonds and the Yen all had concurrent last gasp rallies that sucked in the last remaining sheep…and from there it was nothing but seriously lower for the rest of the year, pretty much decimating the whole concept of “safety” in owning these markets…
Aside from my firm commitment to be Short Bonds…
SHORT GOLD IS THE TRUE FOCUS OF THIS NEWSLETTER
What can also be seen on the chart is that, since January, all three of these “havens” have more or less traded sideways to slightly higher…inspired by, once again, Wall Street’s persistence in “warning” the public away from the rally in Stocks…And quite noticeably to me, Gold, which I regard as the most “emotional” of the three markets, has very recently been relatively stronger than Bonds and the Yen, almost getting back to its 2016 high…before falling back $70-$80 during the past month...in what the majority of “strategists” are widely referring to as a “pullback”, i.e., an opportunity to buy it again…I THINK THEY ARE DEAD, DEAD WRONG and MY OWN OPINION IS THAT GOLD IS IN THE EARLY STAGES OF A TOTAL FLAME OUT…by which I mean, I think Gold could may already be in one of its classic nosedives (I can’t count how many I’ve seen in precious metals these past 37 years) and that seeing it get hit for another $200-$250 from here would be easy to imagine.
Along those same lines, I have been noting for months that bearish sentiment in Gold, of even the smallest degree, seems to have totally disappeared in the media…that while I am sure there are bears out there, all I seem to see is this generally unanimous idea that Gold can only be going higher…that it’s not a question of “if”, but simply “when”, and how high it might go…with talk of Gold’s bullish “breakout” (it was NOT) a month ago having been all over the place…which has led me to the following personal conclusion as a trader: There are no bears in Gold. Nobody really can perceive of the idea that Gold could be going, for starters, UNDER $1000.
And that conclusion takes me back to my first years as a broker…
When I entered this business in 1980, Gold had recently hit its then all time high of $875 an ounce, and to say that EVERYBODY was bullish the metal would be a gigantic understatement. As a rookie, I naively believed that if every single investor I talked to thought Gold was going up, it just seemed stupid to believe it was going down…BUT that WAS the reality…to the then unimaginable degree that it declined for fully 20 years thereafter…And while the bullish fervor today is not quite so hot as it was in the early 80’s, my very distinct impression is, once again, that there are really no bears in this market…and in fact, the “look” we have today very much resembles the Gold market in early 1983, in that, after a relatively sharp decline from the all time highs in 1980, Gold had experienced a nine month “sucker” rally from $300 to $500…which drew EVERYBODY back in on the long side…and then proceeded to head for new lows again and a 45% decline during the next two years… which, I believe, is pretty much the same set up we have now. Before I even say it, I can hear the nearly unanimous roar of “You are nuts!” by anyone who is reading this, but I EXPECT TO SEE GOLD UNDER $1000 AN OUNCE WITHIN THE NEXT 12-18 MONTHS.
I won’t belabor all this but will simply repeat: The cliché that markets are driven by fear and greed is accurate…And as an extension of that I will say, as I have done many times before, that NO PRICE FOR ANY OF THESE PIECES OF PAPER IS “REAL”. THAT WHERE A MARKET IS “VALUED” TODAY IS A FUNCTION OF HERDS OF MONEY CHASING AND FLEEING MARKETS…And with respect to these three markets…and the very OBVIOUS (to me) fear based “rationale” for their concurrent and virtually identical rallies, I think they all made significant highs last summer…and are all markets to be shorted. THE ECONOMIC WORLD IS NOT COMING TO AN END…QUITE THE CONTRARY…AND I BELIEVE THESE SAFE HAVENS ARE NOW IN THE PROCESSING OF BECOMING THE NEXT BIG PLACE THAT THE INVESTING MASSES GET IT HANDED TO THEM.
I would also observe that nice, neat correlations like these three markets have had…really almost too perfect to believe…do have a tendency to disintegrate at some point…It’s the same old story…When ALL the money ends up in one place, or in ONE concept, you ‘d better be looking in the opposite direction…And the truth is, I don’t think I have ever seen three markets more identically aligned…which I can ONLY interpret as meaning a LOT of money has piled into, as I said, ONE idea…and if trading history is any guide at all (and it is) all of that money WILL end up “fleeing.”
All that being said, having used a newsletter to present my market perspective since 1982, I know that there will be no takers on this idea…that all I really am doing here is expressing an opinion for opinion’s sake only…and that my view is so far out of the mainstream “logic” that it is probably a waste of time to even suggest a way to short this market, but nevertheless, here it is…
For the record, I continue to believe Stocks are entering a true lift off mode, and you’d better believe that NOBODY at the Fed has been expecting even 10% of the rally we’ve seen since November…and also that, those Fed Governors, like EVERYBODY else on Wall Street , are now BEGINNING to maybe believe the rally is for real…and at least SOME of those guys are now starting to think, “Wait a minute. This is NOT what we were expecting to see. This could be getting out of hand.”, and, “Maybe this idea of ‘Go Slow’ in rates is NOT what our policy ought to be.” I KEEP SAYING IT. EVERY FED CAMPAIGN I CAN REMEMBER ENDS UP SHIFTING TO A HIGHER UNANTICIPATED GEAR…and that is what I think IS beginning to happen.
I ABSOLUTELY BELIEVE INTEREST RATES ARE IN THE PROCESS OF STARTING TO MOVE SHARPLY AND RAPIDLY HIGHER…AND MUCH MORE SO THAN THE MARKETS ARE CURRENTLY REFLECTING…AND THIS WILL VERY BEARISHLY IMPACT TREASURY BONDS…AND EURODOLLARS…AND THE GOLD MARKET.
How many times do you have to see it? Where ALL of the talk is that a market is going to do nothing…and then, literally, from one QUIET day to the next, it just takes off? I know nobody is listening…but that IS what I think we are starting to see here…I continue to recommend Buying Puts here…Now…while they are still just dirt, dirt cheap in my opinion.
THE ECONOMY IS SURGING. CONGRESS IS ABOUT TO ADD FUEL TO THE FIRE. INTEREST RATES ARE GOING UP.
Call me if you want to talk about any of this…
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, Treasury Bonds, Eurodollars.