October 9, 2008
Random brief thoughts...I'm tired and just want to get out a few quick observations and charts...
My guess is tonight is when all the people who have been agonizing about what to do with their stocks finally decide they can't take it anymore, and tomorrow the phones will be ringing off the hook at brokerage houses as the general public exits the stock market en masse, classically selling everything they have into the market's low tick...With the Dow down 1750 points this week alone, I'm sure every evening's economic news has been incredibly frightening for the average invested American, and today's 678 point drop will be the straw that pushes many of them to liquidate, tomorrow, at any price.
From my own perspective, as regards stocks and the economy, I believe the fear factor cannot go any higher than it is right now, and it is therefore time for the equities markets to end their decline.
The financial system is not going to fall apart. We are not entering a Depression. All the government and central bank measures being taken, here in the USA and in unison around the globe, will have their desired effects...and the economy/markets will probably pull out of the hole we are in.
I try to stay away from actually trading the stock indices, but I do think going home long either the Dow, S&P or NASDAQ futures (or call options) this weekend may have big profit potential (and obviously big risk). The newly formed G-20 will be in Washington this weekend to confer on further means of stabilizing the world markets and I firmly believe they have the power to do so, even if it takes some Sovereign Fund or two being asked to do something like buy 50,000 S&P Futures contracts ahead of Monday's trading...Crazy? I don't think so...If all of these governments are essentially now buying banks, insurance companies, brokerages, mortgages, etc., why can't they go out, behind the scenes or not, and just load up in the futures markets to get things cranking again on the upside? Isn't this whole credit thing supposedly about confidence anyway?
Since May, my general approach has been to be long Treasury Bonds and short just about everything else there is, which, as some of you know, has paid off in a big way. At the moment, however, we have only one remaining short (the cattle complex) and have no immediate interest in shorting any other commodities...In fact, there are several commodities, both of which might be considered as proxies for an improving economy, that I now think are major buys.
Give me a call if any of these idea interest you...or if you have any of your own you'd like to explore.
Still see Cattle collapsing...
I am sure there are tons of speculators thinking Cattle have gone down so much they must be a buy...but I think the move is just getting started...As I've said for years, the meats seem to routinely make "stupidly" large moves, and with this market just leaving record highs, and in an economy/stock market debacle that NO ONE in the cattle business was anticipating, I'm supposing the downside could be even much lower than the objectives I've mentioned on these two charts...We are still establishing new short positions in both these contracts.
Still Buying Treasury Bonds
With the world equity markets probably having permanently eliminated a large percentage of baby boomers (worldwide) as ever being interested in owning stocks again, I believe the attractiveness of US Treasury Bonds has grown tremendously. This IS the safest, most respected long term fixed income instrument on the planet and I strongly believe there is more than enough demand to drive Bond prices sharply higher...
Much ado is currently be made about the Treasury now having to issue large quantities of Bonds (heavy supply) to pay for the varied aspects of the Bail Out programs, and that rates "will have to go up" (and prices lower) to attract buyers...I think this is absolutely ridiculous logic...Internationally, there are hundreds of millions of dollars earmarked every day for buying fixed income, and in the current environment where everybody is deadly afraid of just about any paper asset you can name, I believe ANY quantity of 10, 20 or 30 Year Treasuries the USA wants to issue would be gobbled up in 5 seconds.
I STILL SEE THE BOND MARKET GOING A LOT HIGHER, AND RATES A LOT LOWER...
I am not marrying this market again (as I did for three long years) but I see it as one of the most undervalued commodities we trade. It's late. I'm tired...so I'll just say, for various reasons I think it could be set for a relatively straight up 15-20 cent move...and with this in mind I started buying it several days ago...This is one of my proxies for betting that all the actions being taken by our government, and just about every other government there is, WILL result in a big upturn in the markets.
Buy the Lumber Market
I am not insane...
I'm pretty sure the first impression of most people would be to assume I'm joking...Everybody knows we are way overbuilt in everything so how could I possibly expect lumber to go up?
For now, I'll just leave it at this oversimplification...I would guess, just here in the Southeast, easily 75-80% of lumber mill production has totally gone out of business in the past few years due to steadily declining lumber prices, combined with rampantly higher energy costs (mills are HEAVY energy consumers) and sharply reduced demand...And I believe we have reached the point where even subnormal demand could overwhelm what little production still remains...and result in prices suddenly leaping off these roughly 15 year lows...
I would also point out these are FUTURES contracts, and we are therefore not trading the present. As we head into next year, I expect some of the massive stimulative government actions (again, worldwide) to have taken hold and many markets that look like dogs today will have probably rallied somewhat sharply off of their severely depressed lows.
From another standpoint, I would point out, while the Dow has fallen 1750 points this week, at the same time, Lumber has only dropped $2.00...Look at today's action. The Dow was down 678 points today, while lumber closed up $7.60. What does that tell you...????
I say you buy Lumber right now, while everybody is scared to death...
And I don't think this is insane, especially when I note this is one of the few markets where options are "cheap", meaning the buying both sides approach (2 calls to 1 put) appears to be perfect for this trade.