October 31, 2017
Wall Street’s supposed “Safe Havens”
are about to get clobbered…?
Earlier this month I wrote a piece noting that Treasury Bonds, Gold and the Japanese Yen had been trading almost identically for the past few years, having been widely touted by Wall Street’s geniuses as markets in which investment funds would be “safe” from the Stock Market Bearish Debacle that they have SO wrongly been predicting…for years now.
Plainly stated, I think this mountain of funds that has been SCARED into investing in these three markets is about to become an avalanche of LOSING LIQUIDATING POSITIONS as the reality of a healthy, vigorous and rapidly expanding world economy becomes more and more apparent…together with the CONTINUING advances of stock markets around the world…and particularly, here in the USA.
I think all three of these markets are about to become horrifically bearish events that I have seen many 100’s of times in this business…wherein people who own popular ideas find out how BRUTALLY fast these markets can go down when everybody SPECULATIVELY owns them…And I firmly believe that the fact that all three of these QUITE diverse markets are virtually identical DOES substantiate my perception that this IS where a ton of hoodwinked (by the financial media know-nothings) crowd-following speculators are currently invested…and heavily so.
All three markets have already experienced fairly stout declines followed by varying degrees of recovery…which are now failing again…and I am fairly certain that the overwhelming majority of these safe haven buyers are now sitting on sizeable losses, having most likely done most of their buying when all the “world-is-coming-to-an-end” hype was at its worst back in June surrounding the supposed catastrophe that Brexit meant for the planet (see chart)…and yes, when all three markets were dead on their highs…as that IS how this game works…In other words, you can be pretty sure they were NOT buying last January BEFORE all three markets started their rallies.
In particular, I see the Bonds and Yen hovering just above significant lows…”cliffs” I would say, with, again, a LOT of people owning them…and sitting on LOSING positions…And in my experience, the markets are NOT going to bail all those people out…Quite the contrary…I think they are all about to get clobbered…
I would point out that Treasury Bonds and the Yen are paper instruments that, aside from their safe haven status, do have “uses”, and do have supply and demand factors that push their values up and down, while Gold prices are pretty much driven by nothing more than speculative emotion…And I therefore find it significant that Bonds and the Japanese Yen are now relatively close to their lows made last December, while Gold is still closer to its 2016 high…There is no question that you can perhaps read this as a sign of strength in Gold versus the other two markets…OR…you can view this as an indication that this purely speculative market is still jam packed with buyers who WILL, I believe, eventually get clocked by the market. I mean, this IS a very popular trade and as I wrote earlier this month, finding any real bearish sentiment in the media towards Gold is quite difficult…For sure, you can find a bit of short term bearish chart commentary, but any real opinion about Gold “heading for $1100”, or anything even close to that is virtually non-existent. To the contrary, what I overwhelmingly keep seeing is, “when Gold breaks through $1300”, or “when Gold makes new highs for the year”, as though the upside potential for this market is almost a foregone conclusion. And that is NOT, in my experience, how this stuff works…I might be dead wrong but I suspect that Gold, hanging up here at $1275, might just be a giant trap…and might just have the greatest downside potential among the three markets. BUT I PERSONALLY RECOMMEND BEING SHORT IN ALL THREE MARKETS…AS I HAVE LEARNED THAT WHEN DEALING WITH “LINKED TRADES”, AS THESE THREE ARE, YOU JUST NEVER KNOW WHICH OF THEM WILL HAVE THE BIGGEST MOVE.
Here are the put options I like at current levels…
So…Taking all three works out to $4531…So do the math…If just ONE of them goes? Even just moderately? Where does that put you? I think this is a KILLER $4500 trade.
These three markets are indicating
a nationwide BOOM?
Here are other markets I am still recommending on the long side…ALL of which are still looking strong and ALL OF WHICH I BELIEVE ARE SIGNALLING JUST HOW STRONG THE ECONOMY IS GETTING…AND THAT INFLATION COULD SOON BECOME A BIG PROBLEM…
So really…Are these three markets doing what they are doing for NO reason at all?
And yes, you know what the Stock Market is still doing and I continue to recommend being on the long side there…AND I continue to remind you that the Stock Market…AND what these commodities are doing…AND the fact that “STRONGER than expected” economic statistic after statistic is coming out and “startling” analysts and economists, including, I promise you, everybody at the Federal Reserve Board…the point being, that yes, 2018 HAS ALL THE EARMARKS OF BEING AN ABSOLUTE BOOM YEAR AND I THEREFORE SEE NOWHERE FOR RATES TO GO BUT SHARPLY HIGHER AND I CONTINUE TO STRONGLY RECOMMEND OWNING EURODOLLAR PUTS…
I MAY BE DEAD WRONG, WHICH CAN MEAN LOSING EVERY DIME YOU PUT ON THE TABLE, BUT I THINK THERE IS MAJOR LEVERAGE OUT IN THE MARCH, 2018 AND JUNE, 2018 CONTRACTS THAT ARE STILL ONLY REFLECTING NOT MUCH MORE THAN ONE 1/4% INCREASE OVER THE NEXT 4-7 MONTHS…WHICH I SAY IS JUST NUTS…AND…THIS WILL CHANGE.
I would add that the Fed is meeting today and tomorrow and will be publishing a statement of their perspectives tomorrow afternoon at 2:00 PM…And it would NOT surprise me, at all, to have them publish a surprisingly (to analysts) “hawkish” statement acknowledging the unexpected strength of the economy AND presenting the idea that perhaps they will need to raise rates more rapidly than previously anticipated…which could result in a sharp drop in Eurodollars immediately following the announcement…No, I don’t know if this will be the case…but I do know it is possible…and actually DO expect to see exactly that scenario become a reality at some point…and SOON.
So I say, be there ahead of the Fed announcement…The last thing I think we’ll hear from them is, “We think the economy is showing signs of weakening.” Quite the contrary.
Nothing here is contrived. I call it the way I see it…and I think everything about this newsletter makes perfect sense…I encourage you to do SOMETHING with what you see here…Otherwise, why even read this far?
Pick up the phone and let’s talk about possibilities…
And on the flip side, if you disagree with me, I would REALLY like to hear why…
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, Japanese Yen, Lumber, Crude Oil, Eurodollars