November 12, 2010
We have sold our Soybean and Soybean Oil positions…
I have some sort of flu bug and feel lousy so this will all be very brief…and maybe a little too brief to make any sense…but here we go…
To start with, last night (Thursday evening) we liquidated 100% of our long Soybean and Soybean Oil positions. Bottom line is both of these markets had basically been going straight up since we switched to the long side in August, and with some sort of retracement seeming like a strong possibility, we recently severely tightened up our stops, all of which were hit during the evening trading session. For the moment, taking our money off the table looks like a good thing as both of these markets finished the day Limit Down.
So I am sidelines in the Soybean complex (first time in about 3 years) but suspect I will soon be back in…At the moment, I could easily make a case for either continuing steeply higher or turning straight back down, and will probably try to be there with whatever I perceive to be happening. The fact remains, the Soybean complex just went through an unbelievably long sideways move and the odds, I believe, now very much favor big moves…NOT further consolidation.
I have thought this before, but who could possibly be left to buy Gold?
Last week’s Fed announcement (QE2)that they would be buying $600 billion of their own US Government Securities was the sort of news that had all the hyperinflation fanatics and gold bandwagon bulls just going bonkers with predictions this government printed “flood” of money could ONLY mean a devalued Dollar (I disagree…see later in this newsletter) and runaway prices in everything, to which I would also disagree…The big point I would make is, after a news item like this, just about anyone who ever WOULD buy gold, MUST have already done so…And what we now have is a market that is loaded up with people just waiting for the profits to roll in, but we have most likely reached that INEVITABLE juncture where there is nobody new to do the buying needed to push the market higher…and the next thing we’re going to see is the sort of dumbfounding commodity market collapse I’ve seen countless times before…I have said it many times…All of the markets are just a mob psychology financial game and the value of any commodity, paper or otherwise, is based more on perception than anything else…And all of this stuff goes UP, and DOWN, over and over...and I have yet to see the first bull market that didn’t eventually come to the same nasty end where hoards of investors get their heads handed to them…Yes, I’ve said all this before , but to me, the signs have gotten stronger and stronger…
I remain extremely bearish on Gold and Silver…
I believe we could easily see a first break of $350-$400 an ounce…
I believe we will see at least one day in which Gold falls $100-$150…
Been wrong so far…Doesn’t mean I still am…
Commodity markets often go down a hell of a lot faster than they go up…Most of the public invest only as buyers, and time after time, they collectively end up together in the latest popular, oh-so-logical and so well known idea…And when the end comes (it ALWAYS does), at some point you find them running for the exits, en masse, ALWAYS too late, and frequently in an extremely crowded panic to sell, driven by losses taking place faster and bigger than they ever imagined possible…Many of you experienced the profitable side of this sort of collapse in 2008 when we were short for major downside moves in Corn and Soybean Oil…As ever, I may be dead, dead wrong but I currently, and I mean immediately, believe SHORT GOLD has immensely greater potential than we hit with in 2008…This is not the time to be thinking something like, “Boy, when it gets to $1500 I am going to get short with both hands”. It is UP THERE now. It has been hyped to the moon. It is the ONLY market on the planet that is almost unanimously classified as a “bull market”. It is RIPE. It is an old, old story and if you have thought about getting short, I encourage you to do it NOW…
The U.S. Dollar is going up…NOT down.
Buy the U.S. Dollar Index
From the constant barrage of bearish commentary on the US Dollar, you could easily have the impression that the only thing the Dollar ever does is go down… especially now with every talking head in the world DEAD CERTAIN that QE2 can ONLY result in a devaluation of our currency…However, as can be seen from the chart following, this is not true. While our currency is around its lows for the past 30 years, you should also note, (1), it has been here many times before, each time accompanied by the same “Weak Dollar Forever!” rhetoric we are hearing now, and (2), it also spends a lot of time swinging back and forth in 10 to 20 point increments, which in a futures contract represents a $10,000 to $20,000 change in value.
I THINK THIS IS THE PERFECT PLACE TO BUY THE US DOLLAR INDEX WITH EXPECTATIONS OF SEEING AT LEAST A 15 POINT ($15,000 PER FUTURES CONTRACT) RALLY WITHIN THE NEXT 3 TO 6 MONTHS.
Again I’ll say it…FOR YEARS I have heard tons of “logic” as to why the Dollar is going to crash…And to that, again I’ll also say: The USA is STILL the safest, number one, and most highly desired business and/or residential location on the planet. The United States is STILL the locomotive for the world's economies. NOBODY ever turns down the opportunity to enter or operate here…And the US Dollar is NOT going in the tank, nor is it about to be displaced as the world's #1 reserve currency…I assure you, nowhere are you going to find people actually dumping US currency in favor of owning Chinese Yuan, Russian Rubles, Brazilian Reals, British Pounds, or anything else…And this is not just patriotic fervor on my part as an American…To me, after having spent 6 years living outside the States, and having travelled through over 40 countries, I KNOW the value, ANYWHERE, of having that crinkled USA issued piece of paper in your hand…It is accepted, hoarded, and “treasured” EVERYWHERE on this planet and it is NOT going to hell. Too many people DO want to own it.
Every time I make a recommendation in the Dollar (if you want to see them all, you can peruse my newsletter archives for any references to the dollar at http://www.crokerrhyne.com/newsletters/index.htm ), I think it is important to present the following two quotes from Alan Greenspan, and preface those quotes by pointing out the former Chairman of the Federal Reserve Board certainly was at the top of the economic information chain…and if he says “nobody knows”, then “nobody knows”.
July 16 2002 – “Given the recent intense interest in the future course of the dollar, I would like to raise a technical issue and a flag of caution regarding those forecasts—or, for that matter, any forecast of exchange (currency) rates. There may be more forecasting of exchange rates, with less success, than almost any other economic variable.”
November 19, 2004 – “ Statistics have shown that forecasting exchange rates has a success rate no better than forecasting the outcome of a coin toss.”
So, OK…A guy who has been privy to more economic contacts, computers, statistics and information than any of us could ever dream of has basically said, “Nobody knows what the currencies will do. Everybody is usually wrong”…And right now, virtually every painted face on TV you hear on economic TV is telling you “Sell the Weak Dollar!”. I keep saying it. TRADING IS A MOB PSYCHOLOGY GAME. How many times do you need to see this sort of set up where all the jerk off (sorry) TV chatterboxes are on one side of the fence to not know you are supposed to do the opposite?
BUY THE US DOLLAR INDEX. MY GUESS IS, THE NEXT BULL MOVE IN THIS MARKET ACTUALLY HAS A GREAT SHOT AT TRADING BACK UP TO THE 100 MARK, WHICH AS OF TODAY, IS APPROXIMATELY $22,000 PER FUTURES CONTRACT FROM CURRENT LEVELS.
Or here’s another possibility…
Strange as it may seem, I am personally influenced by my own ideas as they end up on this screen…And as I read back through the set up laid out here in the dollar, I think to myself how smart this June Call looks…It has a TON of time…and a TON of potential…A 10 point move IS nothing in this contract…Some of you have heard me refer to the “Buy the options, go to South America and forget it for six months” sort of trade? Which I did in 1987? Well this, I believe, is one of those…Go against all those FOREVER WRONG analysts…Load up in the June calls and let it ride…Or better yet, do the 2 & 1…Look at the Dollar monthly again…What this thing DOESN’T do is go sideways…I THINK THIS TRADE COULD BE AN ABSOLUTE KILLER.
Time to Buy Treasury Bonds Again
Over the past few months, I have pretty much been a watcher in the Bond market…This is no longer the case…I think it is time to get back on the long side and look for a move into new historical highs for Treasury Bond futures. At the moment however, I have run out of energy to write any further so I’ll just stick a few quick statements out there that may or may not make sense to you…And look to go into more detail in my next newsletter.
If I hear one more idiot talk about the “Bond Bubble”, I will throw up.
The U.S. public, led by the maturing Baby Boomers, will CONTINUE to gobble up the security of high quality fixed income instruments, inclusive of US Treasuries which are STILL the safest, most desired long term paper on the planet. During the 90’s, they all bought Stocks. Today it’s Bonds…and it will stay that way.
Internationally, there are BILLIONS of dollars, every day, that HAVE TO BE INVESTED IN GOVERNMENT PAPER somewhere in the world. At 4.25 %, the 30 Year US Treasury is tremendously attractive to the SMART MONEY guys who understand they can get a great yield (relative to today’s marketplace) in an instrument that denominated in a currency, the Dollar, that is on its historical lows…meaning there is opportunity for currency appreciation in their principal as well…Even though experts galore moan and groan about “nobody will want our Bonds”, EVERY time the US Government issues new Treasuries, investors worldwide are lined up to bid on them.
The 10 Year US Treasury Notes are yielding 2.76%. The Fed is nowhere near even the beginnings of an increase in rates and the 10 Year yield is NOT going higher...and more than likely (in my opinion) will be headed even lower again…There is then a MONSTER difference between that 10 year at 2.76% and the 30 Year at 4.25%...and I firmly believe that “spread” is going to narrow dramatically as the 30 Year Yield declines by at least a full 1% during the coming year...
I LOOK FOR THE 30 YEAR US TREASURY BOND YIELDS TO DROP INTO THE 2.75-3.25% RANGE WHICH WOULD MEAN US TREASURY BOND FUTURES HITTING SOMEWHERE NEAR THE 150 AREA.
The bottom line (super briefly) is inflation is NOT going to become a problem…and the world is NOT going to stop buying our paper…and Bond prices are going to continue going up. Bonds are NOT in a bubble. We are simply reaching the same sort of “normal” low rate environment that existed prior to the 1970’s.
Sidelines in Stocks
Done…As usual, “brief” was not really that brief…I started this yesterday afternoon, then finished it today…Lucky for you, this bug I have forced me to leave out a lot of material I wanted to use…but be assured I will definitely try to inflict them on you in the very near future.
Give me a call if you are interested in any of this…And if you think the Gold or Dollar ideas make the sense I am trying to convey, DO SOMETHING ABOUT IT. PICK UP THE PHONE AND ASK ME HOW THEY CAN BE DONE.