December 5, 2007
I have been in this business since 1980 and the futures markets are now more volatile than I have ever seen them. Primarily as a function of the billions of hedge fund dollars now sloshing around the markets, massive and frequent large percentage commodity moves now seem to be the norm. While big moves can mean big opportunities, they also can mean big risk and I can not imagine a better time to be using the Buy Both Sides (weighted one way) options strategy I have recommended for years. Although the approach is not infallible, if all this strategy really needs is to be big wrong or big right, this is just about as perfect an environment as you will ever get...And I promise you, as one of my wall "reminders" points out...YOU WILL BE WRONG. YOU WILL BE RIGHT...This will always hold true in the futures market and I don't care who you are or how absolutely, totally "can't miss", perfectly logical your opinion.
Anyway, after not writing anything for months, I guess it's time to throw some ideas out again. If you think any of them make sense and have the cash to risk, give me a call. If you "know" I'm dead wrong and have the cash to risk, also give me a call. I promise, you won't hurt my feelings.
An early Happy New Year to you all....
Buy The US Dollar Index
This market is the real reason I finally decided to send out a newsletter.
I don't have to tell you that virtually all the "expert" economic opinion out there is absolutely bearish the dollar.
Whether it's high tech billionaires, supermodels, Wall Street gurus, or even Venezuela's Hugo Chavez, they are all telling you the Dollar is trash, that the only direction the Dollar can go is down, that the Euro is the new currency of choice on the planet...and basically that you are a damn fool if you think the dollar is a buy.
In fact, they don't call it the Dollar anymore...It's always the SINKING DOLLAR, and always accompanied by tons of "logical" reasons as to why there is no way it could be otherwise.
I see it differently. I think they are wrong. I think this is a classic "no hope" bottom in a market that could be a whole lot higher three to six months from now.
Why?...I'll start with the following two quotes from Alan Greenspan.
July 16, 2002
"I would like to raise a technical issue and a flag of caution regarding those forecasts (of the dollar) --or, for that matter, any forecast of exchange rates. There may be more forecasting of exchange rates, with less success, than almost any other economic variable".
"Although measures such as real interest rate differential, differential rates of productivity gains, and chronic external deficits are often employed to explain exchange rate behavior, none has been found to be consistently useful in forecasting exchange rates even over substantial periods of one or two years."
Nov. 19, 2004
"Statistics have shown that forecasting exchange rates has a success rate no better than forecasting the outcome of a coin toss."
I've brought this up before, but if Greenspan (whether you like him or not), at the top of the economic info chain, says "Nobody knows where the currencies are going", I'll accept it as a near fact...
When I then note that the "sinking dollar" is about as unananimous a opinion as I have EVER observed in the futures markets, it leads me to the simple conclusion: BUY THE DOLLAR.
I could sit here and throw out plenty of my own economic reasons for not thinking the US Dollar is going down the tubes (like suggesting there is a lot of foreign money that still consider this to be the prime business and real estate location in the world) but then I'd just be another you-know-what with an opinion worth no more than a coin toss. In truth, I have no idea where the Dollar will be six months, a year or two years from now. All I do know, at this very moment, as a jaded old commodity trader/broker, is buying the dollar---now---is something nobody else wants to do...And I can't count the times, in I don't know how many markets, that this means that buying this market is exactly what you are supposed to do.
Some charts and a few approaches follow....
Here's where the Dollar is from a 30 year perspective...I'd guess there have been more than a few reasons since 1973 to suppose the Dollar was "trash"...but somehow it never really happens...You always hear the expression, "Buy low..." but this is always a lot easier said than done, the reason being, when something really is a buy, with 99% of the market opinion saying "Sell", it just feels stupid to throw your money on the table and do the opposite...I'd also note that an 8-10 point move ($8,000 to $10,000 per contract) would be no big deal in the Dollar...
Positions can be taken a number of ways...with options, or futures (margin is $1130 per $100,000 face value contract), or combinations of the two...The position shown here, using strictly options, would cost about $3180 per "unit"...A five point rally from here would see the two calls worth about $9000 total....A 3 1/2 point sell off would mean you could sell the put and recoup the $3180...If these March options expire between 76 and 77, you could lose your entire investment.
Here are a few possibilities using the June contract. This costs more but give the idea a lot more time to develop one way or the other.
There really is a LOT happening in the markets...I currently have positions and/or opinions in Crude, Gold, Rates, the Eurocurrency, Soybeans and Cotton (yes, still long)---and as I've finally hit the keyboard again, I will try to get to them in another illustrious newsletter within the next few days...
If you have an opinion, want leverage and volatility, and have capital you can honestly afford to pour down a drain, you ought to take a look at the futures markets of late...Incredibly large moves in everything seem to be the norm now and if you are lucky enough to find yourself on the right side of a trade, the potential gains can be enormous...And of course, it goes without saying, you can also lose money faster than you ever dreamed possible...
Over and out...Give me a ring if only to tell me how stupid you think this idea is....