Entering into a total insane era

Pure insanity and the world is indeed losing its mind now. We are now entering the era with negative interest mortgage, i.e. the bank will pay you to borrow their money to buy a house! I don't know how long this insanity can continue before a total collapse knocks on our door. Here it is, per the U.K. newspaper The Guardian:

"A Danish bank has launched the world's first negative interest rate mortgage – handing out loans to homeowners where the charge is minus 0.5% a year... Jyske Bank, Denmark's third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

Under its negative mortgage, Jyske said borrowers will make a monthly repayment as usual – but the amount still outstanding will be reduced each month by more than the borrower has paid."

It pains me to write this

I will be short on this as I don’t want to say too much on this topic. As the title implies, it’s not a fun to write it and even painful.

We all know what’s going on in HK and I sincerely wish this can be resolved in a peaceful manner but I’m not sure I have seen the wisdom at the top that can manager it appropriately. It seems the old-style and outdated mentality still prevails in dealing with such kind of crisis. I’m afraid it is just a matter of time that the worst will come into play. I still hope it won’t be a bloody ending but as soon as the PLA starts to move in, see what the whole world will respond. While I hope I’m wrong on this but if it indeed unfortunately happens, we probably will see it in Sep prior to the big day in Oct. From the investing perspective, buying YANG is one way to hedge this huge potential mindless risk.

PLEASE DO NOT send your feedback via WC as it may trigger another round of blocking. If you share my point, just be prepared for it. That’s all!

Smart money has never been wrong

I have written this before about the COT reports that present the current bets by the so-called dump money vs smart money on virtually anything (see here). Believe or not, the smart money has never been wrong in their bets, not timing wise as it can be earlier but direction-wise. Sooner or later, it will be proven correct in almost all the things I have seen in the past. This time it won’t be different in my opinion. The smart money right now is voicing a strongest opinion on something: GOLD!

For gold, the smart money is the commercial traders, who have the skin in the game, sort of speaking, as they are the ones who see the real world supply and demand. Due to the nature of their business, they tend to be on the short side for gold futures as hedge as they don’t want to see too much volatility for their gold positions. So most of the time you will see the net short position for the smart money for gold, pretty normal phenomenon. But when they bet in some extreme amount in either direction from time to time, they are sending a clear signal the direction for the gold is going to change. I have never seen them wrong when such a signal is sent. Last Sep in 2018, the smart money had extremely rarely bet with net long positions in the COT, signaling that they were very bullish for gold when it was trading around low $1200. And we know what has happened since then for gold. But right now, the same smart money is betting in an extreme amount on the other direction, nearly historically higher to the net short side. As you know, gold has been in a really bullish mood for months now and it seems nothing can stop it from going further up. After breaking through the 6 year strong resistance above $1500, the long term trend for gold has never been so strong since the start of this multiyear correction phase from 2012. I also believe we have likely seen the actual bottom for gold around $1200ish and the long term bull run for gold may have resumed again. That’s why I have always advocated to hold some gold for long term. But it by no means mean gold will simply go straight higher from here. Gold will always be very volatile with a wide range of fluctuations on its way up. No difference this time!

Apparently the smart money is somewhat “scared” by the parabolic move by gold at the moment and is betting with a huge amount of shorts rarely seen. It means they don’t think gold will shoot up too much higher from here in the next few weeks or even months. Rather a sizable correction will come soon. Just for your reference, in 2016 we saw a great (but short-term) bull run for gold as well but after the smart money was betting with huge shorts in the similar scale, gold gave back all the gains within a couple of months. Given what’s going on in the world right now with so many geopolitical risks expected or unexpected, as well as the technical strength we have seen for gold, I don’t expect it’s a long term directional change for gold, meaning I still believe gold is entering its next leg up channel in the years ahead. But for the short term though in the next few weeks at least, I think the chance is very high that we will see a lot downside risk for gold. This is something I’m betting for my trading money.  

A historical day!

What a panic day again! I guess you all know what has triggered this selloff, yes, the 10/2 yield curve inversion has finally materialized today, although just for a few hours. This is the first time since 2007, a truly historical day for the investment world!


As I have explained before, this is one of the best leading indicators to suggest that a recession is coming, although in average we are talking about 6-24 months away. So nothing is imminent and I bet it will take longer duration this time due to the quite strong US economy. But typically the market will overreact and no difference today.  We saw another 3% intraday decline again within a couple of weeks. If you don't know, this severity of intraday drop is not common at all. I saw some analysis that in the past 10 years, we have only seen 19 one-day declines of 3% in the past 10 years; 16 of them have occurred within a broader market correction – essentially a market decline of 10% to 20% in the next few months. For the other three, they were also part of a sizeable market sell-off, despite being below 10%. In other words, this magnitude of daily declines is an ominous sign for the market for the next few months. And we have just got another two within a couple of weeks! Ouch!! That's consistent with my bearish expectation for the next few months at least.

Having said, I'm still more positive than negative for now for the next week or so, the extreme short-term prospect. Two main reasons: for one, today's severe decline did not break the recent low around 2830 for SP, so a higher low on the closing basis, a good TA sign. And also the market is extremely oversold and will likely bounce from this level. I'm betting a week from now the market is likely higher than today's. So I'm buying more today.

One more thing about gold. A few days ago we saw a big warning sign for gold when gold jumped higher but the gold stocks went negative on the day. We saw the same pattern again today, gold shot up 1% but gold stocks opened higher but closed in red. This kind of divergence is an important bearish leading indicator that gold may have reached an intermediate term top. I will write more about this later this week.

I'm on the fence

S&P is right on an important inflection point: a place it often commits a suicidal kiss. I made a few such calls before and if you have forgot what it means, you may review here.


Now see the chart below for the past 6 months. S&P did a suicidal kiss back in May and now it is eerily showing a very similar pattern and looks like on the verge to do this death kiss again. But I'm kind on the fence this time. Yes, I won't be surprised to see it go down straight from here as the TA is quite bearish. But on the other hand, the market sentiment has been extremely depressing just a week ago and is still far from over euphoria that we often see before a big correction. With that I'm kind of more bullish than bearish for the near term. I'm thinking it is more likely the market may want to go higher a little bit first to drive up the overall sentiment before next leg down. The bottom line is the market is at a neutral position and can easily go either way. Just toss a coin if you have to bet for one direction but I'm more for the upside for now.

I’m scared!

 I’m not sure we have ever seen this before or even in the entire human history: massive amount of debt on negative interest rates. It seems this has become a fashion in the financial world that every country is chasing to move into this territory. If you are not aware yet, all the major EU countries are already in the negative interest phase (see below) and we are seeming more and more to join.Thanks to the widespread adoption by the central banks of Europe and Japan, roughly 25% of all outstanding government debt now trades with a negative yield. This includes half of all European sovereign debt... 85% of Germany's debt... and as of last week, all of Switzerland's outstanding debt. That's right, the entire Swiss government bond market – ranging from maturities of one month all the way out to 50 years – now trades with a negative yield. Even more crazy to see a 100 year government bond by Austria, which is paying less than 1% (at least not yet negative but probably soon will be).

 

 

Now even US is likely moving toward that. That’s really scary. As I’m writing, globally we have $15 Trillion debt that are on negative rates, which is increasing day by day. What it means is that the borrowers get paid to borrow money and the lenders are legally bounded to lose money! What’s more scary is that this is not limited to the government bonds, for which in theory the government can at least print money to pay back (although definitely in depreciation). We are now starting to see negative rates for junk bonds issued by zombie companies, which will very likely turn upside down. In other words, bond investors are now willing to pay such zombie companies to borrow their money with the understanding that their money will definitely lose values and with a very high possibility that they may never see their money back! What a world we are in now!  

This is a totally distorted financial world, for which I don’t know how it can function normally for long and I don’t know what’s the ending for it. One thing I’m pretty sure that it will not end well based on any economic sense!  And likely we will see a total collapse down the road. That’s why I have said many times before, I don’t think the next crisis and recession will just be a short term thing. Historically we have seen two prolonged bear markets lasting for about 15 years or more (see here). We are probably on the  verge of entering another long term bear market that could last even longer.

Of course, I’m not saying this is anything imminent. Not at all. We probably have another year or two with some good times ahead, depending on how the political and economic saga playing out. If the progressive leftists take control of the power next year, just watch for an accelerating entry into this long term bear market! As I have always said, you don’t need to believe me as I’m only sharing my thoughts here with no intension whatsoever to change your mind. For myself, the last thing I want to see is we run out of money when we are at 70s or 80s, not because I’m doing poorly personally but because of crises due to the whole financial world messes. That’s why I want to be prepared for my future, which takes time to set up a strong solid financial moat! I will be sharing what I’m personally doing for our future. Actually, since I have set up in such a way that I’m not only not scared of the next prolonged crisis coming, I’m even (selfishly) eager to see it come. Why so? Because it will be a great money making opportunity in our life time and I’m prepared for that moment! You will see what I mean soon.

No fear of fears

I wrote a blog entitled “Fear of no fear” (see here). Sounds a bit odd but it basically means that you need to have a lot of fear when no one else is fearful about the market. This usually happens when there is a widespread euphoria and everyone is happy to chase highs. You hear “new high” again and again and those talking heads are eagerly telling you what will be the next new high. This is the moment you ought to be very fearful, as what the master investor Buffett has taught us! After a brief selloff in May, we have witnessed two months of relentless rebound that has taken out all time highs (S&P) many times within just a few weeks. That’s time I’m typically having fears and as I have repeatedly advised for caution, I’ve even left the impression for many that I’m always bearish. Till this week!

The market tone had totally changed with the Monday’s worst selloff this year. That was the time I sensed an intensive fear I haven’t seen since last Dec. The fear index, VIX, jumped by 50% within the day, which was rarely seen. Technically speaking, many TA indicators had reached to the extreme bearish point we only saw at the deep plunge back in Dec last year. It seems all the sudden everyone became bearish, fearing that the end of world was coming. That was the time I turned to bullish, the time to have “no fear” among abundant fears. As I said, I was actively buying for long and shorting for VIX on Monday. And I added more long positions at the exhaustive panic selloff on Wed. Apparently it was a very profitable move. As I have expected, the mood by Friday could be totally different from Monday’s and it appears we are indeed seeing more bullish sentiment now!

I’m not here to brag for what I’m doing but more as a sharing on some lessons learnt. I have been in this market for quite some time and have learnt a lot from all kinds of mistakes. One biggest lesson I have learnt is how to effectively become a truly contrarian investor or trader. That’s basically go with “Fears of no fear” or “No fear of fears”, my summary for Buffett’s “be fearful when other are greedy and be greedy when others are fearful”. As human beings, we all have the tendency to go with the herd and feel more comfortable by doing the same thing everyone else is doing. I’m not totally immune to it and from time to time, I may still fall into this mentality. But I have become more and more comfortable to go against the herd when trading, which is often more profitable than the herd move.  

But let me make myself clear again, I’m only bullish for a very short term and I don’t think we are out of the woods yet. I still think there is more downside risk ahead of us and we need to be very cautious from here. I was targeting the S&P 50 DMA around 2930ish. I thought this was a reasonable resistance that the market might have some difficulty to overcome but we got and surpassed it already yesterday! As we have seen many times this year, the herd with FOMO mentality tends to overshoot in either direction. So I closed all my weekly long options yesterday with a great profit by just a few days.  

Although we may still see a few days of upside momentum, I highly doubt we will see all time highs any time soon. We will likely see new lows first before new highs. I will use technical indicators to spot extreme overbought conditions to guide me for the next BIG SHORT! For now, I’m just happy to take profits from the short term long positions as the market moves up.    

I'm excited!

"The worst day in 2019!"

This is the headline news you are hearing everywhere about today's panicky selloff. Actually point-decline-wise, it was the second worst day in the whole history of S&P since its birth in 1923. The worst day happened last year with 113 points daily drop in Feb 2018, just 3 points more than today's intrade worst decline. By closing though, S&P has "only" dropped 87 points, i.e. recovered 1/5 of the loss due to the final hour buyers stepping in. 

This is the first time I have heard "the worst" for the stock market for the year. After all, since my bold call at the very beginning of the year for a 20% increase for S&P, the market has had a one-way straight line only to keep going up. So till before today, we have only heard "new high" one after another, which has ignited some crazy euphoria we haven't seen for quite some time. As I have repeatedly warned, this kind of euphoric move is not sustainable and it is just a matter of time to see the reality check!  And we finally got that today!!

Today's panicky selloff did feel like a capitulation that should have wiped out most, if not all the weak hands. The  mood is really shaking now and probably a widespread expectation for more downside to go. I like this kind of universal extreme bearish mood. By no means I think the worst is necessarily over and we will likely see a lot more severe downside than this down the road. Having said that, it won't be a straight-line down. For the very near term, I'm seeing the extreme bearish mood and price actions by almost all the TA indicators. For that  I'm betting for the upside now. As I told my friends early this morning before opening, here is what I did for today: long SPY/SSO and short GDX/TLT/VIX.  

Of course, as a trader, I can always be wrong and therefore I won't bet on the farm. This is a very fluid situation which can always go to much worse with any headlines. For example, I just saw the announcement by the US government to label China as the currency manipulator, first time in the past 25 years. This is definitely not good news the market wants to hear and may spook the market further tomorrow. But I will add more long positions into further weakness now. My gut feeling is that we will see a heck of rebound in the days ahead and the mood by Friday may be a total reversal from today's! It is the time to risk a little but for a potential quick double or even several times gain within days. That's the beauty of swing trades at the extreme situation like now!! For that, I'm excited!!

Beyond the fake

I told friends before its earnings that I was shorting this stock. I said I was expecting a tsunami selloff following its earnings that was doomed to be disappointed. While it did fall as much as 15% and ended up the day by a sizable -12% plummet from $222 to 195, I was expecting to see a 20-30% or more fallout in responding to its earnings. For my short bet though, I was happy for it to fall below $200. You probably can guess already what I’m talking about. Yes, the famous company for faked meat, Beyond the Meat (BYND).

But let me be very clear, I’m not by any means against this business. On the contrary, I like this business for faked products. After all, from the medical point of view, this is a good trend to have more vegetable-based products to help people eat more healthily. So I applaud this company to fake the meat although I have never tried and don’t know how it tastes. Personally I will just stick to the fresh veggies and Tofu products. So this is a real business with good future and I hope it can succeed in the future.

From the investing perspective, you can also argue that this stock has already been very successful. After all, rarely you can see any stocks that can jump nearly straight-line for weeks after its IPO with a mindboggling 800% gain. The problem is by any means this is clear bubble for it. It is trading 100 times its revenue when it is still losing money. Regardless how much you appreciate its future, this can not be sustainable. It is simply against the economic law! I think unintentionally BYND is creating another faked product and this time the euphoric bubble that cannot never be materialized and is doomed to fail. It is just a matter of time, not if, if there is any financial and economic sense in this world. So here comes with my prediction: I bet BYND will see its price cut by half in the near future. I very well know I could see a lot of eggs on my face with this prediction as there is so much hype building up for it and nearly everyone is chasing it whenever it comes down a bit but that’s really one of the biggest risks I can see. It was a brutal week for BYND for sure as it closed at 177 today, a 26% haircut from its peak just in 3 days! Very likely we may start to see some buying or bottom fishing next week or so and it could bounce back towards $200ish. But I think its another leg down towards $100 will follow soon.  

Feel free to chase it at your own cost!!   

Powell’s confession

Oh my god! You guys are too nasty and difficult to be satisfied!! What do you really want me to do to make you happy?? I thought I have done everything you are looking for. But again, you make me embarrassed and losing face. For 9 times out of the total 11 post-meeting conferences since I took over the FED Chair position, you guys knocked me down almost immediately as soon as I started to talk. So depressing and I really don’t know how to talk to you guys without changing your mood so suddenly!

I hope you guys can really understand what kind of position I’m having. Although I seem to be the most powerful man in the financial world, I’m really sitting in a hot, very hot chair, which is making me excruciatingly miserable and mortifying. As you may know, I’m walking on the very thin ice and I keep hearing the frightening sound from the cracking ice beneath me whenever I start to amble. It is really kind of unnerving sensation if you have ever sit in my chair. I honestly wish I could switch my position with yours now. On one hand, I really don’t see the need to cut the rate with the current economy momentum and I was even thinking to raise it as you all know well. But the bloody Trump keeps nagging at me, so much so that I cannot just ignore him without doing something to at least try to please him a bit. Nevertheless on the surface, I have to try to show my neutrality without being bullied by the political pressure, especially the niggling and atrocious Trump!  That’s why at the Wed conference, I deliberately said that this was not the start of the lengthy rate cut cycle. Sadly, you guys couldn’t understand me and immediately dropped 400 points for the Dow as your reaction. My God! You are really too foolish to think that this would be the only rate cut for this year. If you know me well, I will always be very responsive and attentive to your mood and reaction and for sure more rate cuts will be on the way. In reality, as soon as we start the rate cut journey, we can hardly stop the motion within a very short period of time. After all, the world as a whole is on the slippery slope and virtually all the major countries have gone negative in their interests. How can we keep positive in such kind of environment!  I guess the monstrous Trump, although horrendous rhetorically, indeed has a good point, if we want to keep the momentum for the US economy! I finally get that and will surely do my best to continue to meet your needs with your full satisfaction.

Here is my beg, folks, please leave me alone and give me some breath room! Just ignore what I say and I will doggedly deliver what you guys want! No kidding!!!

Yours sincerely

Jerome H. Powell

2 August 2019

Well, a pretty depressing and miserable Powell, right? Probably more so for those who were chasing the market before the Fed rate decision. In the following 2 days, 100+ points were lost for S&P and VIX jumped by about 50%! As I said, my crystal ball is pretty good in telling me what is coming and it is a great week for me by betting for higher volatility and lower stocks. A lot of damage has been done for the market in terms of its TA and don’t try to bet for a quick recovery. Having said that, in the very near term, i.e. next week or so, there is a good chance the market will rebound. Actually I was even expecting a full reversal today. The market didn’t to that although recovered by half. More impressive is the quick receding of the volatility (VIX) from as high as 20 to close below 18, and still declining post-hours. I’m now betting for some dead cat bounce next week with VIX to quickly retreat again, which will probably lure a lot FOMOs into the game of chasing highs. So that’s my game plan for next week to go long first and then short later.