What a time and place in these markets, eh? Do you sense that every major market in the world is coiled and about to either crash or spike any day now? Are we already seeing some of these major crashes and spikes presently?
Let’s run through the gamut of what’s what right now in the markets and get some perspective about what strategies and tactics we should be employing here.
1. Bonds/Treasurys. Oh man, they are cracking. Over the last couple months I’ve written about why it’s time to panic about Treasurys and I’ve been building up positions that will profit from a continued move higher in rates, with my IEF puts for example. The crux of this trade set up here is whether or not the Fed can continue to control how much the markets are paying in interest rates. There’s no doubt that the Chinese are overloaded on US debt right now. And the BRICs and the EU too are sick of dealing with the dollar.
2. The dollar and the currency wars. Here’s a pretty good explanation of currency war from Wikipedia – “Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively lowexchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. However, the price increase for imports can harm citizens’ purchasing power. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.”
I’ve long fought anybody who wants to devalue our dollar because while it might make the country’s exports cheaper thereby boosting exports, it also steals from all of us who have been saving responsibly. We want our money to be as valuable as possible, right? What’s so hard about that? The value of the dollar used to be sacred around the world. Not anymore as BRICs are looking to create their own reserve currency based on something other than a Federal Reserve-controlled dollar.
3. South Korea. Little noticed of late is how badly the South Korean stock market has crashed. As my subscribers know, my biggest short position in my personal portfolio is the EWY. I am covering a small part of that short position today to lock in some profits since we first build up this short position back at $65 and its now flirting with falling through the $50 mark. Samsung’s outsized market cap dominates the broader South Korean stock index and Samsung was priced to perfection a couple months ago. It could fall another 30%, taking the EWY down 20% plus from these levels over the course of the next few months, just as it has the last few months.
4. Obamacare. Is there any doubt that the giant insurance companies and hospital companies will have a free for all profiteering off the “Affordable Care Act” that they themselves wrote? Is there any chance that those profits off of taxpayer largesse in this new corporate health-care system will help instead of hurt our economy? Maybe for a short time, I guess, as long as the government borrows more trillions from our children to fund the profits in this new system for a few years’ time.
5. Gold/Silver. Gold and silver are down big today at two-year lows. Since gold and silver had crashed, I started re-building my gold and silver assets a couple months ago, explaining to my subscribers that we need to use the next year or two to get those positions up to a reasonable size again (up to 10-15% of your net worth). I am going to personally take this opportunity to buy some more gold and silver coins and bullion this week, continuing along that playbook of building these positions up over time. Buy low, sell high is the idea, right?
6. China interbank lending. Remember when, in 2008, there were sudden spikes in inter-bank lending rates? Soon after Lehman and AIG and Goldman and JP Morgan and every other major bank either went bankrupt or was saved with welfare and legalized accounting tricks. China’s banks are experiencing some similar spikes. That doesn’t mean a crash will follow there as it did here. But it doesn’t bode well for economic and market stability either.
And don’t forget that stocks, bonds, South Korea, China, gold and silver have all recently been at all time highs most are still close to those highs. Long-time readers of mine know how adamant I get sometimes about being either long/bullish or short/bearish. How many times did I write about this ongoing stock market bubble when the major stock markets were 1/2 or 1/3 lower than they they are right now? I don’t think it’s time to panic just yet, and I’ll likely continue to hold at least a few stocks that I think can go up 5- or 10-fold over the long-term regardless of my economic/broader market stance.
And in the meantime, the risks over being aggressively long now vs. three and two years ago when I was aggressively long are much higher and the potential returns much lower. That means you stay cautiously bullish overall, but you don’t load up on anything right here right now until we get some resolution to all these hyper-active market set ups.
I’m going to buy some more gold and silver bullion and coins today, and I still have much more to buy in coming months, as I do believe gold and silver are likely to double or triple in the next five years.
I have a strong feeling that we’re about to see some serious money-making and money-losing opportunities develop this summer. Be liquid, be flexible and be ready to act when the time comes. And in the meantime, I’ve also been working on and will soon start buying a basket of smaller-growth companies that I think can go up as I said earlier 5- to 10-fold over the next few years, no matter what happens to the broader markets and economies.