Bonds/Gold/Stocks/Commodities/US$

 

 

 

Trader Scott’s Market Blog

January 15, 2017

There have been several posts recently about the extreme bearishness in the US Treasury market. I bought bondson December 1stas a trade, partly because of the bearishness, along with the technical situation with the selling climaxes and retests. And despite a good rally in bond prices since December, the bearish positioning by speculators in bonds has become even more extreme. Treasury short positions are at record highs, except for the 30 year, which is at multi-year highs. Recently almost each week, the short position goes from record high to even more record(er) high. Can it keep getting more lopsided – of course. But the potential size of the rally would grow even larger, along with the point and figure counts into the backups in price. A more surprising rally would then begin to cause doubts about a whole range of consensus theories (theorems for the algo crowd). Even tho the bond market itself isn’t very sexy, it is a massive market with alot of capital flows. And it has large effects on other markets. Bond yields affect stocks, sometimes positively, sometimes negatively, especially at extremes of either market. With yields and the stock market, it often tends to be a doesn’t matter until it does situation. The recent drop in rates has mainly been on the longer end, causing a flattening of the yield curve.Two yearyields haven’t moved down much. The flatter yields will affect the big bank stocks in the US, but it’s the European bank stocks which are the most worrisome to me. Deutsche Bank and the Italian bank stocks like Unicredit get most of the attention, but it’s Credit Suisse which really is not being recognized for its’ potential. It’s unlikely they will get a bail out. It’s the European (and Japanese) situation, politically, currency-wise, and banking related, which is getting closer and closer to being bullish for both gold and the US$.

There is presently way too much of a consensus about Trump’s’ policies and how they will affect economics and markets. But the enactment of his policies, and certainly the effects, will not be at all certain. What has become “certain” is Trumpflation/Trumponomics and its’ bearishness for bonds, and its’ bullishness for stocks along with the $ – and its’ bearishness for gold. I’ve been bullish on the US$ for years, and continue to be, but this bigger $ rally, time-wise, is winding down. The bottom was in March 2008, and Trump has had ZERO to do with the bull market in the $, but it’s amusing to hear completely misinformed people claim that. (However the bull market in the US$ actually had something to do with why Trump got elected.) When I initially bought the$, Donald Trump wasn’t even on the radar screen. He didn’t have anything to do, so far, with the $ bull market, but he will certainly have something to do with the major top in the S. The bigger $ rally will cause its’ own demise. Likewise, the President-elect will not be pleased at all with a “too strong” $.

We’ve heard from the $ bears who are bullish on commodities because the $ is about to crash. Basically the opposite has occurred. The US$ is near 14 year highs, and yet commodities bottomed as a group early last year. Many of them went to multi-year highs last year like coffee, cotton, and natural gas. How did that happen. We hear all the time about how the $ and commodities move in opposite directions. I’ve maintained my bullishness on the $, and yet also turned bullish on commodities early last year (I missed the January low in base metals). Correlations in markets fall apart at short, intermediate, and long term bottoms and tops. The secular low in commodities was in early 2016 and the secular low in gold was in December 2015. Right now gold and bonds and the Yen are highly correlated. But that isn’t always the case, and it will change again.

 

About

img_0074bwcrsmTrader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.

 



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'Trader Scott’s Market Blog – Bonds/Gold/Stocks/Commodities/US$ – January 15, 2017' have 6 comments

  1. January 16, 2017 @ 1:56 am Dmitrii

    Credit Suisse chart looks like accumulation process. Why are you bear on it?

    Reply

    • January 16, 2017 @ 9:29 am traderscott

      For awhile on these banks, I have been of the mindset to give them plenty of room after the selling climaxes last summer, so it’s a time frame thing. I told some people back then they were actually pretty bullish intermediate term. I do not believe on a bigger picture it’s accumulation.

      Reply

  2. January 16, 2017 @ 3:13 am Aamer

    Hi Scott,

    Good piece. The issue is that CS can continue like all the other banks. There is no reason why it cannot be bailed out…..may be non Swiss investors but the game can go on and on. When investors don’t have an issue with accounting rules being changed by the Govts etc in 2009…..zombie banks came back to life….and now we have at least 5 of those bankers in the Trump cabinet. The SNB is printing money out of thin air…..does anyone care ? The Swiss don’t….nor do the foreigners !!! Their balance sheet , published annually , includes stakes in over 50 US stocks plus PM mining companies. What do you think the other less transparent CB’s balance sheet looks like…..and if no one in the mkt has an issue with this kind of behaviour then CS is certainly small fries. This does not preclude a sacrifice every now and then….like DB eventually is going to have to give up its mkt share in the US mkt to the likes of JPM and GS…..but it will survive and eventually everything will go back to ‘normal’.

    Agree with you re US dollar. It is a political issue and when the time comes it will be bought back down….but right now it serves a purpose….keeps the US stock mkt alive and also the bond mkt simply due to capital flows from non US sources.

    It looks like a Trump set up….he is doing everything right for crashing the system. Initial moves re China , ME and even Russia are looking provocative …..the narrative is being created to blame it on politicians and not CB’s.

    It still baffles me that people think or believe that trump is an outsider….he beat the deep state ….an outcast etc I believe Kissinger is an advisor…..!!!! Different multimillionaires in charge of the same circus….

    I personally believe that brexit was allowed to happen to protect the ‘city’ …..from chaos in Europe. When policy makers in Germany, France, etc allowed Refugees to come unchecked and almost unlimited….it set up the fires we are seeing today……and the subsequent election results etc….with a nice result that capital flows are now heading towards the US….Amazon, Netflix, tesla are the new homes for EU monies fleeing political madness instigated by people who have no desire to help their respective countries.

    Mkts will crash and burn eventually ….but not sure if they have anything to do with fundamentals.

    Sorry for my rant. and rambling ! as I always say….good politicians/ people are assainated like MLK etc all the others have made a deal. Markets have become a bit of a joke and not sure if one can use a rational methodology to make money consistently…..it’s more important to listen to yellen’ ramblings or trumps tweets than using a DCF model to understand companies etc

    Best,

    Aamer

    Reply

    • January 16, 2017 @ 9:10 am traderscott

      Agree with most of that Aamer. It’s the bond bear market which exposes all of this. We’re all used to the extend and pretend because of the low rates. We’re in a trance – agreed there. But that is going to change – the bond market will force the issue – they’ll fight it, but just the fact that rates will be rising is the confirmation their power is waning. Which I believe becomes second half of 2017 to begin to take it up a notch. As far as using a rational methodolgy, I’ve been doing generally the same thing for over 20 years, and I have no plans to change it. I heard the same general sentiment when I started as a floor trader. Alot of the guys who had been around for awhile, were complaining about so-called program trading, and how it had destroyed markets. My mentor SW told me to ignore it, and to just keep working hard, and I’ll be fine – and he was right, like always.

      Reply

      • January 16, 2017 @ 9:35 am Aamer

        Again apologies for my ramblings….

        Re Bond markets….think Japan is the market we should use as a glimpse of the future. Low rates for almost forever….and people / institutions are still buying it. Maybe in the US it will have new legislation ordering pension funds to have a fixed allocation to bonds or 401ks etc

        I think the one thing people are naive about is that the system is like the ‘matrix’ – completely artificial and can be remodelled according to the desires of the architects in question. Rules are simply there until they are changed….

        I don’t disagree on your view that rates will go up….but when they do and with a strong USD, the system will crash. A reset will happen…..isn’t that something that would be convenient ?

        By that time the middle class will be almost non existent !

        Re your trading methodology I think it is based more on tape reading and basic price action. It does not depend on rational markets …..it matters not why gold goes up, rather it is the levels and price action or mkt psychology that will determine your moves.

        By the way in my first job as a trainee I was asked to cover gold…the reason being my boss wanted me to see how useless my degree in economics & finance was….couldn’t tell me in my face so this was his way .

        Best,

        Aamer

        Reply

        • January 16, 2017 @ 9:51 am traderscott

          First, I am so happy to have not majored in business, as it would have taken even longer to “figure out” how markets truly operate. And yes, tape reading takes everything into account, new or old, it’s just the “tape”. It doesn’t make this business easy at all, but it does make it “rational”. And it’s doing these two things which makes this business work – having a great entry point, and taking some profits. Just totally viewing markets from a different perspective, it helps alot with getting caught up in the day to day weirdness thing, and also with the irrationality.

          Reply


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