February 25, 2021

I wrote this VERY long intro during last week, and after finishing it I thought, “What for? This is way too much personal experience garbage. Just get to the trade, Bill.” But since I wrote the damn thing, I guess there is some relevance here so I am leaving it in…However, if you want to skip past it all (my observations about market opinions and analysts in general), scroll all the way down to the first big headline where you see, “The Point of all this…”

I was hired into this business in August, 1980. I didn’t apply for the job. I was invited to work at Merrill Lynch by one of their highly successful commodity brokers who needed some help in handling his very hot business…what with Gold having gone from $100 to $875 an ounce during the few previous years…and Crude having exploded from $2-$3 a barrel up to over $30…and with the summer of 1980 just coming off a drought that had skyrocketed the row crops across the board. The markets were absolutely nuts…and so was the atmosphere in that office…AND…it was the top of the commodity markets for the next 20 years.

What qualified me for this business (nothing)?...By the time I graduated from college in 1972 with a relatively useless degree in European History, I had evolved from a super straight university basketball player when I arrived (1967), to a full blown “international hippie” when I left. And by 1980 I had spent my 20’s travelling the planet (mostly by thumb) and working wherever I could find any job, in any foreign country, one of which became a profession (while living in Denmark) as an old world one-pair-at-a-time shoemaker. This eventually led, 5 years later, to my showing at the Piedmont Park Arts & Craft Festival here in Atlanta, where several months after getting to know the above noted Merrill broker while fabricating a pair of custom sandals for him, he phoned me to ask, “Why don’t you come to work down here…at Merrill Lynch Commodities?” Say WHAT!? The truth is, I wasn’t even aware that the futures markets even existed, but, as I had recently been forced to accept that it was fairly impossible to make a living doing handcrafted leather, I borrowed a suit, whacked off my pony tail, and walked into Merrill’s 19^th floor offices several days later…was hired within the hour (the interview with the office manager was just a formality)…and several weeks later, after having read a few books, studying for and passing the NFA futures exam…I went to work as my mentor’s “shadow,” with my primary task being to help him while learning  everything I could about the markets and the business…So, my qualifications? As I said…None.

So…I knew NOTHING about this truly fascinating business…which may have worked to my advantage…in that I had no preconceived notions about ANYTHING related to the markets…and with my natural inclination towards research, analysis, and “finding out for myself,” I pretty much LIVED in the Merrill offices for the first seven years of my career, quite often heading home at midnight after doing charts, soaking up reams of news and statistics from the old 24 hour ticker machine, reading research, etc…and then being back at my desk at 7:00 AM the next morning…the point being that by the time I became a broker a year after being hired, I was already inadvertently on my way towards developing what became a VERY independent opinion, based NOT on what all of the supposed experts and analysts quite typically were often unanimously agreeing about, but on what I personally had been able to figure out on my own…And one of the biggest realizations that I eventually had was that the overwhelming majority of brokerage house “analysts” and “strategists” were frequently, and as I said, unanimously, just totally wrong about what the markets were going to do, such that within 3-4 years it scared me to death to ever be in agreement with them (one analyst actually had 50 straight losing recommendations)…Really, being at Merrill Lynch, I had first hand, long term exposure to guys who were supposed to be the crème de la crème as EXPERTS in their respective markets, and time after time after time, I saw them proven so unbelievably wrong that it was almost just that, unbelievable. I learned, again, over and over and over, that just because an individual has been classified by a bank or brokerage house as an “analyst” does NOT mean that he or she understand the markets…at all. For sure, they know all of the buzzwords…and can repeat all of the MYTHS about what supposedly is and is not important…and their “logic” always SOUNDS good…and they can tell you EVERYTHING there is to know about that market…EXCEPT for one major thing: They are seemingly always wrong as to which direction the market is going…And I do pretty much mean “always,” with the fairly lone typical exception being that they DO get the LAST 10% of a move “right,” by which I mean, they finally get on a market when it is still “going”, but precisely before it is about to reverse in the opposite direction.

So, Ok, I am NOT saying that I can’t be just HORRIBLY wrong at times…That is a given…But I also know that there are times when I do get it very right…There are times when my read of the markets IS spot on correct…But with those guys? I’ll stand by my opinion that most of the time, as I’m always warning you about my own recommendations, they are just “dead, dead wrong.” And I literally…and I mean, literally…cannot count the times during the past 40 years when I have seen that proven to be the case, but there is one major occasion that has stuck in my mind for decades…going back to the spring of 1984…when I more or less received the final piece of evidence confirming (to me) that those “experts” were pretty much the dead opposite of that…and this event directly relates, some 36 years later, to my market recommendation in this newsletter.

This was the set up…

In December, 1980, the U.S. Dollar started rising against all of the world’s other major currencies…and continued to so, in fairly sharp fashion, such that by the spring of 1984, the Dollar Index, having moved from 85 to 130, was up a little over 50% during that 3 ½ year period. This was big news and obviously had significant ramifications when you consider how a 50% change in any currency might, in one respect, affect the prices of imports and exports between the USA and the rest of the world. This was a BIG DEAL…and it was BIG news…The “Strong Dollar!” was in the news ALL the time…And right along with all that, Currency trading was a BIG market back then…which quite obviously represented potentially enormous revenue possibilities for all of Wall Street’s brokerage houses. To that end, in April, 1984, our office in Atlanta was notified that a group of highly qualified  currency specialists from London, representing the recently formed Merrill Lynch International Bank, were coming to town for a highly promoted “Currency Trading Seminar,” and we brokers (about 15 of us) were directed to invite as many clients and prospects as we could…the idea being that these “experts” were going to help drum up business for us commodity brokers…and the company.

Everybody did as they were asked, and when the “show” took place, at the quite swanky Lenox Ritz-Carlton, there were 7 or 8 of these well dressed, well spoken, New York and London based bigwigs on stage in front of about 400 invitees (which should give you some idea of how big the subject was), with everyone ready to soak up trading “knowledge” from these blueblood “international bankers,” whose intellectually sounding British accents were the perfect icing on the cake. “These guys MUST know what they’re talking about!” And believe me, they SOUNDED like it.

I will tell you that I had already become something of a skeptic regarding analysts…after having had my ass blown off more than a few times by listening to them…and only attended the seminar because it was expected…and yes, also because I was a bit intrigued by the possibility that maybe these guys from London…with their “International Banker” credentials, DID actually have a better grasp of the markets than anyone I’d seen here in the USA.

Their ADAMANT premise, supported by charts, graphs, logic, fervor…and their introduction as “bluebloods of the international banking community,” was that the “Overly Strong Dollar” HAD to be turning down and that there were tremendous speculative opportunities to be had in either Shorting the Dollar, or conversely, Buying the European Currencies…with specifically, the Swiss Franc being their favorite BUY(!)…The presentation involved a series of specialized analysts (fundamentalists, chartists, economists, bankers) expounding on their unanimous opinion that the Dollar HAD to be turning, and this “turn” represented a tremendous trading opportunity.

I remember standing at the back of the meeting room and thinking, “Ok. Everything they say DOES seem to make sense. Maybe these guys ARE as smart as they’ve been billed to be.” And then they brought on their “Technical Chart Specialist” and the following chart went up on their giant screen.

 So the preceding chart was more or less what they were predicting…But I saw it very differently…

 In other words, these guys cited all sorts of “logical” reasons why they saw a BOTTOM…while all I saw was a CLIFF…

And what happened?

And no, just because one group of guys, almost 4 decades ago, made a bad call does NOT statistically have any real relevance…but having seen a 1000 examples of the same sort of thing ever since, IS, to me, quite relevant…So, one more time, there are times when you can distinctly detect that all of those “analysts” and “strategists” ARE on exactly the same page, and when you do, you should be looking to go dead opposite whatever it is they are recommending.

 The point of all this?

Well, it’s not to just say I think all analysts are stupid and I am not…It’s because the recommendations I am making below ARE going DEAD OPPOSITE what I would say are overwhelmingly unanimous opinions held by just about every talking head and “expert” on the planet. For sure, there are certainly some people out there who might agree with me, but I defy you to find me any real opinion that is Bearish Gold.

Get Short Gold (and Silver)

ESPECIALLY the age old “inflation is coming!” bogeyman commodity…G O L D! Really…Find me ANYONE who is bearish, and I mean truly bearish…not just yapping about “It could correct a bit from here.”

I THINK GOLD IS ABOUT TO GO CRASHING OFF OF A CLIFF…AND CAN EASILY ENVISION IT TRADING DOWN $200-$300 AN OUNCE WITHIN A MATTER OF MONTHS…and I don’t just stick that out there to grab your attention…AND IS ONE OF THE REASONS FOR MOST OF LAST YEAR I WAS SAYING, “BUY EVERYTHING (except Gold).”

Once again, I view this market as having become LOADED with speculative BUYERS during the turmoil/angst of the past year or so...to the extent that for months I have noted that there are pretty much ZERO ANALYSTS even remotely considering the possibility of a BEAR market...Meanwhile, with 95% of the headlines of late, and specifically during in the past few weeks having been, “Roaring Inflation coming!” and “Buy Commodities!” (after they’ve been zooming up for a YEAR)…And I THEREFORE FIND IT EXTREMELY INTERESTING THAT…WITH ALL THIS ULTRA BULLISH COMMODITY AND INFLATION HYPE…GOLD IS SITTING DEAD ON ROUGHLY 8 MONTH LOWS…In other words, if in this environment of unanimously bullish sentiment, it’s going NOWHERE, it DOES suggest (as I have seen in a 1000 situations) that EVERYBODY WHO WOULD BUY THIS MARKET HAS ALREADY DONE SO…and typically, the next stage we’ll go through is mass liquidation…MASS SELLING.

Start with a look at Gold for the past year…

Note the three highlighted spikes…The first coming in midsummer (Aug) as riots were breaking out in the streets, the second being right around election day (Nov), and the third being in conjunction with the Capitol Insurrection (Jan), with all three just looking like total sucker plays…where everybody was jumping on the rally and just SURE that the lift off into new all-time highs, that analysts everywhere have been endlessly predicting, was finally getting started…And then it did NOT…And immediately turned back down after sucking in more crowd following investor sheep.

I maintain that this market is just jam packed with people who own it for one reason, not because they need it, or not because of some sort of supply-demand shortage, or any fundamental reason whatsoever…but simply because they think it’s going up.

And I absolutely think that with it now within a whisper of cracking the lows noted above, what we are about to see is Gold starting to unravel, BIGTIME…as all of those buyers for pretty much all of the last year find themselves LOSING on something that they probably thought was a “sure winner.” Again…EVERYBODY gets their information and “inspiration” from the yakheads in the media…And one more time…HAVE YOU HEARD ANY OF THOSE GENIUSES RECOMMENDING ANYTHING BUT, “BUY GOLD!”?

Really…Take another look at the chart…There are $100 swings all over the place, so do understand that just a $100-150 move would be nothing here…But the truth is, after watching it stairstep lower since its high last summer, it looks to me like the NEXT break could be the one that doesn’t manage to recover after dropping $100-150 (as it has done several times now),  I think the next break COULD easily be at least the double of that.

Be Short. NOBODY else is. I think puts look dirt cheap for what this market can do.

Here’s the big picture…

And here’s one option and approach I like here…

This can also be done with more time…but obviously for more money…My perspective is that this IS about to happen right now…and I do literally mean “now.” So, owning puts here, and risking half their value makes sense to me…And really…I MIGHT BE DEAD, DEAD WRONG HERE BUT IF I HAVE THE DIRECTION OF THE NEXT MOVE RIGHT…I DO THINK THAT $200…OR MORE…ON THE DOWNSIDE ALMOST LOOKS LIKE A GIVEN.

Thanks if you read this whole damn thing…

Call me if you want to get on it…

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Gold Puts