November 12, 2011

 Keep Buying Stocks

Ignore the latest “Crisis”

Most of these newsletters are a composite of observations and impressions that pop into my head, all of which I jot down daily as I watch the markets unfold. What follows may be a little disjointed, but here are notes I have been making during the last few weeks as all this hysteria about potential defaults by Greece and Italy supposedly threaten to crash the world’s economies…which I believe is absolutely absurd.

The media is like a chain letter of “financial gossip”. The latest example? You’ve seen all the recent hype that if the Italian 10 Year Note traded over 7%, it would mean Italy had fallen off a cliff and would be taking the world down with it?...I would bet that a week ago, 99.9% of those talking head parrots who have been unanimously bleating the same “logic” regarding Italy’s interest rates, could not have told you what Italian Notes have EVER traded at, yet now they are all screaming, “7 percent! 7 percent! Oh, my god, 7 percent in Italy!!”, like it’s some magic number that will determine the fate of the world…Ludicrous! Just a bunch of well dressed, well made-up idiots basically repeating, and embellishing, what they heard the last guy say…But that IS precisely how the whole information chain unfolds…and when you have every news disseminator on the planet saying the same thing, how can the average investor even dream they could ALL be wrong? But over and over and over, that has proven to be the case…If you make your investment decisions based on the latest headlines, I say you are doomed to lose money.

When there is nothing to be worried about is when you should be worried about stocks…And right now, even though the Dow is 1750 points above its low from just six weeks ago (Oct. 4^th), all we are have heard the entire way up, and CONTINUE to hear, is gloom, doom and worry…Think about it…Stocks ARE on the move…but the seemingly unchanging advice from the analyst community is, ”Better be careful! Don’t you dare fall for the idea stocks could be entering the lift off mode. If you want to do anything at all, we suggest you sell something.”

Yesterday I watched a video on a well known internet news site in which three boob reporters, all three of whom I listened to and thought, “never been right about anything”, or “never had a winning trade in his life” (peon talking heads, not traders, in other words), and they were, in unison, totally, blithely CERTAIN any up move in stocks was “only a bounce”, that Greece was done, Italy was trash, Europe was just too far gone, etc…and these guys, with their well-this-is-so-obvious attitudes, were, to me, dead perfect representatives of exactly the media groupthink that is so FOREVER wrong about where markets are going.

I’m sitting here thinking the Dow could be at 14,000 by the end of January…maybe even before year end…in other words, to basically go STRAIGHT UP out of all this classically stupid angst that is everywhere, and I therefore LOVE the sort of headlines I’ve seen during the last few days…such as…“GROWING DEBT CRISIS – Dark clouds gathering in the global economy”,  “European sell-off fever reaches U.S.” and “Italy Fears Rattle World’s Investors – Markets in US and Europe Drop as Turmoil Fuels Fears Crisis Could Ricochet Across Atlantic”…As I write, the Dow is maybe 100-150 points off its highs for the past three months, those same three months in which the end of the economic world has been predicted ad nauseam, and STILL, there’s this sense in the media the wheels are about to fall off...? I love it…I AM STILL LONG THE STOCK INDICES AND STILL BUYING FUTURES AND CALL OPTIONS.

 European Crisis?

WAY past its apex…

Stupid statement, and I say this a little tongue in cheek, but I just don’t think two of the world’s all time tourist destinations, Greece and Italy with their unparalleled history and sunny shores, are going under. Yes, Greece may not pay some of its debts, but both of these COUNTRIES will still be viable, will still be there, will still be productive, will still be jam packed, year round, with visitors from all over the globe…And still in business…In 1975, New York City was supposedly going bankrupt, to the point the bankruptcy papers were actually filed, but did it happen? N-O…And it won’t happen in Europe either…Yes, some investors will get, or have been, stung, but this whole European thing is not some overnight surprise…I mean, how many times can the markets trade the Greek default?...Maybe I’m naïve, but the European Crisis is old, old news, and I think the markets, which are about the FUTURE, NOT THE PRESENT, have long since accounted for whatever the specific outcome may be over there…with the bottom line being, EUROPE WILL STILL BE A VIGOROUSLY FUNCTIONING ENTITY. Believe me. It ain’t falling off the map or anything…

I would guess the Chinese are certainly selling some of our (USA) debt, with TREMENDOUS profits, and reinvesting some of that money in Europe…As in, for example, “Let’s sell some of our $1.5 Trillion in US Securities, like 10 Year Notes yielding 2%, and go buy some Italian 10 Year Notes at 7%”. Make sense to you? Sure does to me…or as I wrote in a previous newsletter, this is the epitome of “Sell High. Buy Low”…And I’d guess they’ll be picking up other European assets on the cheap as well…Would it surprise you to know the Chinese already own 40% of the Athens International Airport and are negotiating to buy the rest? Or that they’re buying SAAB? Granted, SAAB is not what it used to be but the point is: China has the bucks. They are the world’s biggest exporter. They depend on their customers, like, for example, the whole of Europe, being able to buy their products…and they ARE going to do their part to help keep it all together, and do some great investing at the same time. Whether this means quietly buying Greek debt (small change really), or bidding at Italian debt auctions, or taking interests in beaten down bank stocks, or buying severely undervalued western corporations…or whatever…They are going to be there…AND, they are not the only factor involved. Whether it’s the IMF, or the USA, or Oil Rich Arabs, or whomever, all over this very interconnected global economic beehive, ALL the powers that be working to are “fix” this latest “crisis”. This is not the first time we’ve been through one of these, “the world is coming to an end” scenarios, nor will it be the last…

In another vein, one should remember Europe has been the actual continent wide site of the two most devastating wars in history…and they are still there. Very much so. And in comparison, down the road this little debt problem will look like a minor blip on a historical timeline.

Stocks and Bonds continue the wild ride but I remain firmly convinced every 1-2 day “swoon” in stocks should be bought and every rally in Treasury Bonds should be sold.

Lastly, I’ll just say, you can’t react nervously to every kneejerk sell off in the stock market. Seems like every down day in Stocks now produces a hoard of analysts, who have YET to say “Buy” this 1750 point rally, squealing, “Here comes the nosedive. The bear market rally is OVER!”, when the truth is, down days, even big ones are a normal part of a bull market…And we ARE in a bull market…Sure, I may be dead on the wrong side of all this, but look at the chart following and ask yourself, “Where is the bear?”.

 Still Shorting Treasury Bonds

I have had a bullish bias towards the Treasury Bond market for years, but am now inclined to believe we have finally reached the lows in long term interest rates, which would also mean we have seen the highs in Treasury Bond prices.  For one thing, I think there is essentially zero ONGOING demand for 30 Year Treasuries paying  2.8-3.0%, which is what would be necessary if you want to keep yields around current levels. Yes,  they could get there (2.8%) for an INSTANT, compliments of something like the recent “flight to quality” Treasury Bond rally we just witnessed (up 24 points in 9 weeks) due to the European situation, but as the world reverts back to “normal”,  I simply cannot imagine there are many investors around with an interest in locking in a 2.8% taxable return for the next 30 years…As I’ve said before, I don’t think, by any means, rates are going to skyrocket, just that it is now time to assume they are going back up for a while...that, as indicated on the long term chart following, Bonds have probably entered what may be a wide trading range for some years to come.

As a final comment,  I’d also point out that funds are constantly  shifting between Stocks and Bonds…And with Bonds now at their all time highs, wouldn’t you assume there is SOME amount of money, potentially quite large, that is moving out of Bonds and into Stocks?

Still Shorting

Corn and the Soybean Complex

I continue to believe we have seen MAJOR long term highs in Corn and Soybeans. Three months ago, in what, to me, looked like CLASSIC bull market tops, seemingly every grain analyst in the USA was screaming, “not enough to meet demand!”, while advising farmers to hold out for AT LEAST $8.00+ on the Corn, and $15.00+ on the Soybeans, they had maturing in the fields…Well, we are now approaching harvest, NOT a time of shortage, with prices for both crops having dropped significantly, and from what I’ve observed, farmers got relatively NOTHING SOLD, and are STILL waiting for better prices, which I am seeing more and more as the recipe for “disaster” in these two markets…

Every day I read about “light farmer selling” supporting the market, or that “farmers just won’t sell at current levels”, the idea being the only way the world’s grain users can get their hands on Corn and Soybeans will be if prices go up again and induce farmers to let their product go…I think this theory, which is the current “logic” arguing for higher prices, is so, so backwards and is exactly the same market forecast I have seen wrongly concluded MANY, MANY times in my 31 years in this business…Farmers WILL sell…and if history is any guide at all, they will end up doing it at MUCH lower prices than we have today…Why?...For one, with prices still at high levels, you can bet that South America is cranking up BIG time, and as their harvest starts arriving, as early as February, the concept of “shortages” is going to be blown even further out of the water. Two, with all the bullish hype we had all through the past spring and summer, I am quite sure many end users were scared into locking in prices for the coming year (in other words, buying ahead), such that a big part of future demand has already been built into prices. And three, the big one…All the Corn and Soybeans that farmers would normally have already sold are STILL waiting in the wings. Aside from their hopes for higher prices having deterred any selling of current crops, many farmers have already booked substantial sales in the 2011 calendar year, from last year’s production, and are now waiting for January, 2012 to book any new revenues…To put all this together, I believe the combination of massively delayed USA farmer selling, and the arrival of equally massive Southern Hemisphere harvests, will result in even more SHARPLY lower prices than are already the case. I CONTINUE TO LOOK FOR UNDER $4.00 CORN AND UNDER $10.00 SOYBEANS BY EARLY 2012.

I AM STILL SELLING FUTURES AND BUYING PUTS IN BOTH OF THESE MARKETS.

 Here is a Wheat chart, which is not the subject here, but quite relevant to the overall row crop picture…

Assuredly I may be dead, dead wrong, but I do still strongly believe Soybean Oil IS the BIG one…

As a side note, IF YOU ARE A FARMER, AS PREVIOUSLY RECOMMENDED, I WOULD DEFINITELY BE LOCKING IN PRICES FOR A HEALTHY PERCENTAGE OF NEXT YEAR’S PRODUCTION…Give me a call if want to talk about some very simple option strategies that can provide you with price floor…but still leave the door open for upside potential if prices do take off higher again.

Still Buying Cattle

I have written too much already so I’ll end with nothing more than this: The world is supposedly falling apart and the Cattle Complex is still trading dead on its highs…which I think speaks volumes about the strength, and bullish potential, of this market…

I CONTINUE TO BELIEVE LIVE CATTLE AND FEEDER CATTLE HAVE THE POTENTIAL TO MAKE TRULY CRAZY (BUT TYPICAL FOR THEM) MOVES ON THE UPSIDE. I AM STILL BUYING FUTURES AND CALL OPTIONS IN BOTH OF THESE CONTRACTS.

These are the last charts and I am out of gas…so here are the charts and numbers…quickly done…

Well, It seems I’ve spent a Saturday putting this together (better than raking leaves I guess) but I wanted to get this out as I do think there are, immediately,  above average trades all over the place…A trader’s desire is to be in markets, the right way obviously, when they are about to MOVE, and that is exactly where I think we are with every idea presented here…So DO give me a call if anything interests you…the sooner the better…The set-up on virtually every chart in this newsletter looks, to me, like it is READY TO GO…N-O-W…which is why I was determined to finish this thing in one sitting.

Thanks,

Bill

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