BOTTRIGGER TRADE ALERT:
→ $SPY Added to our $SPY June 2018 $290 Puts with another 5% allocation
ON WATCH FOR ENTRY:
→ $XHB (homebuilders) puts
→ adding to both of our $TLT (20-yr bond) puts & $SPY puts
→ $GLD January 2019 $120 calls
NOTABLE GAINS LAST 2 WEEKS:
→ $USO calls +60%
→ $TLT puts +50%
→ $SPY puts +34%
On issues of money, humans will trust mathematicians & computer scientists over economists & bankers in the near future.
Our $TLT Puts & $SPY Puts are working well as we sync the portfolio to the current market narrative.
Here we are. It’s a moment of truth for the bull market. Since the top peak of last week, he Dow has sold off 2,850 points from peak to trough. Over the last 4 days just this week, the Dow has bounced 1500 points and has nearly given it all back. Across the board, all 3 major indices/etfs from the $SPY to the $QQQ all look the same. We were hoping for a stronger bounce to add to our Put/Short position higher... but instead we're going to add here as all the indices have now broken below their intra week low that was printed from earlier this week on Monday. What's more, your top 3 Generals are all getting shot in the head: GOOG, FB, AAPL...they all look the same on this plunge.
Normally, we would be buying these relative lows, but there is a distinct reason why this breakdown is not buyable at this point. If anything, we would like to see a bounce higher to increase our Put / Short position. Take a look below:
We believe a mix of Jay Powell’s free market and fear of dollar/debt is what caused this return to volatility. Other Fed governors are issuing public statements in support Powell’s free market philosophy. Dallas’ Robert Kaplan said, ‘these selloffs can be healthy.’ St. Louis’ James Bullard said, ‘This is the most predicted selloff of all time.’ NY’s Bill Dudley said, ‘It’s not a big story for central bankers yet. It’s still up sharply from where it was a year ago.’
Sounds to me like Janet Yellen’s era of market manipulation might be shifting. Trump won’t like it. It’ll be interesting to see what kind of political pressure he puts on Powell. Powell takes over in bubble conditions and it’s likely he is uncomfortable with that. If this truly is a free market environment, we would expect the Dow to track the dollar and the 10-year yield over the next six months. If both are stable, then the bull market could remain stable. If not, then this selloff could go much deeper. Janet Yellen made sure that her final words as Fed Chair were to warn that stock market valuations were high. For the first time since February 11, 2016 there’s a real chance that p/e’s could deflate.
As the market is unable to hold yesterday's bounce, investors will want to own allocations of $SPY puts. Our next 5% purchase is scheduled for a price point below $255. Today we increased our $SPY Puts position by 5% and we'll be adding another 5% upon a break below $255 on the $SPY at the first onset of that threshold being breached upon the following requirements: within 30 minutes upon the close of the market...if we're below $255 on the $SPY ...we will add. Today we also sold the 5% allocation of USO calls as it drops below our recently tightened sell point of $12.60. Overall, we want to increase our cash position & if anything increase our exposure on the short side... right where it should be at an uncertain time like this.
If upside resumes, we’ll take a look at SVXY calls. SVXY dropped from $122 to $12 over the last seven days as the VIX spiked. With a deal to avert a government shutdown, with stability in the dollar, and stability in the 10-year it makes sense that the VIX could come crashing down. The watch list is being updated accordingly.
The rising 10-year treasury yield is at the root of today’s plunge. The yield is rising from 2.81% to 2.85% in response to the Senate budget proposal that will cause a surge in U.S. debt issuance. Goldman Sachs is predicting treasury debt will double from $488 billion in 2017 to $1 trillion in 2018 in order to finance the lost revenue from tax cuts and to pay for infrastructure stimulus. Finding buyers for this national debt is and always has been the primary objective of the Treasury and Federal Reserve. It’s the responsibility of Steve Mnuchin and Jay Powell to maintain the full faith and credit of prior U.S. financial obligations as well as to fund future government spending. This is what establishes confidence in the dollar. At this stage of the game, the only way to generate enough demand for U.S. debt is to entice buyers with higher rates. Recent auctions in the 3-yr, 10-yr and 30-yr have witnessed weak demand. Rates are heading higher. Rates are heading higher. Did I mention rates are heading higher?
As a result of rising interest rates, three different bubbles are likely to deflate: the stock market bubble, the real estate bubble and the bond bubble. Is it fair to refer to these three asset classes as bubbles? Yes. Because each has endured ten years of rock bottom interest rates in addition to the manipulation of government helicopter money. If rates rise and government helicopter money disappears, the three bubbles will deflate.
As portfolio managers, the intelligent move is to keep it simple. We want to sync our portfolio with exposure to each. We've already added exposure to $SPY puts & $TLT puts...next is very likely via $XHB (homebuilders) puts. Today we purchased another 5% allocation of $SPY June 2018 $290 puts which takes it to our 2nd largest allocation.
Also interesting to note is that bitcoin is decoupling from the downtrend in each of these three bubbles. Bitcoin is +$500 today. We're not getting to excited just yet on $BTC ... After a -70% correction from the highs on Bitcoin, it's very likely we'll see a protracted period of volatility here near the lows as Bitcoin satisfies transactional anxiety from such a steep drawdown. In other words, don't expect a "V" shaped recovery pattern anytime soon. We're more likely to have another retest of the lows if not test lower levels before resolve is met.
Also note that $GLD Gold is pivoting for higher. Bitcoin and/or gold should soon emerge as a safe haven during market uncertainty / turbulence. Maybe that process is beginning today.
BONUS PERSPECTIVE:
In the future, owning an asset and not having it tokenized on the blockchain will be the equivalent of owning a company and not being on the Internet today.
Replace the word cryptocurrency with “crypto asset” to help hone in the idea. Use “programmable ownership” rather than “programmable money.” This revolution isn’t only about money. It’s about the personal freedom to own and transact any asset in the world.
Tokenized security benefits vs traditional security:
→ 24/7 marketplace - Fractional ownership
→ Lower cost of liquidity
→ Dynamic contractual updates
→ Dynamic governance updates
→ Market determines valuations
→ Increased company transparency
→ Easier access to global investors
Although it may not be apparently obvious to many today, understand that Blockchain innovation will do away with such things as pink sheets, escrow processes, trusts, equity ownership, banking the unbanked, and so on.
When in doubt...take a moment to remember this 1min clip back from 1994 on the Today's Show, beleagured and trying to make sense of what the internet is and what the heck is this @ symbol. You'll find that we're exactly right here right now but just replace the word "Internet" & "Email" with "Blockchain" & "Mining" for example.
If anyone missed it ...
“We owe it to this new generation to respect their interest in this new technology with a thoughtful regulatory approach.” - Christopher Giancarlo - Uncle of HODLER
The regulators are more bullish on crypto than most of the population.