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Thursday, October 6, 2022


Thursday – ECB Rates Go Negative – Things Must REALLY Suck!


For those of you who thought 0% was the lowest rates could go, Mario Draghi just redefined the game.  Oddly enough, -0.1% is HIGHER than was anticipated so we shorted the Dow (/YM Futures) as it popped this morning to 16,750 (with tight stops above) for a number of reasons that we discussed in our Live Member Chat Room earlier.  

For those of you who read yesterday's post (and our Subscribers get them via Email at 8:30 each day, with plenty of time to act ahead of the open), we called for shorting oil at $103.50 and this morning we're at $102.25 – up a very nice $1,250 per contract in less than 24 hours.  

SPY 5 MINUTEOn our Futures shorts, there were quick profits at the open but, as you can see from Dave Fry's SPY chart, we raced back up and made new highs into the close.  

Of course, for those of you following in our live Member Chat Room, we knew that was going to happen and, at 9:46, I said to our Members:

Wow, 16,650 (/YM) – that should be bouncy so don't be greedy!  Can always re-enter if it breaks. 

That non-greedy exit (up $250 per contract) saved us a lot of grief as the market came back and, fortunately, we kept our oil shorts for the day's really big pay-off

As I said yesterday, I can only tell you what's likely to happen in the markets and how you can make money trading on that information – that is the extent of my powers – the rest is up to you.  We are going to be giving another FREE Webinar this evening outlining our "7 Steps to Potentially Making 30-40% Annual Returns" and this may be the last day we accept new webinar clients this month – as we're just about a capacity.  

INDU WEEKLYThis morning (same as yesterday) our "fresh horse" to the short side is the Dow (/YM Futures, 16,780 at the moment) and tomorrow I'll probably draw a chart showing how that trade worked out.  We already have a long play on TNA (see Monday's tweet) and, if the pop to 1,135 on the Russell holds this morning, we'll be looking to take the money and run on those – even as we add our Dow shorts.  

We'll also probably take our USO puts off the table (with a stop at oil $102.50 or $102 if we go below it), since they are about $1.80 and up over 25% already.  I think oil has further to fall, but too tricky to ride into the weekend – especially when we're now risking 125% of our original cash.  

We'll have to keep an eye on Europe as Draghi says the central bank wii stop sterilizing its previous bond purchases made under the Securities Market Program (SMP).  "The governing council is committed to using unconventional measures if there is too long a period of too low inflation." Among the moves are targeted LTROs and purchases of asset-backed securities – in short, MASSIVE QE is now planned by the ECB. 

This should boost the Dollar (already testing 81 this morning), as Draghi floods the World with freshly-printed Euros and will put a bit more downward pressure on oil but not gold (we're long at $1,250 on /YG, ABX and HMY and over $19 on /SI), as Europe's top 1% scramble for a safer place to store their wealth than a declining currency.  

In the United States, Japan and Britain, central banks have purchased large quantities of bonds of their own governments or bought private assets — a way of pumping stimulus money into the economy even when official interest rates were already very low.  For the ECB. to do the same thing, it would have to buy a mix of government bonds and other assets in the 18 members of the Euro Zone. Any mix is sure to provoke controversy, political infighting and perhaps even legal challenges.

As I said above, things must really suck for the ECB to do something this drastic and, as you can see from this study done by Pension Partners, just 50 stocks in the Russell 3000 (small caps) are driving the returns for the entire index.  50 out of 3,000 is 1.67% – that's how narrowly focused thir rally is, the rest of the index is down almost 5%.  In fact, the average US stock is down 1% this year – the rest is all smoke and mirrors – manipulated for your distraction very much like this:

That's why we're shorting this "good news" and that's why we cashed out into these "new highs" – it's all an illusion – and God help us all when people wise up! 

Be careful out there.  



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Fact of the day:


China, once the manual labour “workshop of the world”, has become the largest buyer of industrial robots, as rising wage costs and growing competition from emerging economies have forced manufacturers to turn to technology.

The country bought one in five robots sold globally in 2013, overtaking tech-savvy Japan for the first time, in its attempt to drive productivity gains.

…“China has the fastest-growing robot market. In a few years time China will be significantly larger than the second and third largest robot market,” said Per Vegard Nerseth, head of robotics for ABB.

Some ECB comments:


 A vocal subset of readers likes to complain vociferously about the loss of purchasing power of modern currencies over time. But there are multiple fallacies with this reasoning. First, only the most risk averse keep their savings in cash for long periods of time. They invest them in some manner, even if it is in low-risk assets like Treasury bonds or long-dated certificates of deposit. Except in the post crisis era, where central banks have intervened aggressively to reduce prevailing interest rates to negative real return levels for safe assets, the prices of intermediate and long-term assets incorporate inflation expectations. So the problem is not inflation per se, but when the rate of inflation turns out to be meaningfully higher than what investors thought they’d get when they made their investments.

The second, as some readers have articulately pointed out, that what you can buy in the future (by saving) with those supposedly depreciated dollars is more often than not markedly better than what you could buy 30-40 years ago (you do have offsetting crapification in many categories, like mattresses and tools, but even services we love to hate, like telecommunications, offer way more bang for the buck. Hardly anyone made long distance calls in the 1960s because they were so costly. My family was comfortably middle class, yet we’d mail cassette tapes updates to my uncle (and he’d send his own back) rather than speak at length on the phone.

So now the Eurozone is about to enter into “be careful what you wish for” land for the hard currency types: negative deposit rates. This article argues that the immediate effects will be minor (which if true raises the question of what the ECB thinks it really is going to accomplish). The recent example of negative interest rates in Denmark suggests that banks will not change retail interest rates, which would seem to represent a third rail as far as the general public is concerned. But this precedent for a major currency is likely to get a lot of media play, which has the potential to make depositors deeply uncomfortable even if they see no immediate change in their bank’s product pricing. The long-term impact of lowering the level of trust in the financial regime may be much greater than the experts anticipate.

RUT breakout / StJ:    This is one of that where you have to decide if you were wrong…or the market is wrong…

After all fundamentals has been abandon in this market and now the question is perhaps that coming  hiper monetarism / Inflation  is moving the expectations ( that is after all what a market is) of investors.

Interesting moments no doubt.

Whats up with GMCR ?

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