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Thursday, March 28, 2024

World of Worries Wednesday – Emerging Markets, Trade Wars Weigh on Markets

Wheee – this is fun!

Congratulations to those of you lucky enough to get the PSW Report yesterday, where we told you about our Gasoline (/RB) Futures Shorts at $2.05 as we plunged all the way to $1.98, which was good for 0.07 per contract and, while 7 cents may not sound like much, it was actually a huge one-day move and, at $420 per penny, per contract, it was good for profits of $2,940 for each contract – what a great way to start the month!

Of course we began shorting /RB on Friday, at $2 so our average (as we doubled down) was $2.025 so we only picked up net 0.045 for $1,890 per contract gains but it was on 2x so it all works out in the end!  Silver (/SI) was also a huge winner as it popped back from $14.13 (even lower during the session) to $14.20 for an 0.07 gain and /SI contracts pay $50/penny so $750 gains per contract there as well.    As I said to Investing.com yesterday:

“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”

In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.

“With every holiday, we drive the price of gasoline up in anticipation of demand. But we’re constantly disappointed because every new car today is averaging 35 miles per gallon versus the 25 miles we get on older cars. That’s 40 percent less gas consumption. And it’s happening every year.”

“The population is basically static and people aren’t driving more miles. So, the usage of gasoline continues to go down as we get more fuel-efficient cars. That’s why every time there’s a big spike in gasoline driven by expectations of demand, I will just short it.”

Davis said he could understand if gasoline futures rose slightly in November in the event sanctions on Iranian oil drove up the US crude market as well as Brent. “Even then, I still believe there’ll be adequate supply of gasoline, and we do not import that from Iran. It’s fine if RBOB reflects a little of the tightness in crude but not on a relative dollar-to-dollar term.”

Image result for plan the trade trade the planSo there's our plan, pretty much the same one we've been sticking to all year as I'm a strong believer that Fundamentals do matter – at some point.  The real trick is figuring out when they are going to matter and, if not, learning to be patient enough to wait for them to matter again.  

It's also a good trick to learn to wait for the right set-up before trading but that's very hard to do as people tend to feel like they're not accomplishing anything if they don't trade something every day but people like Warren Buffett are perfectly content to watch and wait PATIENTLY, knowing that, eventually, an opportunity will come along that has a very high reward/risk ratio with a high probability of success.   You don't need a lot of those to have a very nice portfolio.

We've been "Cashy and Cautious" as this rally has re-tested the January highs and, while we do have many, many long positions still in our Long-Term Portfolio as well as our other Member Portfolios, they are well-hedged – just in case things finally start to matter.

Image result for selling pressure price drop stocksWhat's mattering this week is no actual trade deal between the US and Canada as well as a sharp sell-off in Emerging Markets led by Argentina, Turkey and Brazil though South Africa is now a contender, having just officially declared itself in a recession.  China is also shakey over trade war issues and mainland stocks are at their lowest levels in 4 years and Russia is no prize either as sanctions bite on their economy.

That's a lot of things to keep ignoring and now that the Big Boys are back from vacation – there's a lot of meetings at trading desks around the World where they have to decide if Q4 is going to be worth the risk with all these items up in the air. If there's a change in sentiment and big funds start trying to sell equities – I very much doubt they'll find many buyers to support these ridiculous prices.

As a Fundamentalist, I can't tell you WHEN this bubble will pop – no more than an engineer can tell you when a bridge will collapse.  We can only tell you that something is unsafe and that you should be careful.

 

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