An Indecisive Market

The market does seem very indecisive at the moment. For my two biggest bets, gold has been struggling at 1900 for nearly a month, while silver has been struggling at 28 for over a month. QQQ (Nasdaq) just passed the February highs and is approaching the April highs again but hasn’t yet broken out. IWM (Russell 2000) just bounced lower off the highs set in March, and has also been in the same choppy range since February.

Bitcoin certainly looks bearish, but there is an interesting dispersion among the cryptocurrencies here:

My view right now is that cryptocurrencies have not yet peaked for the cycle, but there is a significant rotation away from Bitcoin. A significant part of the narrative here is around the relatively high power usage of Bitcoin and the challenge of the power-intensive “proof-of-work” model with the “proof-of-stake” model.

I tend to think that the reason just as much to do with the size of these assets:

  1. Bitcoin market cap $673 Billion
  2. Ethereum market cap $280 Billion
  3. Cardano market cap $49.4 Billion

A big part of the investment thesis in cryptocurrencies is the potential for multi-bagger returns. Speculators looking for these returns can easily expect that if Bitcoin doubles then you could easily see a 4x gain in smaller Ethereum and an 8x gain in a smaller altcoin such as Cardano. Where is the money going to pile in?

I’ve been building a small stake in Cardano personally – big enough so I can be happy riding it if crypto shoots skyward, but small enough to allow me to add if it corrects down more. The main reason I chose this altcoin is because it trades on Coinbase (which I still use), it has a narrative of superior software for building smart contracts, and it seems an obvious #3 after Ethereum. The closest competitors by market cap are BNB and XRP (which I can’t buy on Coinbase) and DOGE (which I still see as a highly inflationary scam coin which Elon is pumping as a joke).

I’m happy about the solid breakout of TLT past 140, we’ll see if it backtests and continues skyward. I’m still down a lot on my TLT calls, but I’m still in the camp that sees government bond rates turning lower shortly after “recovery” as they have in every recession in the past 40 years. I’ll expect different results when our government has a different playbook. For now, here’s the way I see it with bonds …

Government bonds are NOT intuitive investments. Why?

  1. They not only have many uses in the banking system which are highly complex, involving massive leverage and derivative agreements as well as strict regulatory rules based on asset safety as defined by government regulators. Treasuries are Tier 1 capital, which is key.
  2. Many participants, such as insurance funds and money market funds, have to hold assets that they can liquidate immediately in a crisis at full value.
  3. Many participants, such as foreign central banks, are not market sensitive investors looking for the best gain – they are looking for the deepest and most liquid US dollar markets that they can use to manage their currencies.

One thing is even more strange with government debt – it is the only asset that can actually increase in value with increasing supply. Here’s how it works:

  1. High debt levels are very deflationary because they continually pull money out of the system for servicing long after the money was spent & went through the economy.
  2. The primary way we create money in our system is through lending.
  3. The higher debt levels get, the more money is needed to combat this deflationary force just to keep cash flows even. If these debt levels aren’t allowed to climb, you end up with a deflationary bust like we saw in the Eurozone in the mid 2010’s.
  4. This requires more and more lending, which typically shows up as higher government deficits. This pushes debt levels even higher, requiring even more lending to compensate.
  5. Thus deficits skyrocket and once their short-lived passage through the economy completes even bigger deficits are needed until something in the system changes.

Essentially, we are caught in a debt/deficit sandtrap and we’re still digging ourselves deeper, which ironically results in lower interest rates on government debt.

Please note that the above view does not necessarily mean a stock market collapse is imminent. I certainly fear the possibility, but margin lending has shown no signs of slowing and corporate share buybacks have been accelerating. If much of the debt we create goes straight into the stock market through these paths, I’m not sure the market can crash – which means you really need to brace for rotations from one sector to the other, and I’m convinced that these rotations will start to favor precious metals miners a lot more as interest rates drop.

Enough for today – here’s where my portfolio left off:

  • DOWNSIDE BETS (37.5%)
    • 26.4% TLT Calls
    • 5.0% IWM Puts
    • 1.4% EEM Puts
    • 4.7% QQQ Puts
  • GOLD (19.0%)
    • 2.7% WPM & GOLD Calls
    • 5.4% EQX Calls
    • 10.9% SAND Calls
  • SILVER (22.5%)
    • 10.2% AG (w/ covered calls)
    • 1.0% AG Calls
    • 5.3% SILV
    • 1.2% MTA
    • 1.5% RSNVF
    • 2.6% SILVRF
    • 0.8% SSVFF
  • COMMODITIES (5.1%)
  • 1.1% UUUU (w/ covered calls)
    • 0.9% BQSSF (Uranium)
    • 3.2% NOVRF (Nickel/Copper)
  • CANNABIS (5.4%) split btw CRLBF, GTBIF & TRSSF
  • CRYPTO (2.3%) all ADA
  • CASH (8.2%)

I should note that my CCJ position is gone because I sold covered calls a month ago and they landed in the money. There has been no significant pullback to buy into, so I’ve been waiting on that one. I didn’t actually add to TLT – that just went up in value – but I did add QQQ puts in recent weeks as I anticipated a significant pullback which hasn’t materialized yet. If it does, then I’ll probably sell off a number of these put positions as I can’t dismiss Rauol Pal’s view of another end-of-year melt-up in markets.

This is honestly why I put so much in gold and silver, and probably also why they have been performing poorly over the last year – these are some of the few positions where I can comfortably see higher prices a couple years out. The way markets work is that if a play seems obvious then it is probably overcrowded and will probably fail.

Someone tweeted the idea of going long ROOT for a short squeeze, maybe I’ll jump on that next week. The one-week call options certainly show a lot of volume. Good luck and happy trading!

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Miner adjustments

I actually did start a position in Crypto last Monday, going with Cardano this time, ticker ADA. I also sold some of the more speculative miners in Lithium, Graphite, and Uranium exploration. In addition, I sold covered calls on all of my AG shares on Wednesday, which turned out to be lucky timing. Then on Friday my CCJ covered calls expired in the money so I’m out of that position. My account is a bit cash heavy at the moment.

This week I might look to replace some of that Uranium exposure. I’m thinking of a starter stake in BQSSF for that.

That’s all for this week. I enjoyed a weekend with friends and now I’m exhausted.

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Reassessing Crypto – time to turn Bullish?

As you could see from my previous post, I was worried about crypto for a while. I had gotten out of the space completely in April as the altcoins were beginning to skyrocket while Bitcoin was rolling over. This turned out to be early, missing the recent peak and plunge in that part of the space.

In my previous post, I was concerned about a possible blowoff top – which is a formation where a really hyped stock goes parabolic, crashes down, then starts to drift lower for a while. I bought 1 ETH on the big drop last Sunday with the idea of dumping it on the oversold bounce the next day, which I did for a 25% gain.

After hearing the infamous crypto bull Rauol Pal on the RealVision daily briefing yesterday, I started to rethink a some things in the space. The biggest reason I was spooked about crypto to begin with was the stories of excessive leverage in the space – and if that leverage was mostly wiped out last weekend it should be very bullish. As for the charts, remember that every asset class behaves differently.

As someone who’s been involved in the gold space for over a decade, I can tell you that it does not move at all like your average stock. Gold tends to move much more slowly with a lot more short-term fakeouts that leave you wrenching if you’re unprepared. It also tends to run up big in a short time and then consolidate lower for months – whereas stocks tend to run up slowly over months with sharp downside moves in between. Anyway, time for a crypto chart:

A couple things to note on this chart:

  1. Log charts are essential when dealing with charts that have enormous price ranges, such as a multi-decade stock chart or anything involving fast-moving Crypto. With stocks, a linear scale makes the crazy 60% swings of the 1970’s look tiny. Looking forward though, you care about the percentage moves in your portfolio, and a log chart adjusts for this by making a double the same size whether it’s $1k to $2k or $30k to $60k.
  2. Volume needs to be thought of in relative terms on a chart like this. Cryptocurrencies are much more accessible and widely traded now than they were 4 years ago and you have to separate the expanding adoption noise from the panic sell or fomo buy signal when viewing this. That is why I think the recent volume profile could just as easily match the summer 2017 mid-year correction as the December 2017 prior top.
  3. The 2017 top may look relatively small, but it’s no joke. Riding that down lost you around 83% from the peak over the next year and took a full 3 years to break even. These cycles will not go up exponentially forever, so there’s no guarantee of a rebound just from waiting. That being said, I think there’s a high probability that we are about to see the last breathtaking wave ride out, and I plan to put a small portion of my portfolio toward that possibility.

How I’m planning to play this:

As I write, the Crypto market is continuing a low-volume price crash. The big players know that they can effectively move the market in these low volume periods, and they typically push down with the intent to trigger stop-losses and margin calls. An enormous number of these were washed out last week, which pushed ETH to a crash low of $1,737 last weekend. I expect this weekend to try to tap below the $2,000 ETH level to hit any triggers there, but it will be a higher low followed by higher highs next week. Same deal next weekend.

As such, I am looking to put in $5,000 at the low (probably in ADA, possibly in the more volatile LINK). I will be watching the charts next week and I’ll probably reduce significantly ahead of the weekend in hopes to re-buy lower. I expect this choppiness to continue through Labor Day weekend where we will see the next significant low but at a much higher level – similar to the 2017 blip we see in the bitcoin chart above. After this, I will really try the diamond hands thing (I’m a trader so it’s not easy) until November. I plan to completely exit the crypto space by mid December at the latest.

During this time, I will be watching Bitcoin as the signal that will roll over quicker in a correction and watching Etherium as the bellwether measure for the altcoin space.

THE REST OF MY PORTFOLIO

Last week I successfully played around with short-dated QQQ puts and decided to size it up a bit this week. Right now these positions are looking terrible. I’m hoping for a pullback next week to reduce these into, but I’m not expecting the pullback to be big. While I realize that the crazy rise in all of the stock market indices can’t last forever, I also realize that the fed is still easing.

There are many ways to think of the huge reverse-repo market action in the banking system right now (chart on the right), and what I’ve decided is that it’s a measure of too many deposits relative to treasuries. All of that stimulus money came in and much of it has been deposited into the banking system. The banks need to park a lot of those deposits into tier 1 capital such as treasuries, and there aren’t enough in the system so they have been doing reverse-repo actions to exchange these cash reserves for treasuries. They can’t necessarily park this money elsewhere due to regulatory reasons and other conditions peculiar to the global banking system. At the same time, quantitative easing has been steadily taking more treasuries off the market (left chart), and the treasury has been running down it’s general account rather than issuing new treasuries (center chart). Combine this with the inflation narrative driving demand from investors to sell these treasuries short, and you really have a tight supply overall. How will this reflect in price? Who knows … the federal reserve does not want short-end rates to go negative so they have been expanding reverse-repo action to fill this demand at rates close to zero.

In short, there is still excess money in the system as far as investments are concerned, and that should mute any downside moves in the market for the moment. As for my TLT calls … I’m not planning to add to them unless TLT re-tests 135, but I’m over-allocated to that play as it is, so I wouldn’t add much even then. I’m down about 40% on that trade so far and it’s not a comfortable position, even though I still expect US treasury rates to roll over and re-visit the lows within the next year or two.

Gold and Silver have continued to act well, confirming their breakouts nicely. Unfortunately, these are assets that really need to be followed on longer-term charts so you really can’t expect the kind of overnight zing you get with the much less liquid and more volatile crypto markets. Still, these continue to be my biggest positions and I continue to be long-term bullish on the space. When they do move though, it tends to be in big spikes followed by lengthy downside corrections so my positioning is extremely bullish with a lot of long-dated call options and no covered calls sold on my positions.

Uranium has been doing well lately, and I’m at that point where I somewhat regret selling covered calls on my miners. That is a success problem though, and my strategy of chasing the space and selling covered calls after sharp peaks has done pretty well so far. While I’ve missed some of the upside, I’ve also muted the downside, and I can find dips to re-enter the space when my shares are called. I’ve also chased a bit when I really wanted to restore my allocation, using the strategy of immediately selling 1 month at-the-money covered calls with significant premiums when I know I’m chasing a move higher. There are a lot of reasons to be long-term bullish on the space, but there are also reasons to expect a pullback when the current 1970’s lasting inflation hype backs down.

Cannabis is the only trade I have that is purely buy-and-hold at the moment. While I believe that federal regulations will ease capital restrictions on cannabis at some point and that money will flood into this highly profitable space afterwards, I also don’t think this move is imminent or that we are at a particularly good entry point in this segment. I basically threw in entry stakes in a few companies I wanted to track so that they’d be on my radar when big moves happen. I plan to add more if the market tanks but otherwise just ignore those until the big move gets closer. It kind of makes me think of Uranium in a sense, because I was somewhat following the space after a very compelling Real Vision take in 2019 and CCJ was on my radar immediately after the March 2020 crash. The summer 2020 upside move had me excited but then reversed and got me nervous on the space before it ripped big time. I’m hoping to learn from that and not make the same mistakes when the Cannabis moment comes.

Here’s where my positions ended up for the week:

  • DOWNSIDE BETS (34.3%)
    • 22.5% TLT Calls
    • 5.7% IWM Puts
    • 1.6% EEM Puts
    • 4.5% QQQ Puts
  • GOLD (17.2%)
    • 3.0% WPM & GOLD Calls
    • 3.7% EQX Calls
    • 10.4% SAND Calls
  • SILVER (22.6%)
    • 10.7% AG
    • 1.7% AG Calls
    • 5.4% SILV
    • 1.3% MTA
    • 1.6% RSNVF
    • 1.9% SILVRF
  • COMMODITIES (18.0%)
    • 10.0% CCJ shares (w/ covered calls)
    • 1.1% UUUU (w/ covered calls)
    • 0.4% URG
    • 2.0% ALB (Lithium)
    • 1.5% NMG (Graphite)
    • 2.9% NOVRF (Nickel/Copper)
  • CANNABIS (5.7%)
    • 5.5% split between CRLBF, GTBIF & TRSSF (companies with significant US footprints)
  • CASH (2.2%)
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Is Crypto rolling over? Rotation to Value? Charts.

It’s been an exciting couple of weeks in the market to say the least. I’m going to go through some basic charts of the areas I’m looking at:

Crypto is having a crazy week. Bitcoin looks like it’s been in a topping distribution pattern since late February, recently breaking down under its 200 DMA. Etherium looks more like a blowoff top, with a frenzy of buying late April and a frenzy of selling from mid May. The altcoins are similar to Etherium but even more compressed.

I drew in the next significant lines of support ($30k in BTC and $2k in ETH). I am avoiding this space for now because I think of these assets as risk-on (aligning with growth & tech) while we’re rotating to more risk-off with a rotation to value. Crypto has shown extreme volatility in the past, including corrections of 50-90% on the way down, so those levels should not surprise a long term holder in the space.

Fundamentally, it is easy to try to label Crypto as worthless and entirely based on speculation, but this isn’t entirely true. There is heavy speculation in the space, but the only way these are going to zero is if they are actually banned. Crypto doesn’t declare bankruptcy and become worthless like a company, rather it goes into and out of favor like a commodity. As for price action I’d say that the risk is currently to the downside, but with massive 40%+ bear rallies, and that a bottom will form and a new leg up will begin a new leg up at some point. After the Dec 2017 crypto crash, this bottoming pattern took 2 years. Right now I get the feeling we’re in a shorter term consolidation which would hit new manic highs later this year followed by a more massive blowoff top. I may re-enter the space at some point but I haven’t decided yet.

The Nasdaq and the Russell 2000 both seem to be in topping distribution patterns just like Bitcoin. These are both risk-on in different ways, as the Nasdaq is heavy in tech and growth stocks, while the Russell 2000 is heavy in meme stocks (like Gamestop and AMC) and hyped re-opening plays. Insider selling has been high in both areas as well. I’ve heard predictions about Bitcoin leading the Nasdaq, and I have been playing around with short-term puts in QQQ.

There are a few people I follow on twitter who do their own forms of Elliot Wave analysis to predict where we are: @DereckCoatney @PuffDragon11 @MasterPandaWu . I am not going to try elliot wave on my own as it is complex, it requires special software, you have to figure which part of the wave you’re in and so on. These charts are interesting, but I like my simple charts and I’m not even going to pretend having expertise in this. Still, they’re generally predicting the end of a generally choppy wave 4 going to a big wave 5 to the downside.

I tend to think bearish, with the idea that we are in a debt-driven asset bubble, so I like to play with downside hedges that don’t crush my portfolio the way they did last year. So last Friday I bought 1-week QQQ puts, sold them for a gain on a Monday drop, bought more on the Tuesday rally, sold them for significant gains on the Wednesday drop, and then bought 2-week QQQ puts again end-of-day Friday. It’s a small bet, we’ll see how it goes.

I’m still heavy in Gold and Silver miners, seeing breakouts from long consolidation patterns. In my opinion we are not going through a crash yet, we are going into a late-cycle rotation to value and I see gold and silver miners as value plays.

The charts for Uranium and Copper miners above still look very bullish, so I’m still significantly in these spaces. I do believe that the inflation calls are over-hyped and that the numbers will likely will roll over by year end – but I also think we’ll see signs of consolidation in the charts before any significant selloff happens. In addition, I am long-term bullish on copper and uranium. Copper will be used like crazy in “green” government infrastructure plans and in the push toward electric vehicles. Uranium will be used like crazy as the life of US nuclear plants are once again extended while emerging markets are building nuclear plants like crazy to build up reliable power capacity without excessive reliance on coal and oil.

I’ll finish this up with charts on TLT (long dated US treasuries) and the DXY (US Dollar vs Euro and a few other currencies). There is significant debate going on about whether these are about to break lower or whether they are forming short-term bottoming patterns. I tend to think that TLT could be in a bottoming pattern, but I did sell some off for gold and silver miners a couple weeks back as TLT hit resistance around 140 and I plan to increase my position in TLT again if it re-tests the late March lows.

My opinion remains that we are not in any kind of new inflation paradigm. Most people will admit that debt levels in the US and the rest of the world are very high, but opinions diverge from there. Many are under the illusion that government debt is like a household budget that we can collectively “buckle down” and pay off. That isn’t the case … money is created by lending, more money must be paid back than borrowed because of interest, and there isn’t enough money in the system to pay it all back. As time progresses, the difference in the amount of dollars in the system vs dollar-denominated debt grows larger, which is why debt levels structurally increase over time and why these debt levels must increase an an ever-faster rate as the levels of overall debt get higher. Right now this difference is enormous, and it takes incredible levels of new debt creation just to keep the system going, but our major political arguments are reducing the deficit and balancing the budget. Our society is highly demand-constrained and our ability to supply goods and services is enormous with a lot of excess capacity which we are prevented from utilizing in the current paradigm. The only thing that tends to change this paradigm and start a new cycle is the advent of major war, as that is the only concern which can bypass the defecit hawks politically. UBI could be a similar game-changer if it pays people for non-productive work on a similar level to that of a war effort, but we are nowhere near getting there.

In short, the inflation we are seeing is from a combination of Covid-related supply constraints and Covid-related underestimation of demand in the face of massive – but temporary – fiscal stimulus. Once the fiscal stimulus finishes washing through our system, demand of goods and services will begin to fall as supply increases and we will see general CPI numbers fall back down.

When will this affect markets? In my opinion, you will not see deflationary forces affecting markets until margin lending starts to turn.

This chart runs through March, but a google search shows that Margin debt increased by another 3% in April. Until this chart tops, and we see actual margin debt reduction, I see the markets going into a rotation to value rather than any meaningful correction – which should be good for precious metals and many commodity-related stocks.

Here’s my latest portfolio:

  • DOWNSIDE BETS (28.4%)
    • 21.2% TLT Calls
    • 4.5% IWM Puts
    • 1.9% EEM Puts
    • 0.8% QQQ Puts
  • GOLD (16.2%)
    • 3.1% WPM & GOLD Calls (Large gold miners)
    • 2.8% EQX (Small gold miner)
    • 0.2% EQX calls
    • 10.2% SAND Calls (Small gold streamer)
  • SILVER (22.5%)
    • 10.7% AG (Small silver miner)
    • 1.7% AG Calls
    • 5.2% SILV (Small silver miner/explorer)
    • 1.3% MTA (Small silver miner/explorer)
    • 1.7% RSNVF (Really small silver miner/explorer)
    • 1.8% SILVRF (Really small silver miner/explorer)
  • COMMODITIES (18.5%)
    • 10.0% CCJ shares (w/ covered calls)
    • 1.0% UUUU (w/ covered calls)
    • 0.5% URG
    • 2.0% ALB (Lithium)
    • 1.9% NMGRF (Graphite)
    • 3.1% NOVRF (Nickel/Copper)
  • CANNABIS (5.5%)
    • 5.5% split between CRLBF, GTBIF & TSSRF (companies with significant US footprints)
  • CASH (8.9%)

I have built up considerable cash recently by selling EQX and replacing the exposure with EQX calls. As we tested major support with gold, I saw the 1-month calls selling really cheap and figured that I could maintain my position with lower risk to see which direction things head. If we go into a significant downward correction that some of the Elliot-wave guys are predicting at the end of May, this will be my dry powder to reallocate.

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Covid precautions are almost over in the US

I’m with a bunch of family in Florida right now, so I’m going to write a quick post and leave it at that. Out here you still see masks here and there but many aren’t worried about it.

Nearly half of the US population has at least one shot of the vaccines. The CDC said that vaccinated people don’t need to mask, and no one is going to check so pretty soon all those rules will be gone – unless some new variant gets around those vaccines I suppose.

Last week we saw significant down moves in the major US indexes with gold, silver, and uranium holding pretty strong.

Friday was the typical “vol-crush” bounce and I bought a couple of 1-week QQQ puts in the last hour of trading. Some of the people I listen to more on Twitter are warning of downside, and the Elliot Wave people I follow say we could be completing a wave 5 down. This won’t lead to a major selloff unless a significant hedge fund blows up, so I’m planning on exiting my short trade at the first decent drop. If I’m wrong and markets rocket higher, I figure they’ll pull up my miners with them so I’m not worried about being out that put money.

This was peak inflation month because next month we’re comparing year-on-year numbers with last year’s fresh $1400 stimulus running through.

I’m still in the deflation camp in that I think long term treasury rates will hit new lows in the next year. However, I can’t deny that precious metals are breaking out on the charts while TLT has shown an ominous bear flag formation – so I think the metals are going higher while interest rates may re-test their recent highs in the intermediate term. On Monday I sold off some of my TLT calls (I still have a heavy position) and put the money in gold and silver miners – and I picked up a decent bit of UUUU and a touch of URG later in the week.

If TLT tests those recent lows, I will reverse that move and reduce gold and silver for long dated TLT calls again. However, I’m planning on staying long the miners for a while yet because I really believe they are going for a multi-year up-trend. When TLT spikes again, the whole market will be struggling and I’ll be re-allocating that capital at that time.

I predict an exciting trading week next week. Now I need to break off for some family BBQ and more beach fun.

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I’m bullish precious metals. Time for charts.

I figured I’m focus on some charts today, starting with the most bullish – commodities:

Cameco is the Uranium miner I’ve been holding, and it just broke out to new highs. I sold covered calls on it last week to lock in some gains, but I admit I’m beginning to think I shouldn’t have. Copper miners look to be breaking upward into a new channel as well. Some of my gold miners like WPM have copper exposure, but I also have some battery metal plays such as NOVRF – a copper/nickel streamer which finally put a bullish green candle over it’s 50DMA after months of consolidation.

Gold and Silver miners both had significant breakouts and backtests of bullish flag formations, and both just jumped over both their 50 day and 200 day moving averages. I used 1-year charts for these because they have been consolidating for that long. Hopefully they’re finally completing their cup-and-handle formations with 1-year handle formations on 10-year cups.

It looks like the Russell 2000 is forming a topping pattern, which could become a head & shoulders reversal. It had a bullish friday, jumping back above the 50 DMA, but these last few jumps didn’t seem to last long. It looks like it needs to test some significant support lower to regain upside momentum.

The S&P 500 also looks ready to fall a bit, but all that the current chart is calling for is another re-test of the 50 DMA – a drop of about 4%.

Although this is still my largest position, I can’t deny that this formation looks like a bear flag consolidation before another drop.

I still believe in the bullish case for TLT – that long dated treasuries are destined to fall a bit. TLT is highly shorted, the labor market is weak, and a lot of the money flooding into housing, the stock market, and commodity futures is debt based.

Steven Van Metre argues that this could be a bottoming formation, and that is possible. There is significant resistance at the 140 level here and a break above that could push values significantly higher.

I’m seriously thinking about whether or not to reduce my TLT exposure, but I will wait at least a couple of weeks before making any serious moves. The stock market looks like it’s ready for a pullback and that should be good for more risk-off trades like US treasuries and gold. I am very bullish precious metals right now, and I am expecting a significant market rotation into this sector over the next few months.

Here are my current allocations:

  • DOWNSIDE BETS (33.8%)
    • 27.7% TLT Calls
    • 4.2% IWM Puts
    • 1.9% EEM Puts
  • GOLD (20.3%)
    • 4.3% WPM & GOLD Calls (Large gold miners)
    • 8.1% EQX (Small gold miner)
    • 7.8% SAND Calls (Small gold streamer)
  • SILVER (20.7%)
    • 10.3% AG (Small silver miner)
    • 1.6% AG Calls
    • 5.3% SILV (Small silver miner/explorer)
    • 1.2% MTA (Small silver miner/explorer)
    • 0.7% RSNVF (Really small silver miner/explorer)
    • 1.7% SILVRF (Really small silver miner/explorer)
  • COMMODITIES (16.2%)
    • 10.3% CCJ shares (w/ covered calls)
    • 2.0% ALB (Lithium)
    • 1.4% NMGRF (Graphite)
    • 2.5% NOVRF (Nickel/Copper)
  • CANNABIS (6.1%)
    • 6.1% split between CRLBF, GTBIF & TSSRF (companies with significant US footprints)
  • CASH (2.9%)

Some of the people I follow on twitter are calling for a potentially significant correction in mid May. I plan to purchase some 1-month SPY puts this Friday if their charts seem to be working out right. They use various forms of elliot-wave analysis which seems to work pretty well but you have to know what you’re doing and I don’t – so I prefer to post my own simple charts with simple patterns that make sense to me.

Last week I did a few trades, selling off my FNV and WPM calls for decent gains and selling covered calls on my CCJ. I also bought some long dated calls in AG and increased my stake in NOVRF, but mainly just built my cash position a bit. I’ve heard calls for a pullback in Uranium, and if this happens I’ve been aiming for an entry stake in UUUU.

I am very cautious about Cryptocurrencies in general at the moment. I still think it’s nearing the end of an explosive parabolic move higher, where the highs will be reached followed by significant blow-off tops like you saw at the end of 2017. Don’t even try shorting this beast, as prices are more likely to surge higher than drop in coming months. I’m not touching crypto at all now though because I can’t trust myself to tell the difference between a very common heavy short-term price correction or a blowoff top and bear cycle, and I’m skeptical of the long-term bull story, so I’m liable to buy and sell at the wrong times in that space. Better for me to stick with precious metals where my bullish conviction is tested and strong.

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Beware the false choices of mainstream narratives

We’re at a point in the market that’s difficult to read. The S&P 500 was flat all week, with intraday false breakouts on the upside and the downside. I closed out my short-dated SPY puts Friday morning for a loss a bit under 10%, which is not bad considering they went from 3 weeks to 2 weeks in duration while I held them. Many sectors have been on a parabolic rise for quite some time, and it’s difficult to tell if this is just a pause before more explosive upside, or a top which could lead to a reduction in our extreme levels of margin debt leading to a cascade of forced selling. I’m going to wait for a better signal before I make short-term downside bets again, which will probably be in the 2nd half of May.

I still haven’t found reason to change my positioning focused on a deflationary long bet with TLT combined with a bet that money will eventually rotate back to the gold and silver miners which haven’t really participated as nearly everything else so far has rallied.

I spent this weekend with family and I’ve seen a lot of political tweets, which got me thinking about the strong narratives giving us false choices. Even worse is that passive news sources totally leave out international news, space exploration, new technologies, and anything else just to hyper-focus on divisive social narratives. Consider how blatantly manipulative many of the mainstream narratives are:

  • Capitalism vs Communism
    • We constantly see this debate as if our only choices were a “Capitalism” of government favored monopolies and oligopolies versus a “Communism” of direct government control over everything. Don’t fall for this debate – the real issue is about individual choice that everyone wants, which we are losing as power and money are continually concentrated by both political parties. In the end it doesn’t matter if you are being micro-managed by a corporate monopoly or a government panel – this trend toward centralized decision making is bad for all of us.
  • Endless Race-baiting
    • The way that major news networks continually push stories about racial violence by police, while constantly asking what side you support, is extremely manipulative. What good does any of it do if we fail to offer a path toward real living-wage jobs?

Inflation vs Deflation

The most important fight in the investing world right now is inflation vs deflation. Unfortunately, it also becomes extremely political. How can you say that inflation is low when the costs of living are soaring, particularly in real estate and rents? The simple answer is that you need to define much more specifically what you’re trying to predict. Are interest rates going up or down and should they? Why are prices in real estate and many base commodities soaring right now? Is it purely monetary – too much money in the system – or is it something else? Are these forces permanent or temporary? The political and economic ramifications of these things are enormous.

I’ll try to illustrate the bulk of my thinking here in bullet points. Let’s start with inflationary vs deflationary forces.

  • Inflationary forces
    • Increases in borrowing, putting more money into the economy.
    • Deficit spending, which is simply an increase in borrowing by the government.
    • Supply constraints which can be caused by shutdowns in factories or mines as well as by bottlenecks in shipping due to covid constraints
    • Growth in private incomes which allow individuals to spend more.
    • Inflation concerns which cause people and businesses to increase a stockpile of goods.
  • Deflationary forces
    • Taxes, which pull money out of the real economy.
    • Debt payments and interest payments also pull money out of the real economy.
    • Reduction in private incomes which prevent individuals from spending.
    • Uncertainty of incomes which increases the need for saving.

Most of the inflation versus deflation debate concerns whether the enormous increase in the federal reserve balance sheet is flooding money into the economy. The inflation side tends to think it does or it will, while the deflation side argues that all created money is offset by debt, and that all the central bank is doing is forcing the banks to hold more government reserves on their balance sheets which pay out a near-zero interest rate.

Back to the political situation (unfortunately), comes the fallacy of focusing solely on government debt. People are wired to think that way because of our own personal budgets, but it simply doesn’t work in the overall economy. As a family, you assume that your labor can provide a fixed amount of money which can pay down debt or purchase goods. When you look at the overall system, you can’t ignore the fluctuations of demand for labor in general as jobs are created and destroyed. If you just cut spending then it cuts the demand for labor which causes higher unemployment and other associated problems that often trigger required spending with reduced tax revenue and you end up in a bigger debt hole than before. This is what the Eurozone has been living through for the past decade.

The economy is built of people who actively work to produce goods and services. We can encourage this production to increase or decrease. More production can be used for a variety of things from typical service jobs, to mining or construction, to infrastructure building or environmental cleanup. Less production simply means that the economy uses less labor and more people are left to scramble for other methods of public or private support in order to survive.

We are stuck with yet another false choice politically with one side saying we should just pay people to stay home and the other side saying that we should cut spending and let them fend for themselves. Meanwhile homelessness has been soaring for decades while the labor force participation rate has been declining, and this has only made the debt problems worse.

My prescription is simply that we need to address these problems head on, rather than throwing money into asset bubbles and expecting that to solve all our problems. There are many ways to do this, and my favorite is bringing back the Civilian Service Corps and allow anyone to sign up. Just like a military branch, they would have uniforms and barracks and mess halls, and they could assign you to whatever work they needed done. Unlike a military branch, anyone could sign up and the government would have to strive to make them useful.

The most common question is always “how do we pay for it?”. That is entirely the wrong question because it assumes a balanced budget is possible when it isn’t, and it assumes that ignoring the problem is a viable solution when that clearly isn’t either. In the end, debt levels aren’t what matters – it’s all about cash flows. Inflation is a problem when cash flows exceed productive capacity, which can happen in the short term (solved by expanding production or temporary money supply running out), or in the long term (caused by steadily increasing money supply or permanent reductions to production). This is where the “Economic Pie” analogy comes in. We increase this pie by encouraging and increase in production, even if we have to stretch to find uses for the labor. When it comes down to it, we’re better off having a burger-flipper earning a living wage rather than a homeless person fighting for handouts.

I have to close out here as more family events are calling. As a final note, I encourage everyone to keep an open mind and try to figure out where people are coming from rather than trying to convince them of anything. Also, make sure that at least some of your news comes from proactive sources (internet searches, youtube searches, online articles, etc) rather than passive sources (TV or radio programs). Finally, always remember that no amount of online interaction can replace our need for physical human contact and interaction. I’ll be back to markets again next week, I promise.

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Stock reactions from news vs underlying cash flows

The stock market reacts to events in funny ways. Usually the headline news events have nothing to do with market movements at all, but the press will just say “stocks went up on optimism about vaccines” or occasionally “stocks went down on (insert negative news headline here)”.

This Thursday at 1pm, an announcement about congress increasing capital gains taxes went out on capital hill, and the S&P 500 immediately dropped. The next day the S&P gained that all back and then some. There is a significant amount of algorithmic trading or other trading styles that quickly react to news events which are supposed to move markets, but they only move prices in the very short term.

There are very powerful cash flows that move markets over the intermediate term, driven by their own considerations which often have little to do with daily news events. Here are some of the major sources of these cash flows affecting stocks:

  • 1. Employee retirement plans like 401k’s, which keep buying stocks at current market prices week after week as long as these employees keep getting paychecks.
    • This category hasn’t been affected much by the pandemic lockdowns because most of the job losses hit lower end employees who don’t have these retirement plans.
    • 401k’s became common in the 1980’s, and have had a powerful effect increasing the P/E multiples of the stock market ever since.
    • 401k stock flows are increased by low interest rates over the longer term, as the fraction of money allocated to bonds has steadily decreased.
    • As you can see from the chart below, retirement contributions have had a rapidly growing influence on the US stock market over the last decade. Unfortunately it is incredibly difficult to find data on the combined annual contributions, so this survey on tax credits for retirement contributions, discontinued in 2016, was the only indication I could find on this critically important cash flow.
  • 2. Stock buyback programs from big US corporations relentlessly borrow money on their balance sheets to purchase their own shares at current market prices.
    • Share buybacks had an enormous impact on the stock market this past decade, often representing the largest flows of money into the US stock market. The spike in 2016 had to do with the corporate tax change, followed by an enormous “repatriation” of cash held outside the US into share buyback programs.
  • 3. Increases in margin lending, available in small amounts to retail investors and enormous amounts to hedge funds, put enormous amounts of borrowed money into the stock market.
    • As you can see in the chart below, large flows into margin accounts often occur during recessions. This is in part because the federal reserve tends to lower interest rates and generally encourage banks to lend. Many large funds are always willing to take on more leverage to boost their returns and their market impact. When large funds plow money into illiquid assets, the underlying asset valuation skyrockets and they can look like geniuses – think of the thinly traded tech names that funds like ARKK and Archegos purchased large stakes of. These funds tend to shut down and get liquidated all the time to minimal fanfare, unless they are big enough to make a significant dent in bank earnings. Margin flows then reverse later on due to margin calls and/or efforts at risk reduction.
  • 4. Rotations from large funds from one sector of the stock market into another are extremely important in how real money is made over time. Big investment funds will rotate out of one sector and into another for various reasons, such as the often talked about rotation from growth into value, large caps into small caps, tech into energy and finance, and so on.

The most important part of the above flows when it comes to market tops is from margin accounts. This is because market crashes always involve forced selling – initially from margin calls, and later from mutual funds or index funds that have redemptions when people who are worried about their 401k’s reallocate the money into funds they consider safer.

Very few of the fund flows above are affected by headline news. The one segment that is most affected is market rotations, as investment managers look for narratives that encourage fund flows into one sector or another. Unexpected events like wars can quickly shift the narrative stream, while expected events like the tax increases last week just feed into existing narrative streams.

Note that investment narrative streams from the mainstream news should always be viewed with skepticism. Big investment firms tend to feed the financial press their narratives, so they tend to have news about everything going wrong in a sector while they accumulate a position and everything going right in a sector when they strategically sell out of that position. Think of the oil fears from demand collapse culminating in a large negative spot price, followed by the inflation narratives pumping everything energy related.

Here’s my latest portfolio:

  • DOWNSIDE BETS (37.6%)
    • 29.8% TLT Calls
    • 4.6% IWM Puts
    • 2.0% EEM Puts
    • 1.2% Short dated puts
  • GOLD (22.2%)
    • 7.1% FNV, WPM, GOLD & NEM Calls (Large gold miners)
    • 7.9% EQX (Small gold miner)
    • 7.2% SAND Calls (Small gold streamer)
  • SILVER (19.8%)
    • 10.3% AG (Small silver miner)
    • 0.8% AG Calls
    • 5.1% SILV (Small silver miner/explorer)
    • 1.2% MTA (Small silver miner/explorer)
    • 0.8% RSNVF (Really small silver miner/explorer)
    • 1.7% SILVRF (Really small silver miner/explorer)
  • COMMODITIES (14.7%)
    • 9.4% CCJ shares
    • 2.0% ALB (Lithium)
    • 1.4% NMGRF (Graphite)
    • 1.9% NOVRF (Nickel/Copper)
  • CANNABIS (5.6%)
    • 5.6% split between CRLBF, GTBIF & TSSRF (companies with significant US footprints)
  • CASH (0.1%)

I did some trading this week, picking up additional shares of SILVRF and NOVRF. I also sold off last week’s short dated puts for a decent gain on Tuesday, then picked up new short dated puts on Friday. It seems a common pattern for the stock market to hit new highs on Friday and then struggle Monday thru Wednesday. These are mainly timing moves, as some of the chartists I follow on twitter have Elliott wave charts on the S&P 500 showing a pullback to 4100 followed by a breakout to new highs around 4250. Perhaps I’ll swap out the short dated puts for short dated calls when it hits my target there. It’s a good exercise to get a feel for timing market moves in general and seeing how reliable these charts are. On the other hand, a significant correction is expected following this top in May and these moves can always come earlier than planned so I won’t be risking a lot.

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My thoughts on Crypto

Cryptocurrencies have been going crazy this week, particularly the altcoins lead by quick triples in DOGE and XRP. I do wish I held onto the bit that I sold off a week and a half ago as they all jumped, some by 50%. Of course if I did hold I’d just be selling them now. I realize that this is the manic phase where Bitcoin is supposed to jump past $100k in a month or two while the altcoins gain multiples, but I just don’t feel comfortable with them.

Turkey became the next country to restrict Crypto – banning purchases in it but not ownership of it. I don’t see this as a surprise because all countries have traditionally required use of their own currencies in transactions, the exception being those with high numbers of foreign tourists who encourage them to spend by accepting dollars and/or euros. In the US this has been the case the whole time, as any payments in Crypto are considered taxable events recorded as selling crypto for dollars when the payment is made.

A few things still puzzle me about Crypto in general.

  1. What is the use case going to be? Speculation doesn’t count here, as that can apply to anything. Here are my thoughts…
    1. Money transfers. Banks may charge you significant fees to transfer money outside the country, and will take days to process any transactions at all. Transfers from a Crypto wallet are very quick with low fees. Question: How will banks react? Will they ultimately offer solutions that lower their fees and increase their processing speeds? When they do, why would they use cryptocurrencies at all rather than an internal electronic system in their own currencies?
    2. Currency hedging / store of value for emerging markets. People living in countries which periodically face significant currency devaluations – Argentina, India, Turkey and many others – have traditionally held more gold and silver to help shield their savings. Cryptocurrencies are much quicker and easier to use for this purpose and have lower transaction fees. Will more countries ban their use because of this? India has periodically banned gold imports as a way to stop flight from their currency, so banning the use of any and all crypto products shouldn’t be a surprise.
    3. Smart contracts for insurance products. As an example, instead of paying premiums for hurricane insurance followed by a huge process involving insurance adjustors you pay premiums to a crypto-based insurance product which essentially says you get a payout (5-10x your money back?) if there is a hurricane of pre-defined category strength that hits landfall within a pre-defined distance from your house within a 1 year period. There is an array of products that are under development and getting licensed (many based on Etherium), but we haven’t quite seen them advertising yet. How big can this get? How will our insurance companies react? How will the government react to their powerful lobbying efforts? Will this take off in emerging markets first, where they don’t have these entrenched interests?
    4. Smart contracts for financial products. An array of things have been discussed, from young athletes selling portions of future potential major league sports contracts, to small businesses selling a percentage of revenues over a fixed period, to college students selling a percentage of future paychecks over a fixed period. Mostly the idea is competing with traditional products like credit cards or lines of credit by creating an equity-like structure where a failure or setback doesn’t result in bankruptcy but the payback would be significant if it all works out. I think this idea is in its infancy, but with the prior advent of “crowdfunding” sites I could see it getting somewhere.
  2. Can Bitcoin really keep going up forever?
    1. Bitcoin is a deflationary asset – both because the total supply is fixed as new users are added, and because keys can be lost over time which locks up those coins forever.
    2. Large central banks will never own Bitcoin for two reasons – one is that it is subject to strategic attacks from the basic banning of transactions in it to a coordinated hash attack on the “proof-of-work” system. Two is that large countries have much more to gain from keeping their own currencies dominant.
    3. Small central banks and/or large hedge funds have significant reasons to get into bitcoin. They are big enough to move the price significantly, so they can easily do an accumulate-then-peg campaign where they try to build up bitcoin from a rise of say $50k to $200k and then let it float but purchase whenever it drops below their $200k peg. These entities gain much more from the borrowing capacity they get by holding an asset with high value than they get from selling it to realize the gains.
      1. How would this affect transaction volume? If strong entities like this take up most of the bitcoin, will you get to a point where most of the transaction volume simply dies off? If that happens, couldn’t bitcoin be displaced altogether by a cryptocurrency with a more vibrant transaction base like Etherium, Polkadot, Cardano, Binance, etc?
      2. Another way of looking at this – if bitcoin became too concentrated, would people lose faith in it as a store of value? If all retail holders were reduced to tiny fractions of bitcoin, wouldn’t the risk/reward seem to fall apart or move in favor of other assets?
  3. Why do smart contracts need to push up the value of crypto coins at all?
    1. The simple answer is that they don’t. You can already hedge emerging market currency with “stablecoins” that track dollars or euros, and any transactions for insurance and/or lending products would ultimately be settled in the local currency as nothing else would make sense.
    2. It follows that the main point of fluctuating cryptocurrencies is to attract interest through speculation. However, if this speculation is not tied to any direct use (like oil futures) or value (like company earnings), then it can potentially fizzle out just like any former collectables craze.

I’m not sure what else to say about Crypto except that I have always struggled to believe in it, warily eyeing the huge price increases that could easily reverse sometime. This seems funny on the surface because I am still a big believer in gold and silver. The reasons there are partly history – these metals have been the common currencies of the advanced world for millenia, they initially provided the backing for the modern fiat currency regimes, and they are still valued as central bank reserves assets (though gold much more than silver). The world is dividing and any country wanting to or needing to de-dollarize has been primarily turning to gold as the alternative reserve asset. If Russia is worried about their assets in US dollars, they won’t feel more comfortable relying on Euros, Pounds, and Yen instead. I don’t think we will go back to a gold-based system, but I do think that countries will look to diversify their holdings and to de-dollarize more of their international trade.

Here’s where my holdings ended up:

  • DOWNSIDE BETS (38.9%)
    • 31.4% TLT Calls
    • 4.6% IWM Puts
    • 1.9% EEM Puts
    • 1.0% Short dated puts
  • GOLD (22.8%)
    • 6.9% FNV, WPM, GOLD & NEM Calls (Large gold miners)
    • 8.4% EQX (Small gold miner)
    • 7.6% SAND Calls (Small gold streamer)
  • SILVER (19.9%)
    • 10.7% AG (Small silver miner)
    • 0.8% AG Calls
    • 5.3% SILV (Small silver miner/explorer)
    • 1.2% MTA (Small silver miner/explorer)
    • 0.8% RSNVF (Really small silver miner/explorer)
    • 1.1% SILVRF (Really small silver miner/explorer)
  • COMMODITIES (14.5%)
    • 9.5% CCJ shares
    • 2.0% ALB (Lithium)
    • 1.5% NMGRF (Graphite)
    • 1.5% NOVRF (Nickel/Copper)
  • CANNIBUS (5.7%)
    • 5.7% split between CRLBF, GTBIF & TSSRF (companies with significant US footprints)
  • CASH (-1.8%)

I picked up some short-dated puts in SPY and calls in SQQQ, thinking that the market may have reached a short-term top. One of the chartists I follow is calling for an end-of-month pullback that will likely turn to new highs in May and then a much more substantial drop to follow. Short dated well-timed puts along technical points on the charts seems like relatively good downside protection as long as I keep the bets small. My long dated puts have been bleeding quite a bit of value over time, as have my long dated TLT calls.

I really think my precious metals holdings are ready to break out. Sentiment had bottomed in the space, and gold is hitting 1770 resistance with the stochastic still low and rising – a ways to go before it is overbought. Long consolidations are like coiled springs building for a big move. I currently don’t have covered calls sold on anything – my last batch of CCJ covered calls expired worthless on Friday – so I am poised for a big up move in those assets.

The main danger of course is still the potential liquidity squeeze as margins are reduced, margin calls are triggered, forced selling hits reducing values, more margin calls and stop losses are triggered, and even more forced selling occurs. In a case like this, forced sellers tend to sell whatever has held its value best which would hammer gold and silver but create great buying opportunities. This will happen at some point – parabolic debt-driven asset price increases tend to end that way. Some prefer to hold more cash ready, but I have opted to try different “downside bets” for this instead.

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Talk of a market top is probably early

I’ve found Twitter to be an invaluable tool to get a sense of the stock markets. For years I used it only to announce blog posts, thinking of it as a weird newer Facebook or something. For news, I tried mainstream sources like the Wall Street Journal, the Economist, and even Foreign affairs for a while and found them to be somewhat interesting, somewhat time consuming, but not particularly useful. I looked to blogs like John Mauldin’s free newsletter, King World News, Wolf Street, and StockCharts.com for different perspectives. I found a lot of value from a paid subscription to Real Vision once they made their low cost tier accessible. Now its a whole different world – a huge number of free podcasts, many of high quality, financial chatter including beautifully laid out charts with technical analysis, and so on.

Of course you have to take everything with a huge grain of salt. It’s like a haystack of information with some very important needles if you can sort them out.

Technical analysis most certainly works for a number of reasons, but it is also easy to make a chart point out anything you want with lines and arrows. StockCharts.com has a great beginner course that I went through which describes the fundamental patterns and some of the reasoning.

Understanding the basics of technical analysis is especially critical now because everyone seems to be looking for a topping signal. You can see many TA shortcuts that get posted, with big circles by all the tops and corresponding signals below – but all signals have spurious results and many charts don’t bother to highlight those. People lose a lot of money buying puts at these spurious signals. If you can’t look at the chart by itself and re-draw the lines and arrows, then you don’t understand it well enough to act on it.

There’s a lot of chatter about the stock market topping out, buying puts, and the like after the Archegos fund collapse. This is certainly understandable, as everyone knows that they aren’t the only fund with excessive leverage, margin lending is likely to cap out or even decline, and margin calls followed by forced sales can happen at any moment. But before you put significant money on the downside, consider this:

A lot of the chatter I’ve heard mentions the incredibly low volume during the climb this week. I don’t quite get it … as you can see on the 6 month charts above, March and early April were certainly high volume but volumes were lower from Dec-Feb. It also seems that low volume is more associated with upside than downside.

You can see the simplistic lines I put on the charts above. The S&P 500 does seem to be breaking above a prior channel. Will it lead to a false break out or a successful backtest and new highs? The Nasdaq had been struggling lately but it printed a nice inverted Head & Shoulders pattern suggesting upside ahead. The Russell 2000 is still struggling after a monster 52% climb between November and March. Does this push it back to the 200 level, or do you stay bullish, focusing on its recent success in holding the 50 day moving average?

I’m not sure what the answer is to all these questions, but my gut tells me we’re at that Bear Sterns moment where we’re about to shock the bears with a coming rally through May.

I exited my crypto positions this week, as all the talk about Archegos and leverage shook me out of my least confident positions. This had me missing out on some gains, but I had gains. I probably won’t re-enter the crypto space for a while because I just don’t have the faith and conviction there that I can muster up for gold and silver when everyone hates them.

I admittedly have a bearish bias, and I feel that the long consolidation of precious metals shows a lower potential downside while the parabolic gains of crypto and mainstream stocks can lead to significant corrections or blow-off tops. Rauol Pal mentioned on Friday’s daily briefing on Real Vision that most people are mean-reversionists by nature … it’s just how we’re wired. This can crush us in a strongly trending market, and it’s also a big part of the reason that technical analysis works.

Here’s where my portfolio landed this week:

  • DOWNSIDE BETS (37.25%)
    • 29.8% TLT Calls
    • 5.2% IWM Puts
    • 2.3% EEM Puts
  • GOLD (22.9%)
    • 6.9% FNV, WPM, GOLD & NEM Calls (Large gold miners)
    • 8.4% EQX (Small gold miner)
    • 7.7% SAND Calls (Small gold streamer)
  • SILVER (19.6%)
    • 11.5% AG (Small silver miner)
    • 0.9% AG Calls
    • 5.3% SILV (Small silver miner/explorer)
    • 1.2% MTA (Small silver miner/explorer)
    • 0.7% RSNVF (Really small silver miner/explorer)
  • COMMODITIES (15.5%)
    • 10.2% CCJ shares (Uranium miner with covered calls)
    • 2.0% ALB (Lithium)
    • 1.7% NMGRD (Graphite)
    • 1.6% NOVRF (Nickel/Copper)
  • CANNIBUS (6.1%)
    • 6.0% split between CRLBF, GTBIF & TSSRF (companies with significant US footprints)
  • OTHER (0.2%)
    • 0.2% short dated calls
  • CASH (-1.5%)

My short-dated call is in NEE, betting that some big clean energy ETFs will position there as they expand their holdings from ~33 companies to ~100 companies this month. This went along with a put in PLUG (where these ETFs are most concentrated) that I bid on but didn’t get on Monday. I closed out my short-dated TLT calls this week, so those went down a bit.

Aside from that I’m mainly watching at the moment. My portfolio was up on the week again, with gains in gold, silver and uranium. I expected half of my CCJ to be liquidated this Friday, but the close pushed the price below my covered calls and they expired worthless. So instead of looking for a dip to buy back in, I’ll be looking for a rally to sell covered calls into again.

I don’t have any covered calls sold on my precious metals miners at the moment, as I want to be open for explosive upside in case both gold and silver miners break their 8-month consolidation patterns to the upside here. When they move, it tends to be quick.

I still find myself in a weird position on the macro side being long both bonds and miners. I still believe we are in a fed-induced debt-driven asset bubble which is ultimately deflationary – and that the fiscal deficits are nowhere near high enough to combat the deflationary effects of record levels of debt. I agree with my fellow bond bulls that inflation won’t show up and yields will eventually roll over to new lows, but I disagree on their call for $1200 gold. On the other side, I agree with my fellow gold and silver bugs that sentiment in the miners has bottomed, that they represent great values today in terms of cash flows and assets, and that there really is a shortage in these metals. Yet I can’t help but roll my eyes whenever I hear about hyperinflation, Weimar, Venezuela, Zimbabwe, re-living the 1970’s and so on. Gold can go higher without a dollar collapse, especially in a world with central banks suppressing bond yields and encouraging asset bubbles while big investment funds scramble to hit impossible targets for returns.

The world I see is certainly a volatile puzzle when it comes to investing. I’m a big fan of Mike Green who says you want to be long vol rather than short, but don’t confuse this with investing in a “Volatility” ETF because those are money pits … to me it simply means be prepared to benefit from explosive upside (my miners) or explosive downside (my TLT calls) because markets are not going sideways from here.

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