Smart Bet: Markets Pricing in a Fed Policy Error

Hey There Income Hunters, 

 

As usual, Jerome “J-Pow” Powell is day late and a few rate hikes short.

 

Powell brought his usual hawkish talk to the table on Friday, reiterating the Fed’s move to taper $20 billion from the QE policy that continues to add to $120 billion per month to the banking system.

 

Not a great time to spook the economy by announcing removal of stimulus just as consumer confidence plunged below lows reached during pandemic.

 

In fact, consumer confidence is heading towards the lows of the 2008 financial crisis!

 

Now the Fed wants to start tightening!? Have you ever seen such incompetence?

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No big surprise here … Here is the consumer’s assessment of the US government’s policy …

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Today I will lay out the Fed’s policy and what to expect from the market this week …

 

Coulda, Woulda, Shoulda

 

Quick question … if the Fed really wanted to normalize rates without bursting the everything bubble wouldn’t the smart move have been to begin the taper process in January when consumer confidence was high, and the 10-year yield was below 1%?

 

This is where the Fed is so clueless … 

 

They should deflate asset prices when the financial system is strong and manage an orderly decline, which would be smaller and less dangerous than inflicting the most pain on Americans as possible.

 

Banks are required to stress test their activities against an economy in recession, why isn’t the Fed? 

 

If the Fed was forced to be accountable for it actions, maybe they wouldn’t have to BAIL OUT, the banks when the sh*t hits the fan.

 

What the Markets Are Telling Us …

 

The US, Japan and Euro inflation breakeven rates all made new highs on Friday …

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Inflation is already out of control.

 

After dropping when Powell first started talking about transitory inflation following the June and July Fed meetings, the market is now looking past the QE taper and shifting to higher inflation for longer.

 

Gold Is Pricing in a Fed Error and More Stimulus Ahead

 

Gold has always anticipated trends. Notice the physical gold chart below … 

 

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Beginning in June (first red circle) with the first Fed meeting that mentioned transitory inflation, gold traded off in anticipation.

 

Same reaction in July. However, in September gold put in its first higher low post-Fed. Then in October gold rallied on the day of the Fed meeting.

 

If gold is able to put in another higher low in the weeks heading into the taper, that would be a very bullish sign …

 

Buy gold stocks on a dip to $1750-$1760 or on a breakout above 1815.

 

Bond and Stock Volatilities are Going Their Separate Ways 

 

Bond volatility as measured by the Bloomberg MOVE index is approaching recent highs while the VIX (S&P vol) is nearing all-time lows.

 

This may also be a forward looking indicator, anticipating a Fed policy error and resumption of the reflation trade.

 

That would be confirmed if stocks breakout higher and the iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) resumes its downtrend …

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This week will be critical for stocks, as last Friday’s trade could turn out to be a false breakout higher. Friday also made a higher high and a lower low and settled lower on the day, which is also a bearish pattern.

 

So, if the S&P 500 is able to make a new high on higher volume that could be a sign of a melt up into year end.

 

Conversely, if the S&P starts sliding today, it may be a trade to jump on to see if we get a bit of an investor temper tantrum …

 

Bring it Home 

On Friday I purchased iShares Gold Trust ETF (Ticker: GLD) Nov. 19 169.5/168.5 put Spreads to hedge my GLD Nov. 19 166/167 call spreads.

 

I jumped on the opportunity to set up bearish spreads against the important resistance in Gold above $1,800.

 

It also gives me an opportunity for maximum gains on both spreads. Here is my potential on each: 

 

      • GLD 169.5/168.5 put spread – in at $.26 w/ max gain of $100 
      • GLD 166/167 call spread – in at %.23 w/ max gain of $100

 

Let’s chalk it up to the power of the vertical option spreads!

 

Plus, I always enter my safety-valve stop loss order to limit my capital at risk to 25% of the margin debit demanded on the trade …

That increases my return on capital at risk to 

 

      • GLD 169.5/168.5 ($.19 risk to $1 reward) or 525% return
      • GLD 166/167 ($.16 risk to $1 reward) or 625% return 

 

Optimal risk management makes a huge difference in your returns!

 

Live and Trade With Passion My Friends,

Griff

Get Ready for Taper Tantrum …

Hey There Income Hunters ,

 

Fed chairman Jerome “J-Pow” Powell must be a huge Tom Petty fan because yesterday he sang his best version of “I Won’t Back Down.”

 

Is this going to be a repeat of his Christmas Massacre of 2018? History does have a way of repeating itself …

 

Here is what the tapering could look like: a six-month take-back of $20 billion a month and be done with it.

 

 

But I highly doubt it will be that easy ….

 

Today I’ll show you why — and what the trade is going forward no matter what J-Pow ends up doing.

 

XXXX

 

Judging from yesterday’s reaction, I’ll say this. traders and investors are losing confidence in the Fed AND the US government …

 

      • Dollar: Down on the day 
      • Gold: Up 62% on the day 
      • Oil: Ip 2%
      • Commodities (BCOM): Up .7%

 

Those are not reactions that show the markets are afraid of the Fed reversing inflation or the commodity bull market that’s for sure …

 

The only market of concern in my mind is tech, as Nasdaq futures closed down just under 1%

 

Here is the thing: unless the Fed deploys yield control and holds down interest rates, rates will rise and that will put tremendous pressure on tech due to their massive debt.

 

Precious Metals 

 

Powell did stop the metals in their tracks yesterday as they were racing to critical breakout levels and did an about face once he opened his mouth …

 

It won’t matter in the long run, however. Next week will be interesting and we will see if sellers can get back in control of the metals and push them back to the lows of the range …

 

 

I Predict Silver Steams Ahead Based on 3 Key Facts:

  • Demand for solar panels 

  • Demand for electric vehicles 

  • Stagflation as the only result the Fed can produce 

 

That all adds up to this: Global growth and the energy crisis will force trillions out of tech and into commodities and silver.

The Chart below represents the SPDR S&P Metals & Mining ETF (XME) and SPDR Select Sector Technology ETF (XLK) Ratio …

This is the reallocation that has begun and has a very long way to go …

Just think about making 300% on your longs in the miners and metals and 300% by being short tech …

That is the potential of this move based on supply and demand in both sectors …

Consider the fact that the top-6 tech companies account for $10 trillion in market cap, while all the companies in the XME are $10 billion.

The world will want to move out of financial assets into real assets and yesterday’s reaction to Powell confirmed that.

Bring It Home

Did yesterday also confirm Powell will be reappointed to Fed chair?

His tough-talk stance is consistent with his previous approach.

So, maybe the administration realizes they shouldn’t rock the boat anymore then they have already or they risk an all-out boycott of US financial assets …

I still think he should be fired, but as I’ve said none of this matters in the long run — the green energy and EV revolution will dominate flows for years.

Let’s stay focused on that and just keep making loads of money.

Have a great weekend and as always …

Live and Trade With Passion,

Griff

Jump on the SILVER Breakout to New Highs …

Hey There Income Hunters,

I read a few excerpts from legendary investor Paul Tudor Jones today and it’s nice to see he is in Power Income’s corner …

Paul’s main concern is that the forces behind inflation are much worse than the market is currently pricing in.

He also thinks that a higher CPI will be the death of financial assets like bonds and stocks not tied to hard assets.

And here is my favorite …

“The most inappropriate monetary policy that I’ve seen … maybe in my lifetime.”

Seriously, I have been saying this for a year … and …

All we are doing is making a killing exploiting the inflation that has been intentionally produced.

Yesterday I closed an iShares Silver Trust ETF (Ticker: SLV) call spread … 

STC $SLV Nov19 21/21.5 call spread in .16 out .39 for a 143% gain!

I have been crushing it with these low-risk/high-reward vertical option spreads …

They are so simple to execute and to manage, and the returns are phenomenal … 

Today I’ll show you the trade I rolled into and why you should jump on this bandwagon …

Ride the Silver Breakout to New Highs 

This has been a big week for silver. So far, it’s up over 6% with today to go.

I wouldn’t be surprised to see it break above $25.

Notice the breakout for both silver and the 5-year inflation break-even rate, which also broke out and is forecasting inflation to be 2.83% in five years …

We aren’t hearing the word transitory anymore, are we?

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Silver Also Breaking Away from Gold

The chart below illustrates the gold/silver ratio.

Gold has been underperforming silver of late and the ratio is breaking down, indicating silver will continue to lead precious metals higher …

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SLV Trade 

BTO $SLV Dev17 24/24.5 CS for $.09 …

This spread is a great low risk/high reward play on a silver rally to $25.

Put a stop-loss in at $.06 to limit your max loss to 35% on this trade.

The max profit is $.50 making your return on risk 833%.

That is how you earn supersized profits consistently.

Bring It Home 

The next couple of weeks are key as the bullish seasonal signals kick in for precious metals and stocks while bearish seasonals kick in for bonds.

I am hoping for a bit of recovery in iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT) so I can reset bearish spreads. I’ll keep you posted …

Live and Trade With passion My Friends,

Griff

T-L-T, It’s Dynamite

Hey There Income Hunters,

 

Trading against this inflation surge has been fun. From the last week in September until now, the markets have played to the blueprint of what works during inflation to a tee …

 

      • Sell bonds
      • Buy energy stocks 
      • Buy commodities 
      • Sell the dollar 

Now, the real fun starts because seasonal factors kick in big time and should set the scene for an explosion into the end of the year.

 

Today, I’m going to show you what to expect and where the most money will be made …

Keep Selling TLT Heading Into US Treasury Issuance of Bonds 

 

October and November are historically the worst months of the year for bonds. Much of that has to do with the debt ceiling being hit and Congress toying with a default on debt. 

 

When Congress delays passage like they are now, the US Treasury can’t issue any new supply, so it gets a backlog of issuance that must come all at once, usually in November …

 

That may be the case again this year and would happen at a time when investors do not want to own bonds.

 

Checkout the seasonal yield chart …

 

 

So … buying bonds when you have accelerating inflation destroys your wealth because the bonds return less than the rising cost of the essential goods and services.

 

Luckily we are traders and we can go both ways with our trades. In this environment look for places to buy puts or put spreads on iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT).

 

The trade I closed yesterday was a long $TLT Nov. 19 expiry 144/143 put spread. I bought it at $.34 and closed it Wednesday at $.51 for a 50% return …

 

I have done these trades over and over. Now here is the upcoming period for large Treasury bond issuance …

 

From the auction announcement to the auction date, you want to buy puts or put spreads and build a position. I start even earlier if I can get good entry points on rallies in TLT …

 

The other advantage you have going into these auctions is we will get another CPI number on Nov. 10 …

 

I think November CPI will carry a 6% handle and that will not be good for bonds on top of all the supply.

 

Buy Gold and Silver 

 

We are on the verge of a major breakout in gold and silver, and I have been waiting months for this opportunity. I do think silver will lead the way here …

 

This global discussion on building infrastructure to enable all countries to reach net-zero carbon emissions is insane!  However, all we can do is make a ton of money on it because the demand for natural resources to build it all out will be overwhelming.

 

Silver has yet to participate in the commodities rally because it gets caught in the “real money” discussion with gold and it is in the best interest of the paper trading silver and gold dealers in London to hold their prices down …

 

But that ends at the end of 2021, so the dealers may be forced to cover their short positions or suffer heavy penalties at the same time as seasonals for both turn explosively higher.

 

Check out the seasonal for both metals …

 

 

 

Silver seasonals are twice as powerful as Golds. I use the iShares Silver Trust ETF (Ticker: SLV) to get exposure to silver and it is very liquid.

 

I am currently long $SLV Dec. 17 24/24.5 call spreads for $.08. There are pretty incredible returns you can grab by searching for the optimal risk/reward part of the curve …

I also own a lot of silver and gold miners, but the easiest way to gain exposure is through the ETFs … Check out ETFMG Junior Silver Miners ETF (Ticker: SILJ) and the VanEck Gold Miners ETF (Ticker: GDX) ….

 

They are both in the early stage of a strong rally, so you can get good entry points. And always use a stop loss to protect your capital. I never want to lose more than 25% on any single trade.

 

Bring It Home 

 

This Fed insider trading scandal is building momentum. This is the greatest inflation wild card ahead of us.

 

The Democrats have no choice but to keep spending and they have an opportunity to take control of the Fed and who is appointed to the board seats/

 

They may make a move to the left by bringing in Leal Brainard who favors modern monetary theory (MMT) and yield curve control, digital currency, etc. These moves would mean even higher inflation for a longer period of time.

 

Use this period to put on these inflationary trades because they will either work out nicely or be a home run.

 

Live and Trade EWith Passion My Friends,

Griff

Powell is a Goner at the Fed

Hey There Income Hunters,


Jerome Powell sold millions in stocks as they were plummeting.


Yes, new disclosures this week revealed that even the chairman personally traded stocks


And records show it was on my birthday Oct.1, 2020. He could have at least sent me some profits.


But, seriously, this is a disaster.


Meeting logs show that Powell had been in contact with Treasury Secretary Steven Mnuchin four times on Oct. 1.


Powell had been pressing the administration to support more fiscal stimulus, so that the sole responsibility for rescuing the economy would not be on the Fed and monetary policy.


Elizabeth Warren has come out against Powell’s reappointment as Fed chair when his term expires in January.


The Wall Street Journal reported last Friday that the trading scandal had “dented but not derailed” Powell’s path for a second term. 


This was before Powell’s own trades were part of the story.


It would be a very big deal for the markets if Leal Brainard was appointed and the probability of that happening are increasing by the day ….


I have some other news that shows Powell’s chances of being retained are much lower now …


Watch the Chair


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Via PredictIt.org


Gold and Silver rallied when Powell’s odds of reappointment tanked as the news of his trading made its way through the media. There has been a major narrowing between Brainard and Powell as to who runs the Fed next year and beyond …


Brainard is the most dovish Board member by far. 


Treasuries started rallying on this, possibly because Brainard is in favor of doing much more bond buying to hold interest rates down.


She’s also expected to push more Fed regulation on banks and launch digital dollars.


The odds-on best trade — whether Powell is reelected or not — is this …


Buy Silver and Gold Miners 


I have been accumulating silver and gold miners without consideration for a Powell replacement so this news would be icing on the cake for metals to soar.

 

And, either way, they will soar — it just depends on the timing …

If stocks turn up to higher highs, the Fed is likely to try to taper bond purchases with no rise in interest rates for a while. That tightening may not be on top of equity investors’ minds yet, but once they figure out that the punch bowl is being withdrawn from the party, we could expect a bigger correction that could be a repeat of the 20% drop in December 2018.

 

When that happens, the Fed will reverse course, as it always does — and Biden will fast track the $4-5 trillion in stimulus.

 

At that point, or even in anticipation of it, precious metals and miners will soar, and the dollar will collapse to new lows.

 

Inflation Expectations Nearing a Breakout 

 

Brainard running the Fed would be a home run for inflation trades, as inflation expectations are already testing the highs.

 

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Yellen Will Run the Show from Here On Out

 

Janet Yellen will now take charge whether Powell is reappointed or not. She will fast track bank regulations, higher taxes for the rich and wealth equality (which is needed).

 

However, these moves would trigger severe stagflation, which would be extremely bullish for gold, commodities, and energy stocks.

Gold miners have already rallied on good volume above the 50-day DMA, so the location is good to put on bullish spreads now.

 

VanEck Gold Miners ETF (Ticker: GDX) 

 

And the best place that I know of is GDX

 

The way the metals work is the senior miners lead the first wave up and then you can rotate down to junior miners and early cycle miners in the discovery stage.

 

Here is the GDX setup …

 

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A very low-risk/high-reward trade here would be to purchase the $GDX Dec.17 33/34 call spread for $.40. You could put a $.25 stop loss to limit your risk even further.

 

This would give you a max profit of $100 versus the max loss of $25 for 300% return.

 

Here is the risk profile …

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The trade offers a decent probability (31.5%) of the market moving above the 34 strike price and  the stop-loss protects you on the downside.

 

Bring It Home

I have been killing it with these trades …

 

 

And I’m looking to score big this week with a bearish GLD put spread and a bearish TLT put spread. I have been playing GLD from both sides at least until it breaks above $1,840.

 

The beauty of the low risk/high reward option spread is it lowers the demand on a high success rate. Since I am always shooting for a minimum of risking $1 to make $3, I can be right less than 50% of the time and make a lot of money consistently — though that hasn’t been any sort of consideration over the past month-plus.

 

My success rate has been better than 50% and my takeout has been closer to $1 to make $7 … 

 

Obviously the inflation trade has been hot, and I don’t see it subsiding any time soon …

 

Keep your eye on the prize and as always …

 

Live and Trade With passion My Friends,

 

Griff

Thank Goodness for ESG … NOT

Hey There Income Hunters,


Am I the only one tired of hearing about net zero, green energy or ESG?


Let’s be honest, do any of the officials joining in on the chorus of climate change really care?


Now we have the Fed and the Treasury talking about looking at the possible damage to banks.


This is just another conjured up hoax — another sleight-of-hand trick that the Fed is so good at. You know, don’t look at the fact that we can’t pay back our debt, look at how much more money we can print to build beautiful bridges to nowhere.


So far all I am seeing is cost estimates like the US spending $5 trillion a year for 10 years on this boondoggle.


Here is the truth: this energy crisis was always about the ESG backlash due to the freeze it put on capital investment into “real energy” oil, gas and coal production. The real number is near $2.4 trillion that was eliminated from 2014-2021 capital expenditures necessary to keep up with demand.


In the meantime, thanks to global population growth of 700 million over that period we are much further away from net zero-carbon emissions than we are being told. Realistically, we may reach net zero by … 2070.


While I may be steamed about the incompetence of it all, it has created a bonanza of profitable trades:


Today I’ll give you an oil company that will see demand rise over the winter months — and you will see peak profits as they play catch-up to a fair price that is 35% higher from where it sits now.


The Kind of Divergence Oil Longs Want to See


As you can see from the chart below, oil inventory is dropping just as TSA travel traffic numbers are rising. There is a chance the reopening trade is more robust than expected and ignited new demand for oil that is not priced in …


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The chart above is showing US stockpiles ex-strategic reserves. The situation has completely changed from 2020. We may end up seeing inventories dip further just as travel picks up … 


Consider Transocean LTD. (Ticker: RIG)

RIG is an offshore oil driller whose revenue and stock price rely heavily on the price of oil. However, it suffered some backlog issues that are now beginning to clear out and with the crude price above $80 they stand to see some nice investments arrive.

 

RIG can do some nice catching up to the price of oil after lagging year-to-date, as you can see from the chart below …


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The Technical Setup


I like the upsloping 50- and 200-day moving average and the uptrend channel that the stock is trading in.


We could see a pullback to the $3.75 level which would give you a good risk/reward trade with a stop-loss on a close below the 50 DMA at $3.55 …

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Low Risk/High Reward Option Strategy 


I am going to buy a RIG Nov. 19 4/4.5 call spread at $.17. That gives me one month for the stock to rally $.70 cents, which is what the straddle forecasts. If RIG can close above $4.50 at expiry, I’ll gain a maximum profit of 120%. Not a bad one-month trade.


The stock price currently trades at a 37% discount to its fair value price of $6.41, so the probabilities are certainly on your side here.


Here is the risk profile …

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These are great risk/reward trades, and you don’t have to risk all your capital … get in around $3.75 and out on a stop below $3.55. That’s less than a 10% loss of capital, but if you are right you make 120% … 


Bring It Home

The market may be building for a nice Christmas rally — we just need a little lift from the reopening trade.


I also bought the United States Natural Gas ETF (Ticker: UNG). This has been a market to sell your longs in the energy space when they go up and move into other areas when they go down.


Yesterday I lightened up a couple of gold stocks in the morning and went into UNG down 7% in the afternoon.


I think we will continue to see rotations into energy stocks and real assets as investors get nervous that the Fed will be starting a prolonged period of raising rates, which in the past has triggered a meaningful correction in stocks.


Have a great day today and as always …


Live and Trade With Passion My Friends,


Griff

Get Ready for the Taper Tantrum

Hey There Income Hunters,

 

A November start to Fed tapering is closer than ever to becoming a reality. 

 

The strong retail sales number on Friday (+.7%) and a surge in stock prices — +3.2% from the low and 1.8% for the week — are more than enough for the central bank to pull the trigger.

 

Meanwhile, covid cases plummeting and all the critical systemic risk pointing to a very strong US funding market.

 

Forget merely gathering for Christmas, it’s time to start thinking about a holiday rally that gets us to new highs and beyond.

 

As I have said for a while, Q4 will be stronger than the market has been expecting and it may be possible for the S&P 500 to reach 4,800.

 

The key for you to maximize profits will be to buy the right sectors.

 

Today, I’ll run through which ones will lead the way and others you can look to sell …

 

Phase 2 in Q4

 

As I have written previously, massive returns require you to get the economic conditions — what sectors to focus on — correct.

 

There are four phases to the market …  

      • Accelerating Growth & Deceleration Inflation (Goldilocks) 
      • Both Accelerating Growth & Inflation (Hot Economy)
      • Slowing Growth & Accelerating Inflation (Stagflation)
      • Slowing Growth & Inflation (Recession) 

The economic conditions for Q4 are clear — we will see accelerating growth and inflation.

 

This is similar to what we saw in Q2, which then turned to slowing growth and accelerating inflation in Q3.

 

What’s the difference? Let’s take a look.

 

SPDR Select Sector Utilities ETF (Ticker: XLU) 

 

Utilities fit into the category of interest rates because they distribute dividend income.

 

So, when growth and inflation are rising, utilities underperform because your dividend income will not keep up with inflation and they don’t offer growth or momentum to compensate.

 

Notice the chart below and see how during the months of April to June, utilities sold off.

 

However, as we transitioned to Q3, growth started slowing and money was reallocated into utilities as a defensive play during the slowdown …

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You had an opportunity to buy XLU in June when it was oversold and sell it in September when it became overbought … Now I would expect XLU to go sideways-to-down into year’s end.

 

However, If XLU were to take out the lows in the weeks ahead and it forms a positive price/RSI divergence I will be a short-term buyer.

 

SPDR Select Sector Financial ETF (Ticker: XLF) 

 

Longtime readers will know that financials perform well in rising interest rates environments.

 

Phase 2 accelerating growth and inflation is a powerful combination for rising interest rates, so XLF performs extremely well in phase 2 …

 

The other metric that is supportive for banks is how strong the corporate balance sheet is.

 

Even with all the pressure on spreads in China due to their property market woes, the US spreads have remained at their all-time narrow …

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And as you can see in the chart below, XLF soared to new highs last week as stocks and interest rates have risen. I expect to see a further rise in interest rates, which will be supportive for XLF.

 

However, I would look to sell XLF once the debt ceiling and spending bills are passed.

 

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With phase 2 locked in here are the other sectors to buy and sell.

 

In particular there is one to buy.

 

Andrew Giovinazzi and Frank Gregory will reveal what it is this Wednesday starting at 8 p.m. in their special Capitol Gains: October Surprise live event.

 

Bring It Home

 

The goal of Power Income is to maximize your returns in all economic conditions … In order to gain the consistency of returns, you must understand the environment you are in and how Fed policy may respond.

 

I felt early on Q4 would be a stronger growth quarter than the consensus was forecasting. Being right on that allowed me to make excellent gains in the past few weeks.

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Stay tuned here for more. Have a great week and as always …

 

Live and Trade With Passion My Friends,

 

Griff

Here Comes a $150 TRILLION Green Energy Slush Fund

Hey There Income Hunters,

 

You are going to love this one ….

 

The 26th UN Climate Change Conference has released its Net Zero greenhouse gas plan.

 

Before we get into the details, here are a few of the headlines …

      • “Fed Is Taking The Right Course On Monitoring Climate Change”
      • “Fed Should Consider Climate-Change Risk To Financial System”
      • “Treasury To Study Impact Of Climate On Households, Communities”
      • “Treasury Launches Effort On Climate-Related Financial Risks”

 

So now, the Fed and Treasury are going to tackle climate change because they have done such a great job balancing their budget? Give me a global warming break!

 

I’ll tell you what this is about: the $150 trillion of unfunded liabilities to future generations of Americans …

 

This is serious, and I know exactly what they are doing. This can’t get passed soon enough … 

 

You think it’s easy to make money now? Just wait …

 

Today, I’ll give you an update on this week’s inflation data and what this insane crusade means for inflating our trading profits …

 

Inflation Update 

 

Some pretty incredible headlines this week:

      • Thermal coal futures in China hit all-time highs, and hit their daily limit three times this week. Look to buy Arch Coal (Ticker: ARCH) next week. They are trading at $95, and could be on their way to $120.
      • Also, on the move: Copper +1.7%, Zinc +3.7% Cotton +3.7%, Wheat +1.3%, Corn +1.0%. I took profits on United States Copper Fund (Ticker: CPER) and Freeport-McMoRan (Ticker: FCX) this week, for +98% and 78% respectively. 
      • Earlier this week, China’s Producer Price Index (PPI) rose at 10.7% in September, the highest reading ever.
      • U.S. PPI is at +8.6%, the highest reading in over a decade.
      • German wholesale prices for September came in at 13.2%, the highest level since 1974.

And that is not even the real market-moving news …

 

The important news this week, which was confirmed by the Fed, is the “shelter” component of Consumer Price Index (CPI). Shelter CPI year-over-year increase was 3.24%, which is a new high.

 

Now, the Dallas Fed put out a report this week stating that they expect this number to DOUBLE in the year ahead … and remember, shelter carries a CPI weighting of 33%! 

 

Investor psychology is beginning to shift towards sustainable and permanent inflation that will cause demand destruction. This means the high natural resource prices destroy demand, and slow the economy …

 

This is an important concept to understand, because if the Fed tapers, a slowdown is naturally happening, due to inflation destroying demand, which in turn gives us higher inflation and lower interest rates.

 

Higher inflation/lower interest rates is the ultra-bullish condition for gold.

 

Start Buying Gold on Dips 

 

I had an excellent week trading SPDR Gold Shares (Ticker: GLD) and Van EckVector Gold Miners ETF (Ticker: GDX) for an average gain of nearly 70%!

 

I reset a bit of my long GLD position near the close on Friday, by purchasing five GLD Oct. 29 167/167.5-strike call spreads for $0.16.

 

I want to keep playing for quick hits with GLD until bullish seasonal trends kick in on October 22.

 

The chart below shows the average seasonal pattern for gold and silver from 2002 to 2019:

 

 

Notice that starting at the end of next week, the seasonals turn very bullish into the middle of December, and this year may even bring in more technical buying than usual.

 

The Basel III mandate demanding paper gold positions for British banks be backed by physical reserves, or they pay a substantial margin requirement, goes into effect at the end of 2021.

 

I’ll have more on that next week.

 

Bring It Home

 

There are more cross-currents of data, flow, and news than I can remember.

 

The world is becoming fragmented, as each country is trying to survive in a world of ever-rising prices and supply chain disasters … 

 

The best thing to do is stay in a lane that benefits from the inflation and energy crisis we are in the early stages of … 

 

Soon we’ll also be discussing the timing of a possible extended downtrade in stocks once the “demand destruction” narrative kicks in.

 

Until then, have a great weekend and as always …

 

Live and Trade With Passion, 

Griff 

China’s Inflation Is About To Get Much Worse

Hey There Income Hunters,

Did you see the September inflation data in China? Producer Prices (PPI) rose 10.7%, which is the highest in 26 years.

Well, the situation in China will impact the rest of the world and it will get much worse …

We have been talking about the energy crisis a lot these days … and as you can imagine, for countries with 1.5 billion people like India and China, it is very serious.

Both countries have spent many years building up the middle class and as their per-capita numbers grow, so too does the demand for power … 

But the power supply is shrinking, so that means their costs for power are soaring.

 Check out this chart of the Coal to PPI relationship:

This is an example of how quickly inflation can get out of control.

When it gets into double digits and stays there, it can begin to destroy demand and push the economy into recession …

Today, we’ll look out the ramifications for the US and ways to capitalize on the possible China contagion …

The Effects of Double-Digit Inflation on Corporations:

      • The corporations squeeze profit margins …
      • Then lower profit margins decrease cash flow …
      • And lower cash flow leads to greater amounts of defaults …
      • This process worsens supply chains bottleneck.

So, as the higher prices are passed on to consumers, the country becomes trapped in stagflation, which is an accelerating inflation and slowing growth economic condition …

I think the US will find itself in a similarly severe stagflation condition as China, but I don’t think we will get there until next year.

However, it is critical to keep a close eye on the iShares 20+ Maturity Treasury Bond ETF (Ticker: TLT) for signs of the US getting there sooner or later.

Timing will dictate the best trades to put on, and when.

Bonds are the Predictors of the Economy

I always say Bonds are the most important asset class because they are connected to the funding markets. Funding markets are the signpost for cracks in the economy …

Right now, all signs are positive as far as liquidity in the system and strength of corporate balance sheets.

However, with debt levels so high that can change quickly …

So, right now I have bearish put spread trades on in TLT, but if TLT breaks above the $146 level on good volume, I will assume that to mean the economy is not as strong as I think.

Here is the setup for TLT 

Notice the very low volume (in the red circle) on the lowest trade this week (in the black circle), this signaled a possible turn around and we got it the following two days …

Now, notice the last volume line and trade from Thursday that just touched the $146 level … The volume was very low then as well …

So, which way the money flows into bonds over the next few days is key …  If prices keep rising, then gold is the place to be!

The SPDR Gold Trust ETF (Ticker: GLD) has had a nice move higher this week; however this is an area it has failed at multiple times before:

 

As you can see the 200-day moving average (DMA) is just above $168.40, providing resistance.

Now, gold tracks the inflation-adjusted bond returns.

So if TLT prices go higher, meaning rates go lower, that is bullish for gold ….

Lower bond rates with high inflation is the ingredient for much higher gold prices.

Take a look at the chart below that shows this correlation and where we are right now:

 

Notice how gold’s price is turning up along with the inflation-adjusted 10-year rate (inverted to show correlation) …

I hope you understand this correlation and how critical the bond/TLT trend is to gold’s next move.

Believe me, it is inevitable that the 10-year real rate will go much further into negative territory, and gold will soar. It is just a matter of when …

Bring It Home

Metals continued their move higher today, and I lightened up a bit on my gold and silver long positions.

I am looking to move back into uranium since the miners’ ETF, North Shore Global Uranium Mining ETF (Ticker: URNM), corrected a bit …

The energy crisis has a lot further to go, and switching from the ‘overbought’ sectors to the ‘oversold,’ and vice versa, can help supersize your returns.

I will alert you on any insight I can find that will give us an edge.

Until then …

Live and Trade With Passion My Friends,

 

Griff

 

Metals Break Out On Hot CPI … Buy More …

Hey There Income Hunters,


The SPDR Gold Trust (Ticker: GLD) had the highest volume UP day since May. 


 We may look back on this week as the one the metals decided to front run the Fed …


This is the psychological shift to “the inflation genie is out of the bottle and the Fed will not get her back in.”  


The US Consumer Prices (CPI) rose last month at the fastest pace since 2008.


Social Security benefits in 2022 could see a roughly 6% increase in their payments—the largest since 1982—reflecting surging inflation during the pandemic.


The commodity, energy and metals bull market has a long way to go. 


Hopefully you have been jumping on the trades I have given you … 


Today I’ll review what’s been hot and where to expect the biggest moves ahead.


Uranium 


I have been preaching the uranium supply/demand imbalance for months:


(Yellow is supply, green is demand.)


Uranium is THE best solution for meeting the zero carbon emissions requirement. 


It produces the LEAST amount of carbon equivalent emissions, period:



The hard-push-to-renewables crowd (ESG) has created unintended energy demand consequences.


I recommended a Global Uranium Mining ETF (Ticker: URNM) call spread last week, and closed it on Wednesday for a nice 112% profit.



We may get a bit of a pullback on uranium; however, if URNM breaks out above the old high ($98.49) I will get back in.


Copper 


On Monday I said I thought copper would begin a rally to the old highs and recommended buying Freeport-McMoran (Ticker: FCX)


And Wednesday just happened to be a great day for FCX, breaking above both the downtrend resistance and the 200-day moving average (DMA) on higher than normal volume:



I purchased the FCX Dec12 39/40-strike call spread for $0.23.


Finding tight call spreads that give you a great low risk/high reward ratio really maximizes your gains.


I would stop the trade out for a max 25% loss. That means you are risking $6 to make $94 … In other words, you can make 15x what you are risking …


Gold 


I think gold is ready to look ahead of the Feds taper talk. In the past, when inflation was rising faster than bond yields into a Fed taper, gold started rallying and never looked back …


This is because the taper historically weakens the stock market and the Fed has to reverse course and resume quantitative easing measures.


I don’t think this time will be any different …Last week I suggested a trade recommendation to buy the VanEck Gold Miners ETF (Ticker: GDX)


An ideal breakout above the 50 DMA on above-average volume should catapult GDX higher:



I bought the Dec17 32/34-strike call spread for $0.55.


Hopefully you jumped on GDX already, but if not consider the Dec17 34/36-strike call spread for $0.47. Stop yourself out at $0.35 to limit your risk to a 25% loss.


Your max revenue would be $200 (difference in the strikes) minus the $12 dollars of risk (25% of $0.47 * 100) …


This means you are risking $12 to make $188 for a 15x return on risk.


That is how you maximize your returns!


Bring It Home …


There is tremendous upside potential for commodities, metals and miners because the Fed cannot stop inflation, and the government might push it further because they MUST spend …


The 1970s are not a useful comparison to today because in the 70s, the US had very little debt.


Today, our debt levels are so high that the Fed would cause a debt crisis if they raise rates, so first they must hold interest rates down and let the government continue to spend.


It’s the most bullish scenario you can imagine.


Be aggressive and as always …


Live and Trade With Passion My Friends,


Griff