2020-10-25

Bitcoin Broke Out Versus Gold on October 12

The measured move off an inverse H&S would Bitcoin to 9.3 times the gold price. That in turn would complete a massive base with a target at 16:1 in the future...
Still the pattern versus silver.

2020-10-24

Forget the Election, Near Future May Come Down to Stimulus

Most traders are focused on the election and potential volatility around it, but there could be massive volatility in the next year. A secular shift into value/commodities could be underway or a shock downturn in the markets if credit don't improve or government deficits don't offset the lack of private borrowing.

A few of the funds, stocks, and currnecies that could be impacted by the election are below. Long-term, the election will be a footnote for most assets. The U.S. dollar is headed in the same direction either way. USG's fiscal deficit is headed in the same direction. However, the risk of another dollar "bull" rally is higher with Trump because of his trade and economic policies. If Republicans hold the Senate, Biden's spending plans will be limited. If Democrats take the Congress, they will eliminate the filibuster, lowering the risk of defection on spending and other bills. That's the most bearish scenario for the dollar.

The dollar looks bearish. As covered in recent posts, it broke its very long-term trendline. The past two breaks met sustained selling for 18 to 24 months. A rebound to 96 would invalidate the analog. A rebound would not invalidate a bear market, but as long as it could sustain a rally, the terminus of such a move could have a wide range of possibilities. A break of 88 on the downside would be the point at which I'd through caution to the wind when it comes to weak dollar trades. For short-term trades, the most volaitle outcome would probably be Trump win expressin in KRW and CNY.

Solar, marijuana and guns are all at interesting junctures because while they have rallied strongly (perhaps the Biden bet), they could be in techncial breakdowns if a Trump win reversed even a little of the recent gains. I added a new marijuana ETF, symbol MSOS, that covers the U.S. market. That is the best bet for those bullish on cannabis legalization at the state or federal level. Also added natural gas and fracking ETFs. There are much bigger issues at play with these sectors including high debt levels, but natural gas looks like it might have bottomed. Perhaps a Trump win would be the spark that ignites the sector.
Commodities and infrastructure also look bullish here. I'm using a bunch of ag ETFs inatead of futures because they are confirming or look set to confirm bullish developments on the futures charts. Copper and copper miners have both taken bullish turns. I threw in Nigeria because I think it is the best example of a resource-exporting frontier market. It looks similar to some of those ag charts.
Cryptocurrencies are showing bullish patters. Bitcoin needs to crack $13,800, call it $14,000, to hit that red box at $17,000 by year end.
I remain long-term bullish in gold miners. I have sold my TLT puts and bought some SIL puts to hedge. Long commodities, crypto, value and inflation looks much more attractive than long technology and major indexes. The Dow, S&P 500 and Nasadaq peaked in September. Only the Russell 2000 has moved higher and it still has bearish potential. The seeds for a post-election correction led by technology are there, particularly with a Trump win. Longer-term, the weight of evidence is moving in favor of a secular shift in markets and inflation.

That said, take a look at Nigeria around 2016, a similar pattern followed by a breakout that failed at the calendar turned to 2018. Every central bank intervention before has produced brief spikes in commodities, emerging markets and inflation expectations. Every spike was followed by new lows as structural deflation in the eurodollar market reemerged. Putting it together, commodities and value look good in the next 6 to 18 months with risk of a post-election correction. Reassess moving forward based on major fundamentals such as DXY, copper price, etc.

Far more important than the election is the real economy. Total Loans and Leases at commercial banks (TOTLL) have reversed most of their covid gains. Year on year growth is back to 2018 levels, consistent with the stagnating post-2008 economy. Government stimlus must remain high if private borrowing doesn't pick up. If borrowing doesn't pick up or stimulus doesn't offset weak private borrowing, all these bullish charts are going to sour fast in 2021.

The 30-year mortgage keeps falling despite a rebound in long-term government bond yields. This should bottom and turn higher if there's a general bullish resolution after the election or major stimulus.
The clearest asset to me remains gold and maybe Bitcion because the central bank and government will act if the economy sinks. Gold can climb even if monetary intervention fails. At some point in that scenario, gold and even gold mining shares will stop falling with other assets because investors will realize the government's interventions are failing. They will start pricing in more and larger interventions into the gold price. This will be expressed in the gold/copper ratio making a bullish breakout. Right now it looks like it wants to trend back into the pattern...

Senate Poll Shifts Towards GOP Again

I don't take RCP averages as an accurate measure of the election, but I do follow the trend. The Arizona Senate race has shifted from lean Democrat to toss-up. If the GOP runs the table on the Senate tossups, very possible if Trump wins the presidency because it means the polls are way off, they pick up two seats. My largest bets are on the GOP adding at least one Senate seat, the Democrats losing House seats, and Trump winning Minnesota because of the odds. My largest payoff will be if the GOP sweeps Congress. My capitl on that bet is lower though, because those odds were extremely low when it looked like the GOP would lose Senate seats.

2020-10-23

New Poll Has Minnesota Senate Race a Dead Heat

KSTP: KSTP/SurveyUSA: Smith, Lewis Senate race now a dead heat
Democratic U.S. Senator Tina Smith is now in a dogfight to keep her Senate seat after her once double-digt lead dwindled to a one-point lead in our latest KSTP/SurveyUSA poll. Smith leads Republican challenger Jason Lewis 43% to 42%, with 12% undecided. Another three percent favor other candidates.

In mid-September Smith had a 47% to 36% lead over Lewis. Earlier in October she still maintained a seven-point lead, 44% to 37%

The poll looked oversampled Republican at 34 percent to 32 percent Democrat, if anything it might be overstating the Republican advantage. Still, Smith's lead has collapsed. By extension, I assume President Trump is faring better than polls show. If Trump wins the election it means the polls are wrong again. Given the margin of error in Minnesota and how close he came in 2016, I expect Minnesota will flip his way. For Biden, flipping a state such as Pennsylvania or Florida will signal the polls are right on as in 2018.

Added SIL Puts Today

Sold my TLT puts.

2020-10-22

China Three Red Lines Get Thicker

In August I posted Attention Speculators: A-Shares Yes, Housing No. A high level political journal made it clear the real estaet sector would be brought to heel, with no repeat speculative bubble being allowed.
The era of financing "strong supervision" has arrived! Can the real estate company's capital chain be able to carry it?

Recently, silver CIRC Chairman, Party Secretary Guo Shuqing, the central bank issued a document in the "Seeking Truth" magazine made it clear that: Housing estate bubble is the biggest "gray rhino" threat to financial security.

In fact, the "strong supervision" on financing of housing companies is becoming a norm. The running grey rhino has been put on the reins of financing.

The 21st Century Business Herald recently reported exclusively that the regulatory authorities have introduced new regulations to control the growth of interest-bearing debt of real estate companies and set "three red lines". Specifically, red line 1: the debt-to-asset ratio after excluding advance receipts is greater than 70%; red line 2: net debt ratio is greater than 100%; red line 3: cash short-term debt ratio is less than 1 time.

According to the situation of the "three red lines", the real estate companies are divided into four levels of "red, orange, yellow, and green" . Taking the scale of interest-bearing liabilities as the objective of financing management operations, the grading is set as the threshold for the growth rate of the scale of interest-bearing liabilities.

If anyone didn't take the warning seriously, they are now.

ZH: China Crackdown On Property Developer Debt Sparks Fears About Systemic Crisis

While property sources had said they expected a rush to get around the rules by moving more debt off balance sheets, in a form that developers were asked to submit every month, the companies are also being asked for details on items outside the usual financing channels like bank loans and bond issuance. They will need to provide debt figures on off-balance sheet projects.

According to Reuters, other debt information requested include details on projects that give a financial entity guaranteed returns and buy-back agreements - essentially a debt disguised as equity, as well as the amount of securitization of receivables in the supply chain. In short, Beijing wants a full accounting of everything going on at local developers.

"The government is monitoring everything now, unless you want to cheat, but they will be able to tell from your monthly figures," said a senior executive at one of the developers in the pilot scheme.

The policy is great at the micro level. At the highest level of macro though, the question is always: how will they increase credit or money supply? Housing was the driver of every economic recovery since 2011 and the government shows no sign of reversing its hard line against doing another 2008 stimulus. A systemic crisis doesn't require a collapse in real estate firms, it only requires slower credit growth. If real estate firms aren't borrowing themselves into a crisis, who makes up for the "lost" borrowing? Housing and real estate would almost certainly be hit in a crisis, but the impact of slowing credit growth could emerge from any sector.

2020-10-21

Two Misses

GGM had the window open for a run, but fell back below resistance. Still like it long-term, but 18 cent support is back in play. THis is still a potential double-deca-bagger if it ever gets going.

Standard Uranium hasn't reported drill results yet and has slumped to a new all-time low (in its short history).

Election Bettings 2020

In prior posts related to the 2020 U.S. election, I mentioned that I zero'd in on Minnesota as the key. I'm betting that Trump will win Minnesota as my 2020 Presidential bet because the odds are much better for that outcome than the head-to-head with Biden. Trump could win without Minnesota as he did in 2016, but he came close last time. My thesis is simple: if Trump wins, it will be in part a referendum on the riots. Minneapolis was an epicenter of the summer riots because that was where George Floyd died in police custody. If Trump is going to win, the polls are wrong and if that's the case, then my hunch is Minnesota goes his way.

The other bet I'm making is the GOP picks up a Senate seat. The odds are so low that I stand to make about 20x return if the GOP somehow picks up a seat. It is a decidedly high risk/high return bet. Most experts have the GOP losing seats. Polling says the GOP will lose seats. I'm here for the long odds though, as I was in 2016 with Trump. If the polls are wrong and Trump wins, there's a good chance the GOP runs the table on the toss-ups. Up until today, RealClearPolitics had 7 tossup races and 46 safe/lean and no election GOP seats, for a total of 53 or no gain. Today however, RCP shifted a lean Dem into the toss-up column.

It is still a long-shot bet with the latest poll at +7.2 percent for the Democrat, but I'm feeling confident that my strategy was the right one for this election season and my goal of maximizing potential reward to risk.

I don't know how the election will turn out. I'm skeptical about the polls being wrong again. Trump barely won in 2016 despite his big electoral college win. Demographics are moving in favor of Democrats. A win this year would be a bigger shock than 2016 because you have to think the establishment could at least improve their polling, right? If they can't even do that...how can they be trusted to do anything?

Update:The odds have shifted, now only 10:1 bid for Republicans gaining in the Senate and a 7:1 ask. A GOP sweep of Congress is up to 7:1 odds, from 16:1 when I bought.

Update 2:Senate contracts spiked to 58 cents on my market, and I bought at 4 cents. I sold enough to make back my capital outlay. Betting for free now.