2018-03-19 Week – XBT – HEM

This Week

FOMC statements will likely spook markets enough to boost prices (that is not how markets are meant to work). It will also be meant to reassure markets that a soft landing is possible, yet most traders know that it is not the case. That being said, what else do you have to trade this week?



Where did you think it was going?

Here is where I thought it would go early in the week (Chart below from 2018-03-13). Which means that anything move below $7000 would break the channel lower. Price would need a major catalyst to do that.



And here is where I think it will move next (chart from 2018-03-17, i.e. Friday Morning Eastern Time).



Really, there is the potential for a move lower, but the way price is tapping on that resistance level, it will only take a decent size order to start the next leg higher. So look for a push through $8400 to move bitcoin higher.  A break below $8000 at this point will push the price to the next support level lower, around $7200.

Any move below $7k would take some dedicated (stupid) selling and news releases. As Mt Gox administrators (the biggest stupid whales) are apparently holding off selling until September 2018, that only leaves the true-believer-whales. True believers won’t be selling under $10k. Thus a move below $7k will be short lived.

It doesn’t hurt to have buy orders in that range in case the HFTs want to push on price. Nothing beats the feeling of getting a fill and then making 10% in a quick price rebound.



Looks like price bottomed this week. However, there is still a week and a half to the Quarterly Hog and Pig Report out on March 29th.


That means that price action may again dip into the end of the month. If you missed a long entry, then that may be another chance (at a higher price).

If you are spreading April-June (short-long), try to take some profits before the release. Hold a portion of your position if you are felling lucky as near term prices are likely to dip (briefly) but rise long term.

After the Quarterly Report action, look for a move higher in the HEM8 contract if only based on real world demand (not reports).

Crypto Will Kill Advertising

Crypto mining will one day replace advertising for content providers.


When was the last time you clicked on an internet ad (on purpose)?

If you are surfing dodgy sites like porn or torrents, then there is no incentive for clicking an ad that is likely a virus. It is even worse with pop-up ads that play loud music or get in the way of trying to read an article.

That is why most people have installed some form of Ad-Block software, just to avoid the ads. So it would stand to figure that internet advertisers are making most of their ad revenue off of bad clicks. For an advertiser, that does not translate into sales and thus is a waste of money.

As the owner of sites, over the years the revenue has amounted to around $12 from Google Ad-Sense. That doesn’t even cover the cost of setup for installing Ad-Sense, much less the cost of running an internet site. I can only assume that most of that revenue is generated from bad clicks.

So for all of those sites that haven’t had enough bad $0.001 clicks yet, Google must have quite the slush fund.


There is an alternative for web content providers: Crypto Mining.

Instead of annoying advertising, webhosts can now use a micro-crypto mining insert into sites that will generate income from the cpu of the person enjoying the content.



I am currently in the process of converting a website from Joomla to WordPress to capitalize on this new technology. This is like transferring all of you files from an old iMac to windows XP (not everything makes the transition). I am hoping that it is worth it.

I am setting up my site to mine for Monero, as that seems to be the most likely to generate revenue. I also like the fact that Monero is a higher level of privacy than Bitcoin with lower transaction fees (because webpages are mining it). I am using Sparechange (https://www.sparechange.io) because it is less hated than Coinhive (their nearest competitor).

The future of internet content providers is to reap revenue from cpu of the people looking at their content. This will drive ad revenues lower, which means that companies that are reliant on advertising revenue will see some major damage to their bottom line.

This revenue stream is still in its infancy. It is not yet time to sell short Google, Facebook or Twitter, but be aware that advertising-revenue-generation-model is coming to an end in favor of the crypto-mining-model. Crypto-mining for content providers may end up saving journalism because click-ads are not working for the revamped print industry. Software app providers (Twitter, Tinder, Bar Chart, etc.) will one day incorporate a crypto-mining code into their apps. The wider use will mean wider revenue…

Until users utilize a Mining-Blocker program:



As large scale mining firms chew up power and fight for electricity, decentralized mining will likely save the crypto industry. Governments seeking to control crypto and shut down mining will be unable to stop decentralized miners. Web users will not forgo content for cpu runtime speed, so expect this trend to continue.


Paid Sites

Outside of porn, paid internet sites are rare. Most people don’t pay for porn. Most people don’t want to give their credit card numbers to a porn site.

Crypto mining scripts have the option for a token at a given threshold. This means that if a person mines enough crypto, then they are given a token. This token could then be used to gain access to premium content.

So expect that in the future, people will have their computers running a mining script in the background until they have earned enough to get into that hidden content.


Decentralized Miners

Crowd sourced mining is the place to invest in the future. As computing power increases, these companies will reap the rewards of faster solve times and thus bigger payouts. Their overhead is minimal, too.

Sparechange is an amazing business model. They take 20% of revenue generated. They are basically a miner without the cost overhead of electricity (royalty mining companies are similar). As their software spreads, it is using other peoples’ computer power to create wealth while providing the service of mining the transactions. Computing power will increase over time.


Silicone-On-Sapphire CPUs

In the early 2000s, there was a company called Peregrine that makes silicone-on-sapphire chips. These chips had the potential for 100Gh and to put that into perspective: Current chips run at 2.5Mh – or 40 times slower after 15 years of development!

Peregrine chips also had the advantages over normal silicone. The chips were hardened against radiation. They could hold analogue, digital and high frequency circuits without cross-talk. So these chips were widely used in satellite and military technology.

Peregrine was bought up by Hewlette Packard around 2005. I expected that they were going to push research and put out a chip that would have left AMD and Pentium out of the market. But they did not. More likely, they limped along with government contracts while HP lost so much market share that they almost went bankrupt. Eventually, their patents will be called up in court as “strategic” and the technology will leak out of HPs hands.

Silicone-on-sapphire is the next phase of CPU power, which will be followed by quantum computers. We have the technology (for 15 years), we just don’t have access to the technology.




For those interested in Monero, here are some links to more information. Mostly, the advice of the internet is to avoid the Free Wallet (scam).








2018-03-12 Week – AUD – XBT – HEM

All lower (AUD XBT HEM)… for various reasons.


This Week

Expect an index reversal from NFP moves on Friday (look for a good price to sell for a chop).

This week’s USA bond auctions have the potential to drive markets lower. Traders are watching bond yields as an indicator for failing markets. You should, too.



The price of bitcoin has crossed the resistance level 11600 (barely), only to re-trace lower. When the move continued, it has downside pressure to make 9200 the next support/resistance level. After that, a move to 7000 is likely before a reversal. So look for buying opportunities.

We now know which whale is driving price lower: Mt Gox administrators.

( https://www.zerohedge.com/news/2018-03-07/bitcoins-tokyo-whale-sells-400m-bitcoin-bitcoin-cash )

As I said a many months back, bitcoin wales will are the biggest risk to price. Many of those wales are true-believers, so it unlikely that they will be dumping into market and thus collapsing price. However, an administrator is just a bureaucrat and they are NOT traders nor investors. That is why they dump massive orders into market at the wrong time and size, thus losing money. They don’t have to worry about losses because it is not their money.

When payments are finally made to Mt Gox traders, many will be back into the bitcoin market (with far less money than they started), giving prices a push higher.

Another potential hit to the bitcoin price is the Fed auction where they will soon be selling 2170 bitcoins. A savvy whale would be smart to sell their current holdings into the market (depressing price) before winning the Fed auction. They would have the same number of bitcoins but at a steep discount.

(https://www.zerohedge.com/news/2018-03-06/us-marshals-service-sell-nearly-25-mln-worth-seized-bitcoin-auction )

The third hit to bitcoin prices is Japan cracking down on exchanges.

(https://www.zerohedge.com/news/2018-03-08/japanese-regulators-crackdown-7-crypto-exchanges-shut-down-2-more )

Ultimately this will end up being price neutral. That means in the near term, there is a selloff on the news. When the reality actually unfolds, little will have changed. So expect a reversal of this fear trade.



Expect a move lower in AUD.

The Australian dollar tracks the iron ore price. The USA and EU are currently raising taxes on steel products. This will diminish demand in China for raw ore. This will then lead to lower ore demand from Australia. Thus, if the AUD is linked to the iron ore price, it will drive the Australian dollar lower.

This week, the RBA held the interest rate at 1.5%. This rate has been stable since August 2016 while the rest of the world has been slowly increasing rates. The 10 year AU bond rate is 2.83% while the US 10 year note has a yield of 2.89%. This means that holders of bonds will be moving from AU denominated bonds into US bonds. This process will accelerate as fear of a falling AU dollar enters markets. This outflow from AU dollars will push the exchange rate for AUD even lower.

So, expect a lower Australian dollar especially vs the Euro and USD.



The hog price has pushed lower even after the USDA WASDE release:


I was expecting some weakness to price from WASDE. That price action will probably be short lived.

Some of the current price action is based on rumors that the Trump Administration is going to give favorable status to Mexico and Canada in the looming trade war. Mexico is a supplier of hogs (discount hogs), so it has the potential to provide a supply side stimulus in a market that already has a supply side wealth. This doesn’t change the fact that the summer months have such a high level of demand that it does drive price higher.

So, look for some near term continued weakness to add to a long position (I like HEM18 options). Expect a big spike higher when the news reveals that the Most-Favored-Nation status is not given to Mexican hog producers.

Be aware that the next big Hog release is a quarterly hog and pig report out on March 29th.




2018-03-05 Week

Trade War – Central Banks – Cryptos – Hogs – Stock Market Positioning

This Week

TRADE WAR?! – Those words usually spark market collapses and world wars. No matter what the product or tariff, such barriers to markets always lead to collapse of producers and skewed prices. Higher input costs for manufacturers will collapse many struggling businesses. In a slowing economy with tightening credit, a trade war will be disastrous. A world leader hinting at such a thing (or tweeting), is likely to be the catalyst for a complete market failure. Exit now while you still can.

The RBA comes out with rate information. The AUD-USD has been pushing the Aussie dollar lower. This implies that traders are expecting a move higher by the RBA on rates. If that happens, the AUD will move lower against the dollar. If it does not happen, the AUD will move higher against the dollar. The best way to trade it is to sell the AUD short against the dollar and exit before the release (high risk as price has already moved considerably). Then hop onto the move and ride momentum for a short time (lower risk by time).

ECB is good at soothing markets. Expect their QE to give some minor hope to share prices. Also expect that hope to be short lived.

BOJ has mentioned cutting off QE programs. Japanese markets are scared of losing the free money fountain. Just a hint of such a thing will likely scare Asian markets lower. The policy release this week by the BOJ may put a time frame on the end of QE. If they do, expect some large scale selling in Japan.

NFP with this Non-Farm Payrolls be the one that kills the market? Or will it give BTFD traders the impetus to add to their high risk position? Obviously, I am not impartial (see below for more details).


Bitcoin and Other Cryptos

Trading Bitcoin

Bitcoin has not dipped as far as expected, nor moved as high as expected. To me, as a trader, this implies that price is range bound (until the next major catalyst). Those levels (roughly) are $9200 ($10200 in low momentum) and $11200 (look at your own chart and judge for yourself!). IF PRICE IS RANGE BOUND, then it can be scalped within that range to take chops out of market. This is done by selling when price nears the level on the high side and buy when the price dips on the low side. Keep stops in place because when it breaks out to either side, you will be freaking out (if you hold a position). On the downside, a break lower is a place to increase position. On the high side, a break higher is a chance to profit more from a position (when selling).

On a break in either direction, price has the potential to move away from these levels. That means that the position you took at the level (short or long) should be exited at a price near to your entry price. If you choose your levels well, price will get very close to your entry price (close your positions). Price will move against you at some point, so you will have a better price to re-enter the market at a more favorable price if you have exited your position (otherwise you are just losing money).

Bigger Picture

Near term weakness will continue for a while before that happens (probably a month or more). Price will be moved by government bans, big corporations entry into the space (Goldman just bought an exchange), and news of theft. In real terms, moves are primarily based on demand (as supply is constricted). So wales and investors are driving underlying price while traders are pushing the short term perturbations in market (around 10% to 20% of price).

Very long term, Bitcoin will move higher. Bitcoin is the bearer bond of the modern generation. For a solid move higher to happen, wider acceptance into market must occur (like having it common to buy major purchases like real estate and cars using crypto currency). Price of completing a transaction must drop (it is still less than bank fees for wiring funds). Bitcoin also has the risk of being supplanted as a medium of exchange by another crypto (but for now, none of the other options has such a wide acceptance).


Ethereum has some interesting tech. They have a broader acceptance into market, and a varied role within the crypto space because of their technology. There is the potential that their tech will be supplanted by newcomers into this space, but by the time that happens they will hold such a large market share that it is unlikely that they will be gone quickly (like Netscape in 1990s). If they cannot grow (Microsoft, Apple, Adobe, etc.) to find new markets, they will not survive the crash that will come (probably within the next 10 years). So for now, there is upside (with high risk long term).

Even with good up-side potential, I still cannot get around the fact that the management can print as many ether as they want, whenever they want. That quality alone makes the business a buy-out target for someone like Goldman-Sax because EVERY trading house in the world wants to be able to just print their own money. However, the buyout of this business means that the underlying coin will decrease in value. So long term, it is high risk to be buying ether.

Transaction Cryptos

Medium of exchange cryptos are coins like dash, litecoin, ripple, monero, etc. Medium of exchanges cryptos are trying to take the transaction segment of the market away from bitcoin. However, with so many options, the market has not yet decided on which one to use. As with the Beta-VHS technology war (https://en.wikipedia.org/wiki/Videotape_format_war), the best technology will not necessarily win, so it makes it hard to invest.

Ripple – I never liked this crypto because it is from the banks for the banks. Crypto currency takes money out of the hands of banks. Thus ripple is the antithesis of what crypto currency is most useful.

Monero – I like this crypto (long term investment) because of the security features and heightened anonymity. However, the only thing it will take to collapse this currency is a breach in the security. That will likely be many years (decades) away, so near term it is a decent investment (still speculative), if you can get a good entry price.

Dash, Litecoin, etc. – Buy a basket of exchange currencies. One of them will be the medium of exchange in the future, supplanting Bitcoin. However, the one that wins may not even have been invented yet. Any loser is the space will see price go to zero, so expect a crypto basket to hold mostly losers when a winner is chosen.

ICO Crypots

New entrants into the market have been seeing a lot of speculation. It is too early to figure out who will survive. In the 1990s, during the dot-com boom, any entrant into the space was bid by speculators. The same method is occurring in the crypto space, without any clear tech winners. In the 90s, the companies with the most speculation were often not the survivors (see: pet.com) of a final shakeout (market collapse). So do not INVEST in the ICO space.

If trading it, get in early and look for a big move to take profits (double up in some cases). Trade these ICOs like penny stocks that are being manipulated. Expect that every tweet and news article will drive speculators into the market (that is when you should sell). Every release date or split date will have loads of speculators trying to capitalize on those dates (get out before those dates). If you are very bold, then look for spikes higher as a place to sell the market short (high risk). If you are short, limit the time in market because there is so much speculation that you will get burned longer term.



The dip in price will likely continue through this week’s WASDE report: https://www.usda.gov/oce/commodity/wasde/

WASDE is a huge price mover in the food futures sector. The recent prints have indicated for higher hog slaughter rates and stable imports (so higher supply). Demand is relatively stable until April / May. So this should drive prices lower (often as a spike). This makes an excellent place to get a long option entry. If you are more cautious, wait until later in the week (next week, even) to hunt a better price for a long position on HEM contracts. Volumes will spike on WASDE, which makes the exponential (options) provide entry and exit options (depending on direction).

Traders that took the near term short position, use the WASDE as a chance to exit your near term position. Risk increases after the release as volumes drop compared to the exuberance of the release date. Expect price action will grind lower (taking some premium out of the options) and then reverse.


Stock Markets

We all know where the market is headed: Lower. Realizing that, then we are looking to judge when that is going to happen. The short answer is that nobody knows. If you weigh the upside reward for staying in the markets versus the downside risk, you will quickly realize that you should be exiting this market. At the very least, you should be limiting your position size to limit risk.

When markets move lower, they do NOT do it slowly. There are often warning signs, which lately have been volatility markets and bond markets. Other indicators are housing, money printing and debt (consumer, margin loans, etc.). Markets that make lower highs are unable to push through resistance levels, and that is a key indicator of negative sentiment. When it comes right down to it, markets will start to move lower and then be piled onto by every trader that already knows markets are going to move lower.

The price move lower will likely have a dead cat bounce. That means that all of those BTFD traders will pile into a move lower thinking that markets will reverse. Lately, that has been true, but that is also very lucky for them (not skilled). The next move lower will likely be the last move lower (but I have been wrong about this before, too).

Be aware that NOTHING is safe. When markets collapse, EVERYTHING is sold off. This is the sell-everything problem which means that quality is sold along with everything else. So when the market dumps lower, it makes for a great opportunity to bargain hunt quality. This assumes you got out before the collapse and have cash to invest.

Personally, I like gold and oil refining companies as a long term and lower risk investment.

Gold miners that are producing at $1300/ounce at a profit will be making even more money when gold prices move higher. Often, good companies are producing at less than $1100/ounce. When the price moves to $1500 they will be making twice the profit. Gold prices are likely to surge in a falling market because gold is a hedge when markets are overcome with fear. Gold will also profit from higher government debt because when markets fail, governments will ramp up the printing press of paper money to try to stabilize markets (and likely fail).

Oil refiners are not going out of business, regardless of the oil price. The world is dependent on oil, and will be for the near future. Refiners have been tracking the oil price for over 100 years and are very good at stabilizing their supply in the futures market. They are good at insuring that their margins are wide, regardless of the direction moves of the underlying crude. They are also very good at pushing price hikes onto consumers, and slow to remove those hikes when input prices fall. Oil refiners will continue to profit regardless of the market and share prices, underlying input costs or even wars. Until the world breaks the oil dependency, big-oil will continue to profit.

As a higher risk investment, I would buy some physical gold, hold cash and buy crypto. But you already know that is my opinion.



2018-02-26 Week

Bonds (over 3%) – Summer Hog trade

This Week

Central bank testimony will give traders a chance to scalp the markets but don’t expect any indicators for a change in direction.

10 year bond auctions (Japan, EU) will give an indication of investor demand for sovereign debt. Bonds will be an early indicator of a failing stock market.



3% yield is a critical level for bonds and markets. As the yield increases, money flows into bonds. This draws capital out of the wider system (stocks, mostly). Increasing yields is also an indication of higher borrowing costs. Corporations that would normally issue debt to enhance operations will now be paying more for that debt. As price of debt increases, it diminishes the return to corporations on entering into that debt and also sucks free capital out of markets.

As the Fed raises rates, investors will seek higher returns on their capital. In a sound market, this would drive yields lower. However, currently the US government has increased their debt limit which means they will need to issue more bonds. The buyers of their sovereign bonds are no longer buying up massive amounts of those bonds. In the past, China and Saudi Arabia were big buyers. China has curtailed buying USD bonds. Saudi Arabia, due to lower oil prices, doesn’t have the capital to carry a trillion dollars in US debt. Russia won’t and Venezuela can’t. The EU may be willing to swap some bonds, but they have the same problem as the USA as their markets are similar in function (without massive amounts of manufacturing and resource cash to buy bonds). Thus, the debt buying will fall to the buyer of last resort: The general public.

The public cannot afford to carry this amount of bonds. Hedge funds and pension funds will soak up some of the supply, especially as rates increase. However, most big investment houses have moved out of bonds because yields are so low (compared to many of their volatility strategies, risk should also be a factor). At 3%, the yield is attractive enough to rotate into bonds. So as yields go up, expect selling in other areas of the market (stocks, real estate, volatility).

As bonds are dumped into markets without sufficient buyers, yields will go up. This will drive stock markets lower. So it is a good time to move into cash, gold or bitcoin.



This time of year is coming up to one of my favorite trade: Summer hog futures. I like this trade because it is nice to trade real world supply and demand. It is often an easy trade to make a nice chop (if you are patient).

Winter time is normally a low time for hogs, so freezers are filled with cheap pork. Through February and March, there is often price moves lower because winter demand is low and summer demand has not yet entered the markets. This year, prices have not hit the expected lower levels that they should considering that freezers are full. This indicates that prices have not yet found a low point (bottom) for the winter season (probably before mid-March).

The Cold Storage report from last week says:

Frozen pork supplies were up 16 percent from the previous month and up 8 percent from last year. Stocks of pork bellies were up 13 percent from last month and up 219 percent from last year.

These numbers (quite a massive increase in storage stockpiles) should indicate to every trader that the price will drop relative to available supply (high) and demand (low).

Late in March (early April) demand for summer supply increases. Summer is Barbeque season, and demand is often strong. Warmer spring temperatures are an indicator of high summer demand numbers and thus an increase in buying. This usually leads to higher Hog futures prices from April to June.

USDA reports will often yield a higher level of volatility, and better entry points due to price spikes. So keep an eye on release dates to capitalize on short term perturbations in price.

Grain and crop progress will also effect prices (to a lesser extent) because of feed costs. This usually materializes in the longer term futures contracts. Unless there is a massive crop failure, don’t expect big hog price moves from the corn and wheat prices.

Overall protein prices, especially beef, will also move hog prices. So keep an eye out for any upsets in the cattle prices (driving spreaders into hogs).

Once July 4th hits, the market is over. The BBQ season drops off and hog prices dip. Get out before July.

To trade Hogs:

I use options contracts because the total amount risked is the cost of the options price. I will buy out of the money options because they offer good value. I will wait for a big price spike in my favor to get an entry (that is why the USDA reports are so valuable). Options are derivative contracts, so small price moves in the underlying contract makes for a big price change on the options contract.

As a commodity, support and resistance levels are important. So look at the charts and figure out where price is likely to stall for your entry and exit levels.

Look for a winter dip for a long entry into the June contract HEM. You will need to hold these contracts until demand picks up in May/April. If price action stalls, and you are worried, roll your position to a later contract (HEN or HEQ) but don’t expect much out of late summer contracts. Exit before July.

If you want to spread or capitalize on the downward move, wait for a move higher in underlying and get Puts on the near term contracts: April and May (HEJ & HEK). Be aware that there is not much downside available to price (price move lower will be limited). So don’t position too wide or too large (limit risk). As price moves lower, and volumes stall, add your long leg to this position (or cut and reverse: reverse direction and roll to the later dated contract).





USDA reports to watch:

Livestock & Meat Domestic Data (2018-02-27)


Livestock and Meat International Trade Data (2018-03-08)


WASDE (2018-03-08)


Meat Price Spreads (2018-03-13)


Cold Storage (2018-02-22)


Livestock Slaughter (2018-02-22)


2018-02-19 Week

Bitcoin – What is next for markets? (Bleak) – Au Banks & Housing

This Week

China New Year holiday makes for slower markets. The gold market volumes drop considerably while china is on holiday. Often, short in gold will take this chance to slam price. So look for buying opportunities in gold.

RBA and FOMC minutes will give a feel for central bank money policy. Any indicators of inflation fears will be taken badly by markets.



Bitcoin took a dip well below my $8200 target (as you are well aware). This was a buying opportunity, but will also be the catalyst for the next selling move. Many weak longs (new speculators) were dumping their holdings at prices below $8000. As prices moves higher, they will be trying to buy back in. Their buying depends on how long it takes for them to realize they have made a mistake. A market wale also added $500 million in Bitcoin at $8500, making this a strong level for increased buying interest.

In the near term $10200 seems to be holding price. Look for a dip to $8200 before the next move higher.

Slower traders, looking at the bottom in the $6k range will be looking for a place to sell. Many will be taking profits at double-up levels. So expect that the current price move higher will stall as price crosses $12,000 per Bitcoin. I expect that it will be on the high side of $12k ($12800), but volume near $12k will be a better indicator. Price may reach as high as $14k before a pullback, so look for a place to take some profits off the table after price moves above $12k.

The pullback that will follows a move higher will likely not be as deep as the last one, and will stagnate near $9000. Look for global market pressures as indicators of strength and weakness.


What happens next?

Fed rate increase – Falling stock prices – Higher bond yields – Higher Gold Price

All eyes look to the Fed for a rate moves this year. With new management (front man), there will likely be some policy changes (mistakes). The FOMC has left rates too low for too long. Now, when a market slowdown is imminent, there is nowhere to move. So the Fed will likely increase rates so that in the future they have a place to go. In the near term, this bodes poorly for markets. Most traders are expecting a few rate increases this year, and a slow removal of the Quantitative Easing funds from markets through longer term bond expiration (not a withdrawl of supply).

US Stock markets are moving like the Fed will lower rates and pump more QE money into the system. The EU and Japan are still putting money into their markets, but that amount is being tapered lower. So long term prospects for new capital infusions are small. Expect that stocks will move lower, and potentially much lower as the BTFD trade disappears.

Bond markets are expecting rate hikes and increased supply from US government borrowing. This is pushing the yield higher, with 3% in sight. As the yields hits 3%, there will be a rotation out of stocks and into bonds. With rates held so low for so long, the buying pressure will not diminish the wash of supply in that market. Yields on the 10 year T-Note will likely bounce between 2.85% and 3% after the next Fed move. This will be good for day traders chopping futures, but likely not for long term bond holders trying to balance portfolios for risk.

Gold is acting like risk is only mildly higher. Some of the money that would normally hedge risk markets with gold is moving into crypto markets. Volatility in crypto makes gold a more attractive long term hedge for risk. As inflation increases, and the US government increases debt to try to enliven markets, expect gold prices to move higher. A downturn in markets will see money flows into gold which will boost prices.

Hedge your portfolio for a changing market.

Use caution when trading risk assets (keep stops in place).


Australian Banks & Housing Market

Commonwealth Bank of Australia just posted a profit of $4.74 billion. That is billion with a B. That means they have raked in almost $200 for EVERY man, woman and child of Australia. That was a HALF YEAR profit, too. That is a lot of bank fees, interest charges and risky financial trades. It is unlikely that these profits come from simple account holders. So the real question is where are they making their money?

Most Australian banks have been giving away loans. These loans are often at rates a couple of percent above the RBA rate, which means that they are making profits on the arbitrage. This is a great strategy in a housing market that has moved higher for the last 10 years. With some areas (Sydney, Melbourne, and other major cities) having housing price moves near 20% per year, there is little risk and many willing speculators taking loans. However, that can change in an instant when markets turn which will leave these banks with foreclosed property and bad loans.

Most central banks around the world are trying to raise rates. They have kept their rates at such a low level that they do not have any room to lower rates when they need to pump markets. As the majors (USA, EU, UK, Japan) try to raise rates, other central banks will likely follow suit. When the RBA tries to raise rates, banks will invariably factor in that rate rise to their loans, plus a bit more (even if the RBA holds off on a rate increase). The major banks of Australia are not shy about widening the arbitrage and thus their profit margins.

Because the Australian housing market is full of speculation, many of these loans are variable rate loans. This is akin to what happen in the USA during the housing crash that led to the 2007 market fall. However, in Australia, it is on a much grander scale based on population versus supply. With new supply being desperately added to market to satisfy Chinese buyers and Australian speculators, there will come a point where the market is awash with supply. As 20% per year in housing is unsustainable, it is highly likely that a pullback to a norm (4% – 7% price increase per annum) will occur, just as in any market. At that point, prices will fall leaving the market collapsing as speculators walk away and banks are left with foreclosed properties. So as the banks pump their balance sheets with real estate, they will soon be left holding the bag.

Trading also produces massive profits for the big Aussie banks. As Commonwealth Bank undergoes money laundering hearings, we are left to wonder if the Australian Government will pass legislation restricting these banks (the AU Government likes to make draconian legislation). Commonwealth Bank is already trying to restrict customer access to crypto markets, while charging massive fees for funds transfers (CBA takes out around 3% on international money transfers, partially in fees and mostly in rates). Customers using crypto currencies will increase as people look for ways to save money over using these banks.

The Australian dollar and share market is tied to the success of mining and resource companies. As world markets drop, and demand for resources slow, Australia will be selling less iron ore to China. This will negatively impact the Australian dollar, which will create a wave of selling by international investors watching their profits evaporate by currency moves. This will push the AU dollar lower as funds exit Australia as well as taking more demand out of the housing market.

Long term, after a collapse, there will be a good opportunity for bottom picking resource and farming stocks in Australia. For now, there is probably a good opportunity to short the big Australian banks (as a basket). Expect downward pressure on the Australian dollar as world markets move lower.










2018-02-12 Week

Millennials will be spanked – Bonds – Gold Shares

This Week

Dudley will be blaming the market correction on his predecessors as he is left holding the bag from Bernanke money printing and Yellen status quo. One week in, and it already looks dire. After a year of new policy and directions, it will be much worse.

This week data is weak. Expect that most moves will be broad through markets without a clear catalyst until after the event.


30 Something Traders

Traders under 30 have never seen a real function market. They have learned to trade in a market that has steadily climbed (BTFD, Sell Vol, etc). They are accustom to HFT spikes and used to the PPT pumping Vix to save the S&P (broader markets). They have never seen what a massive selloff in the market looks like.

This week, they got a small taste. The pullback in S&P and DOW (followed by contagion to other markets), was said to be brought on by VIX short squeeze. The rule of thumb for trading VIX is you win 30% of the time. So without a good reason, most traders avoid the VIX.

When a slot machine is paying, everyone wants a taste and that was the VIX. However, the casino always wins, so it should be expected that all of the gains were whipped, plus interest. Anyone surviving in markets could have told these 30-somethings that this is how markets work, but who listens to advice with dollar signs in their eyes?

Now, central banks are pulling back from market manipulation by tapering and exiting Quantitative Easing programs. That means that markets will have to stand on their own. That means that markets will have to fend for themselves. However, after 10 years of easy money, withdrawing that money will be like a heroin addict going cold turkey. There will be vomiting and cold sweats. There will be monetary intervention (going off the wagon), followed by more vomiting and cold sweats.

Stock markets are moving lower. They may stabilize, but those moves will pale in comparison to the long term down trend. BTFD is over. Now is the time to save any winnings by hedging against the fall.

For 30-something traders, this may be crypto or tech. Crypto has surprised millennial who have just realized that investments can go down (soon to boom again). Tech is going to stagnate as money evaporates from the system. 30-Somethings don’t have a lot of experience with bonds, gold or commodities, but that is where the money will soon be made. Markets are repetitive, cyclical and predictable (on longer cycles), and the cycle has just reversed. Good luck Millennials!



Bond yields are spiking higher making bonds more attractive. Recent auctions have shown that demand for US debt is down, forcing higher rates. A wash of new debt will drive yields even higher.

What good is 2.5% yield versus currency dropping? Not much. The US Government is printing money (issuing debt) and has effectively raised the amount of debt it can generate. So they will be pumping the bond market full of paper. This wash of new bonds will drive the yield higher (bond selling and issuance is inverse to the yield).

If US T-Note yields hit 3%, there will be a mass rotation out of stocks into bonds. High yields are attractive to long term investors looking for stable incomes. Bond yields over 3% is considered better than most stock dividends without the fear of a dipping stock market. Because stocks have a high probability of a 10% pullback in the near future, investors hedging will shift to bonds. For risk adverse investors, this means it is a good time to sell stock and take a guaranteed yield in bonds (most ignore currency failures when hunting yield).

Most stable markets consider 2-3% yearly inflation to be good. The USA aims for a 2% inflation rate, but will often hit around 2.5% or higher. The Fed is looking to taper (increase inflation), which means the REAL rate could be much higher than bond yields. So the idea that 10 year notes (not TIPS – which is not the REAL rate) would be near breakeven versus inflation, makes them attractive to some investors. This may mean that bonds see an inflow from investors dumping stocks.

Bond yields at low rates are useful in a money-tightening environment, but the money supply is NOT tightening. The Fed is not actually tightening the money supply by withdrawing supply. Their plan is to allow existing instruments to expire as opposed to direct market intervention. They expect to raise the funds rate (benchmark for credit) later in the year, which will curtail some of the loose money in the system. That will not actually create a more valuable dollar. At current bond yields, the dollar is more likely to devalue by a greater percentage than 10 year note yield. It is a sucker’s bet.

Looking for yield in high-yield bonds (junk bonds) is also a poor choice. As markets pullback, failures in markets will create a contagion in the high yield space. Corporate bonds will follow their underling in companies. Municipal bonds will follow the inability of government to pay debt (more inflation is less revenue to generate tax which is less money to pay debt). That will likely prove why this space is known as Junk bonds.



It is not too late to hedge with gold. Gold buying has been limited this week because many of the traders in markets are too young to remember that gold is a hedge against uncertainty. It is not really uncertainty as much as a strong certainty that stock markets will drop. As traders look for safe havens to try to skim yield, expect that gold prices will again move higher.

Gold generally follows a 20 year (roughly) cycle. This is partially due to the time it takes to get new production online. Gold mines are a time, money, and paperwork intensive venture. They don’t happen overnight (unlike crypto ICOs). Gold producers do extensive research as to the potential for yield on locations. Only when a location yield is sufficient to warrant production (by estimating future prices versus production cost) do gold mines go forward. Many existing mines have continued production through stagnant prices because their cost of production was still well below the $1250 level (price of their sold futures contracts).

If you are looking for a long term growth of value in a market, look to gold shares as a place to put some of your portfolio. A gold company with good management and good mines will soon be outperforming the broader markets, as they did early this century (2000 to 2010). If you can get a good entry price, then you win on Return On Investment (dividends) as well as share price. Some of these companies are even paying better than bonds while share prices hover at the lower level.

For a quick example:

Ticker – PE – ROI

ABX 7.2  11.69%

AUY 00   -4.17%

GFI 31.3   2.16%

GG 21.7  2.5%

HMY 31.2   1.03%

KGC 45.4 1.45%

NEM 54     -2.36%

RGLD 53.3   3.04%

2018-02-05 Week


Market Selloff to Continue? Yes. Crypto Buying Oppertunity

This Week

Look for a reversal of NFP Friday moves into Monday. Any move higher will be an opportunity to sell (see below).

RBA may move rates. If they do, expect that the Australian housing market would feel the crunch. That will take every other Australia investment with it (stocks, AU dollar, and iron ore).

German, USA and Japan bond auctions may give markets a freight. Use caution trading around these releases. Expect that these auctions may be an early indication for investors desire to tie money up pegged to government debt. Also expect that these auctions will be an early indicator of higher yields. That will be indicative of a move higher in borrowing costs and a constriction in credit.


Selloff To Continue?

The question is: Will this selling will continue?

Near term it may stall, but the long term outlook is for lower markets.


NFP came in higher, but markets still sold. This selling action started in Asia but continued throughout world markets. On Monday, prices may stabilize but it is likely that the selloff will continue. It will be a good opportunity to add to a long term short position.

Stocks have had a disconnect with bonds. That disconnect has meant that finding correlating trades is a challenge. Stocks, because of money printing, have had an unprecedented run. After a run higher, there is often a pullback. Estimates are that this drop in stocks could occur within 3 months or 2 years. My estimate is closer to 3 months, but I have been wrong about this market and my expectations of it moving lower.

I suggest taking profits out at current levels, even if you miss another 5% to 10% move to the upside, it is still better than trying to get out when prices are dropping like a brick. When these markets fail, it will be spectacular. Expect a 50% move lower. Sell that before that move, if you are timing it well; Sell during that move if you are more cautious.

Bond markets have had turbulence. This should not occur in bonds. People buy bonds to generate consistent returns in a stable investment. However, the bond market has seen some big moves. EU and Japanese interventions in the bond markets will continue to make these a turbulent place to invest. That is good for a day trader taking a chop out of every big bond move on the futures market. It is not so good for low risk investors looking for stability.

US Bond and T-Note futures have been selling off. As the Fed pulls back from their QE program, selling will likely continue. Rates have been low for too long, so a move of yields into higher levels should be expected. However, pair that with a potentially falling US dollar (move away from USD as a medium for international exchange), and there may be some real chaos in the market.

An early indicator of risk aversion is high yield bonds. High yield has been dropping, giving indicators of sell signals that the stock market (correlated) has not headed. However, longer term, it is common for stocks to correlate more closely with high yield. As the spread widens, there is a greater chance that stock prices will move lower to catch up to high yield prices.

Gold also had selling pressure. This is one asset that is used as a hedge against failing currency and dropping markets. Much of this selling pressure is likely pushing paper gold prices to try to make dollar assets look less miserable. Long term, any selling in gold should be considered a buying opportunity. Any pressure on gold prices will not be able to be sustained in a broader market selloff.

Crypto has also felt the crunch. The selloff in crypt was not market driven as much as news driven (this is still a highly speculative market). With only a 5% use, there is still plenty of room for new money to enter this market. As prices dip, investors on the sidelines will be looking to enter. Longer term investors are buying on bargain hunting. Big holders are true-believers and are unlikely to exit this market soon. Thus, cryptos are a good place to make money while watching the stock and bond markets burn.

Move into cash early. Move into alternative investments if you require yield and risk. Good places to watch will be oil (fuel), gold (precious metals), food (grains, softs, and meat) or crypto currencies. Hedge against the failure of markets before it happens. Hold hard assets if you want to preserve value.



Crypto has taken a hit. Some of that action may be fear in the market and some may be profit taking. Day traders were looking for a rebound into higher numbers, but the selloff has the appearance of a sustained move. The appearance of a move is NOT a move.

Negative press has hit the crypto space lately, but that won’t provide enough selling pressure to sustain a move. Korea is back and forth about desires to regulate these markets. Russia will soon be issuing a crypto-ruble. Chinese sellers, leading up to New Years, have been exiting markets. The theft of 400 million worth of ripple has been scaring some people, too. None of that news should scare a trader, though.

Nothing has really changed in the crypto space. Crypto is still a viable alternative to banks. It is still a place to trade. Crypto is as risky as stock investments, considering current valuations. It is a good hedge against money printing, even as the EU and Japan expect to continue to print money. So as a long term move, this move lower is just a blip.

I am buying at these levels (Bitcoin @ US$8200). I estimated, in January, that the move could go lower (Bitcoin near US$7000), but that likely will not last long. There is very strong support near $6500, so any move below $8k will likely find support. However, be greedy with your entry point. Let those selling in weakness push their money into your hands. As the news cycle flips, the upward move will be just as sustained.



2018-01-29 Week

ASX/ES spread. Why I trade Bitcoin. Corzine Fund.


This Week

Last Friday was an Australian holiday. Look for the Friday ECB move to hit the Australian market when it re-opens on Monday (move higher). It provides a good chance to take an easy chop from the Aussie market that reflects the USA market (floods float ALL boats). Also look for a reversal of the USA move on Monday (spread opportunity in the overnights) against the ASX.

EU bond auctions will give an early week insight as to investor desire for risk assets.

The Fed will underwhelm us this week with their wisdom before markets get excited about a mediocre NFP number.


Trading Bitcoin

Why do I trade bitcoin?

As a contract, crypto currencies have good volatility. Price moves can be over 25 percent in a day. My long term bias is higher prices (especially with failing bond/stock markets), so I use patience to get a good BUY entry price on flash crash and volatile days. This often quickly rebounds to a 10% or better move. This makes for an easy chop.

These markets are filled with amateurs, and that means that there is decent volume at strange moments. Pros all read charts and understand support and resistance. Armatures look at one or two fancy indicator and pile into small moves. Trading is about eating someone else’s lunch, and much like poker it is easier to take money from suckers.

In crypto markets, there are very few HFTs. Algos have been soaking up wins out of stock and futures markets for years. Estimates are that HFTs have grabbed 5% of the wins out of the market. Often, the HFT is sitting between me and the market, but in crypto these markets are spread around the world making their New York supercomputer unable to front run my orders.

Leverage is limited in these markets. On the exchanges, most traders are using cash. That puts most buyers on the long side. Leverage on a site like Kraken (where I trade), is up to 5 times the contract, while other markets do offer up to 15x (most don’t use it). Compare that to 20x leverage in FX markets and 10-20x in futures markets and you realize that this is a closer to a CASH market. That means that when price dips, there are not many shorts to pile onto the move. It means that there are less long-squeeze moves with this level of leverage.

When looking to the CME / CBOE futures of Bitcoin, you can see some of that short side action. Because these contracts are not directly associated to Chicago tangibles (price is based on external market price), then any manipulation of price must also be spread across other markets. The size of the crypto marketplace makes that very expensive (it is cheaper to slam the gold market than the crypto market).

I also believe in Bitcoin.

Belief is not a good reason to trade something, but it is a reason to watch the chart. I like the fact that crypto currency is outside of the system ruled by banking fees, corporate rip-offs and government money printing. I also like the fact that wealth can be transported easily, telegraphed anywhere on the planet and hidden from sight, if needed.

I also believe that crypto currency is a growth industry. Bitcoin is like bearer bonds, and is an excellent store of value. Bitcoin is not a currency, but neither is 10 year bonds or ounces of gold. It is a very liquid store of value, and will likely increase in value. Banks and governments cannot print more of bitcoin (21 million bitcoin limit). The current user base is 5% of population, which increase with availability and will surge when funds and wealth managers are able to put their cash.

The best reason to store money in Bitcoin is because of an anti-establishment belief. Mine belief comes from watching bank collapse after bank failure without any prosecution of these criminals. When banks get busted for laundering money, they pay a fine. When a crypto market manager got busted for the same crime, he went to jail. Where are the jail sentences for the banking thieves and liars?! Wells Fargo opened thousands of fraudulent accounts, yet nobody went to jail. Even Jon Corzine (MF Global) didn’t go to jail for steeling customer funds. Now he is opening a hedge fund!

Is this the kind of system where you want to park your long term wealth? (You should be saying HELL NO!)

Gold bullion is an option, but at some point it becomes too heavy to carry (lucky you!). That is when crypto currency becomes an excellent option.

As disillusionment with the system increases, so will crypto’s investor base.

As risk on mainstream assets increases (stocks, bonds, fiat currency), then intelligent investors will be looking for hedges. Easy liquidity makes cryptos an easy solution for large amounts of wealth.

So, look to get long on dips or scalp volatility.

Corzine Hedge Fund

Jon Corzine is opening a hedge fund, when he should be in jail!

Jon Corzine stole customer money to bet on Greek bonds and caused the collapse of MF Global. He didn’t need to make that trade as a hedge. He was running the largest futures brokerage in the world, and decided that he wanted to make more money. He didn’t risk his money, he used customer funds. He did NOT end up in jail for steeling these customer funds. The ensuing court case and settlement locked up customer funds for years after the failure.

Instead of jail, Corzine is actually starting a hedge fund and is trying to gather $300 million from investors. If you are dumb enough to give this thief money, they you deserve all of the leveraged losses you will soon incur.



Amazon Currency

Amazon & Ethereum

See: https://www.zerohedge.com/news/2018-01-22/could-amazon-be-gearing-cryptocurrency-exchanges

Amazon is buying a currency! They will be able to just print money!

Amazon is NOT starting their own crypto currency exchange (as rumors suggest). They are smart enough to realize that this would be a liability considering that they have a presence in every state. That means that they would be subjected to securities and exchange regulations, and they don’t want that.

It is more likely that Amazon will BUY Ethereum. Amazon is big enough to be able to buy the Ethereum business outright. Ethereum, unlike like Bitcoin, has a central management. They have a corporate body that oversees the printing of money (issuing of ether), and they may want to sell out to Amazon.

Amazon would then have their own currency. So why would they want to be a stock market when they could just become the Fed reserve?

So expect that Ether will be renamed to some derivative of Amazon. Sell accordingly, because you know they are going to print money (devalue existing).