Friday, February 4, 2011

Very Quick Update on Closing one Open Position

At the end of August last year I published This chart:

And intiitated a long position on TBT (a short position on treasuries) due to the terminal pattern and nearly unprecedented optimism.

Since that time US Treasuries have significantly fallen in value, even as QE2 put a guaranteed bid on the billions of dollars per day traded in these bonds.

As of today, optimism is fairly negative towards treasuries even as it is extremely elevated (setting records dating back 20 and even 50 years, by some indicators!) towards stocks and commodities.  Now is a ripe opportunity to close out this trade, both the options contracts and the actual holdings of TBT that were initiated 6 months ago.

I have sold the shares of TBT at $40.85, and the March 2011 $30.00 calls purchased at $3.80 for $10.65.  The gains realized on acutal stock are $7.15 per share for 21% after trading fees, and a very nice 180% gain on the options plays.  It is possible that TBT could have a final breakout, however I think that if the market turns in the next week that treasuries are going to rally hard as most investors are taken completely off-guard.

Another interesting tidbit is that Hedge fund inflows in the fourth quarter of 2010 were $9 billion over the previous all time record of $140 Billion set back in June 2007 (just a few weeks prior to the Dow Composite index and within months of virtually every investment market in the world rolling over and eviscerating over $10 Trillion of "wealth" in a matter of months versus the years it took to build.  Investors are all in, belief in the rally is fully charged, and the time is ripe for a historic reversal. 

Although the numbers in the economy are back up to levels seen at the peak in GDP, the wealth transfer has shifted trillions from productive entrepreneurs in soceity to wealth-destroying operations directly run or indirectly overseen by the State.  The foundations supporting this belief are even more fragile than in 2007 (not just debt this time, but the belief that some sort of "benevolent overlord" can manage the economy and direct capital in a matter that is a net benefit to society.)  This belief will not only be challenged but completely shattered over the coming years, especially in regards to the Federeal Reserve's "control" over the economy, interest rates, and total money supply. 

I'll be in touch soon.  Hope you're enjoying the snow - we have more than twice the usual winter where I hail from (And everyone was so invested in global warming just a few short years ago...).



P.S. I don't know if anyone has paid attention to NFLX (kind of hard to avoid, given its manic cannon-launch to the stratosphere over the past year or so.)  It is forming a terminal pattern even now and is due for an extreme set-back in the very near future.  If you have the cash available, and the stomach for it, it looks like an ideal short-sell.

It's currently trading at nearly 40x its book value and just under 75x it's earnings.  It pays no dividend.  Have fun with it!  (it's also a weekly parabolic rise starting around $18.00)  Moving average and momentum internals are making lower highs even while the stock is rocketing up, and Money Flow topped out in the initial 150% run off the lows in 2009.)  I'm recommending a small, speculative short sell position at current levels.  That being said, the current channel it's running and the terminal pattern currently allows a throwover to the $235.00 -$240 level, although it is not required and the trade is fantastically one-sided.  Here's the chart:

Best of luck out there.  I'll be responding to the load of emails and comments on gold and silver shortly.


  1. hello Derek,

    when gold will fall to $750 as you predicted??


  2. Anonymous 'M'
    February 10, 2011 4:39 AM

    I have only just seen your post on the last thread.
    You asked me a question. I answered it there but it may be that you will not refer back. As it is relevant at all times, I repeat it here.

    If I ever 'think' about 'released' 'facts and figures' by official, or unofficial sources, my thoughts are usuaually connected to how the naive masses may view them, and act upon them.

    I note the small 'news' items that usually get little attention and then try to figure out what they indicate in the greater scheme of things.

    China is doing something that is getting very little, if any; attention in the western media, certianly not in the financial media, but it tells me a lot.

    I watch what the market is doing and go with it. I long ago abandoned trying to 'out guess' the market.

    Here is a formula to follow. If you must look at the news, before you do ask yourself - what do they want me to believe today - and WHY?

    Everything is geared to deceive. It has to be. If they ever told you the truth, there would be a bloody revolution. Sometimes the 'deceit' is wrapped up as revealing to you the 'real truth'.

    If they do it in wartime to deceive the enemy, why can people not see it is done against them in war, and peace.

  3. hello, thanks! I did not know Ray Newton is Derek!

  4. Sergei, I am not quite sure of your intent from the above post. If it is meant to be cynical, in the belief that it was in response to YOUR communication to Derek, then you should have observed that it was a response to 'Anonymous M',who had asked me a question at the end of the last thread.

    Before I saw it, this new thread was posted. It is all explained to those who read with comprehension.

    I certainly do not wish to take over from Derek. But you have to admit he is not very responsive to your questions and comments.

    Promises to do so, remain only promises until activated.

    If I have misunderstood your comment, I apologise.

  5. To all who are interested. Those who are not, forget it, or don't even read.

    What, in my opinion, we are observing in the markets now is a struggle for direction between the US and China.
    It is a historically unique one, so there is no precedence. And it is this which is confusing all analysts.

    China, and the US are two very powerful economic forces built on totally different ideologies. Eventually they must both give way to combining, or one must overwhelm the other by its success.

    In the past such differences were settled by war before they developed to this stage.
    Unfortunately (really fortunately for the common man), the development of nuclear weapons, along with the spread in communication and information, has made military wars between nations possessing such weapons out of the question. Why? Because those who have always started the wars but were able to avoid the 'battlefield', can be affected, today, by the spread of nuclear fall-out long after the war had ended.

    Those who control the US have always, throughout most of history, controlled Gold, and even silver. (As they also control the Diamond market). Gold is the only money recognised by the 'Financial Elite'. It is the money of ' macro economics'.

    Oil is sold for gold not US dollars. The price of oil is approx 15.5 barrels for one ounce of gold. So the dollar price which you see must equate with this ratio.

    In the course of time, and trade, it may fluctuate a little but will always revert back to the average - about where it is now.

    This knowledge will help anyone, as it has always helped me to gauge where the price of gold, or oil, may be heading.
    You will know that when any analyst talks about gold at $5000 (or whatever) then you would know that would mean oil at around $320 a barrel. Then you ask yourself - is the world ready for oil at this price.

    What could change this? Something far too dramatic, and traumatic for me to even want to contemplate, so I won't. It is far to embedded in the overall structure to be untangled.
    There is nothing as yet to stop the demand for commodites of most kinds. Gold and silver are still in an uptrend, though taking a slight breather.
    Stay happy. Stay healthy, Stay alert.

  6. Derek,

    I thought if silver didn't get a correction quickly, it would not happen. Honestly its doing what I suggested that the tightening physical market is starting to set the tone. Hedge funds are trying to put a run on the commercial shorts like JP Morgan, hoping they will be paid a hefty premium for not taking delivery like they were in January. As futures traders are notifying the comex that they are planning to take delivery in March, they are doing the math and realizing it is going to be far more of an imbalance than they can paper over this time. $40 silver wouldn't surprise me by March 19th.
    Interesting times to say the least.

    Ed in Jersey

  7. My sincere prayers to all those who shorted SLV

  8. R.N. My prayers are for people who are poorer off than then the greedy people who shorted SLV.

    Derek never said this in his prior blogs of what he was doing. "I have sold the shares of TBT at $40.85, and the March 2011 $30.00 calls purchased at $3.80 for $10.65. The gains realized on acutal stock are $7.15 per share for 21% after trading fees, and a very nice 180% gain on the options plays."

    He didn't even believe bonds were in a bubble.

  9. Anonymous,

    Here's my write up from August 2010 on treasury bonds.

  10. I still don't see where you said you bought March 2011 TBT $30 calls.

    How about that $18 silver and $750 gold. You never answered SERGEY.

  11. Derek meant to say $180 Silver and $7500 Gold

  12. Derek,

    You have any current thoughts on oil or uranium?

    Of course any thoughts on Silver would be welcome also.

    I think the canadian dollar would be a great play with oil, metals, lumber, agriculture commodities, all going up, up, up

    Ed in Jersey

  13. derek - i used to publish a newsletter in the 80s and 90s, and of course there is no such thing as 100% right (other than illegally). i enjoy reading your thoughts on metals, whether i agree or not. question: what is your analysis of pd? i am not the gambling type, but would be interested in reading how your theories apply. dean

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