Am I the only one to like Mr Trump?

When The Donald won the 2016 Presidential election, just about the universal reaction among the MSM was: “Oh no, not him!”. And his press has gone downhill from there. Forecasts of gloom and doom were rife and his bullish percentage plumbed very low depths (I recently showed a chart of his approval ratings and they have never moved above 40%). And that is why I decided to forecast he would do well for us in the VIP Traders Club!

I am not a political animal by any stretch, but I just had to take the contrarian view here. On a personal note, I have yet to meet any one at all who favours him. Among all the people I know and have met in the past three years, I cannot recall a single person who was not rabidly anti. That is a very lop-sided scenario – and a true contrarian’s dream.

Of course, at first, he was very kind to the stock bulls (tax cut stimulus) as the S&P, after the initial sell-off, climbed over 700 S&P points to the recent ATH (a gain of a stunning 35%). He certainly had plenty of friends on Wall Street (except those perma-bears who couldn’t believe the rally would last). Here is the action off the Christmas low

But since 1 May when the S&P made its ATH, he has switched allegiance and now the bears are heavily favoured (tariffs) – and members of my VIP Traders Club just love him and his hard line. We are short all the major stock indexes.

Leaving bias to one side, in my mind he is the ideal President for our times because he has broken the mould of the litany of same-old career politicians getting top government jobs.

I believe the vast majority of politicians in a ‘democratic’ system are world-improving, interfering busy-bodies who are incapable of doing anything productive such as organising a whelk stall or even an alcohol-fueled ‘party’ in a brewery. They all talk big of course, but as we have seen recently in the UK, are prone to lying as a default position. They promise the earth to get elected – and then promptly fail to achieve when in office.

I have an idea for an aspiring politician – promise very little and who knows, maybe the electorate will believe you! Churchill in the 1940s was the last politician to promise ‘blood, sweat and tears’ – and everyone believed him.

One of the most successful nations on earth is Singapore – and it has a dictator (luckily for its citizens, he is benign). Is there a lesson for us here?

In any case, Mr Trump brings to the job something very few have, especially since 1945 – he is a street-smart wheeler-dealer with a firm eye on the deal. He brings a business mind to government – and that is new.

He is the first President to use social media to communicate to the world – and since 1 May, his tweets have been very kind to us as they have sent stocks down with each tweet. So with his mission to’Make America Great Again’, he is set on destroying the very foundations of the economy with his economic wars.

He is punishing the US’ economic partners in an effort to ‘level the playing field’, especially with China who he sees as stealing US trade secrets. And his tariff war against it is paying off – yesterday the PMI manufacturing index dropped below 50 for the first time in years with future order levels dropping like a stone. That should concentrate a few minds in Beijing.

But all of this is the background to the reversal in stock markets I have been forecasting for some time. It had to come. Bullish sentiment by all of the measures I follow have been running at steam heat for a long time. One of them I show below in the Junk Bond Index.

Incidentally, May has been the worst month this year for stocks with the FTSE off by 300 points. I don’t see much sign of alarm in the MSM so I expect the downtrend to continue into next week. But when I detect a panic on, that is when I will be looking to take profits on our shorts.

And because his tariff threats are working, I expect a deal to be struck with China in a few days/weeks – and that will set stocks alight. I am getting ready for a big reversal. The consensus is that the trade war will go on and on. I am not of that opinion.

Bonds are signalling Deflation ahead

Bond yields across the board are plunging – and many in the MSM are attributing the recent stock market sell-off to that factor – even above the US/China spat that seems to be already ‘ priced in’ the market. That is nonsense, of course. The share indexes are following my roadmap I laid out previously using my analysis of the Elliott waves and my sense of the sentiment picture. Bullish sentiment had reached an extreme and that is where tops are put in. Always and everywhere.

But with the current mania for bonds in full flow, the reach for yield (including bizarrely negative yield!) has attained epic proportions. So much so that the amount of negative yielding bonds out there has just exceeded $10 trillion. (Yes, that is trillion with a ‘t’). A few years ago, the whole concept of negative yields would have been laughed off the trading floor.

So why do supposedly rational bond investors rush to buy bonds that are guaranteed to lose them money if held to maturity? I believe there is only one sensible-seeming reason. And that is they believe the dollars (or other currency) they will receive back at maturity will be worth more than dollars today.

And that means the buying power of future dollars they figure will be higher; either through a higher exchange rate, or through a greater buying power (or both). And if the future dollars are worth more in terms of goods and services, that means deflation will be in force.

And that scenario fits in very nicely with my long-standing forecast for a deflationary depression with stocks plunging.

During the last major depression in the late 1920s and into the 1930s, stocks collapsed as we all know, but a little-known beneficiary of the deflation in this period was that Investment Grade IG bonds, such as US Treasuries, gained in value. Of course, negative yield bonds did not exist back then, but if they did, they would have been a far superior investment than stocks as the above scenario played out.

I believe this is what is working today. Risk is definitely being turned off with a huge and gradual rotation out of risky assets into safety.

Incidentally, crypto currencies are in strong uptrends (VIP Traders Club members are long Bitcoin and Ether). I have considered these as ‘risky’ assets up to now, but perhaps they are slowly becoming mainstream with serious players now entering the sector. Are they now in reality approaching ‘safe’ status in the same league as the yen and the dollar?

But this sets up a dilemma for bond investors. Do they really go out on a very long limb and buy junk bonds that are yielding up to +8% in an extreme risk-on display. Or do they go for safety and buy a negative yielding bond that costs them income in a big risk-off stance?

Actually, bond buyers are doing both with gusto! Of course, the bulk of bond buyers are institutions who have many bond analysts on their staffs. Some will be looking only at the high yielders, while others the IG sovereign and corporate sector. And together, they will be recommending both.

But of late, the appetite for junk has dropped off (while demand for Treasuries remains buoyant). Here is the latest Junk Bond Index

Latest data suggests there is a near record flow of funds out of junk debt as the technical picture deteriorates. And junk bonds behave just like equities, not like Treasuries. I feel we shall see the yield spread widen now.

But with DSI bulls over 90%, the T-Bond rally is nearing its end – and it could be explosive. I am preparing VIP Traders Club members for such an event.

Anatomy of an excellent Dow trade

Last week, I managed to time another trade entry for VIP Traders Club members to perfection. I had been looking for a rally to the important Fibonacci 62% retrace where I expected a turn down to start. This was the chart I presented that alerted members to set limit sell orders at the 25,700 level on 22 May:

Back on Wednesday 22 May, my preferred option was that the rally needed one more leg up in a C wave to the 25,700 level. And this is how it played out after entering a short sale at 25,700

And that was indeed the rally high and currently the trade has about 900 pips profit (£9,000 on a £10 spread bet). Note that there was plenty of time to put on the limit order to short at 25,700, so even traders who are not able to watch the market full-time could put this trade on.

So it appears my forecast for a third wave down was correct (remember, third waves are the longest and strongest in the book).

I have set downside targets for possible profit-taking and current members of the VIP Traders Club have full access.

Big reversals afoot in gold/silver miners

One of my favourite shares for my PRO SHARES members is Fresnillo, which is a world-class silver miner. We have traded its swings since I started this service. And now I believe silver is about to reverse trend to up.

But what is catching my eye is the rounded bottom pattern in formation, which is quite unusual

The normal scenario is for the highs and lows in PMs and the miners to be ‘spiky’, which can be tough to catch. But rounded bottoms – also called a saucer bottom – allow some time to line up your trade entries – a rare luxury. My first major target is the area of the gap.

Is Buffett the highest profile victim of FOMO?

Many view The Sage of Omaha as an investment god who can do no wrong. But as with all gods, they eventually fall from grace. I have been following Warren’s decision to buy Amazon shares in my blog and wondered if his decision to buy into one of the FAANGS so late in the game was a signal a top was in? Here is the chart I showed last time

According to my analysis, the shares had just made a very high probability high and was poised for a sharp decline. Here is the latest position

And true to my analysis, it has broken the major blue trendline and appears to be in a third of a third wave down – the strongest in the book.

I recently read that Buffett recently said that he feels like an idiot for not getting into Amazon much earlier. My question is this: Is his extreme FOMO at the high another reason to make him feel like a double idiot? If so, that would be the Whipsaw of the Year – and another nail in the coffin for his ‘value’ investing style that will rapidly lose credibility in a strong bear market.

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