It’s a Mad, Mad, Mad, Mad World
I confess I am old enough to remember this 1963 film of zany car chases – and I am dedicating the title to the past. year, 2020. So will 2021 be any less crazy?
So where to start listing all of the mad things we endured last year? Here are a few of the more egregious cases:
- MAD 1 – Bond yields now negative. This was considered a sheer impossibility and total madness a few years ago. Imagine – an investor in bonds actually buying them to guarantee a loss if held to maturity. Of course, central banks engineered this situation in order to ‘stimulate the economy’ by forcing private investors into making business investments no mater how tenuous. That really hasn’t worked too well.
- MAD 2 – Stock valuations at near record highs on P/E basis. Tesla is the poster child for this manic speculation with a P/E over 200. I note that lithium-ion batteries are plunging in price and hot on Tesla’s heels are the major auto manufacturers who will soon hit the market with new EV models that are comparable in price to the current fossil-fueled fleets. That should disrupt the EV sector this year and next
- MAD 3 – Climate alarmism in overdrive. We are being force-fed a daily diet of climate catastrophe stories by the MSM where every unusual weather event or species ‘extinction’ is being caused by the evil CO2 in the atmosphere. I couldn’t resist a chuckle when a prominent popular scientist gave a talk on BBC radio where he lauded the late physicist Richard Feynman who famously stated that there are ‘no certainties’ in science. Every theory is up for later revision when more facts come to light. A true scientist is a humble being – but not the current crop of ‘climate scientists’ for whom the science is settled, apparently. I am shocked, shocked the BBC did not spot that obvious ‘error’ in groupthink! The editor was obviously asleep at the wheel and will probably get fired. It is utterly mad to believe a trace gas that is really an essential plant food will cause the extinction of humanity in a few decades, as the alarmists claim. A total nuclear war could do that perhaps, but not a harmless non-toxic gas that is the basis of all life on earth (with the sun). It is a complete paradox that social mood seems to be nervous and fearful (Climate, pandemic, economy), yet stocks remain in strong bull trends. I feel something will give this year.
- MAD 4 – Governments are paying millions not to work. In the pandemic, mass layoffs were inevitable when lockdowns were forced on us. To avoid the collapse of markets, governments were forced to create ‘furlough’ schemes, essentially paying the wages/salaries of those idled. I believe most of us were brought up to believe to get ahead you needed to work hard in your job/career, gain promotion and retire with a decent pension. That is the ‘protestant work ethic’ model that created historic economic growth. But not today. In the US, furloughed workers actually took home money being at hone watching Netflix or trading Tesla options on Robinhood – and their day-to-day expenses were a lot lower. Of course, overall economic activity has fallen off a cliff yet stocks continue making new ATHs.
But there are far too many others to cover in detail so here are some that caught my eye:
Social Media – the top earner ($30 million) on YouTube last year was a nine-year-old! Who needs a university degree and a £50k debt load to start your career? You can retire by 10!! You can then buy any education you like – or teach others how to make it in the brave new world of social media. I sense a book is coming – but will it be listed in the Children’s section?.
Crude Oil Price – spot traded below zero for first time in history. Those with oil paid a premium for the ‘buyers’ to take the free stuff away. This is on a par with negative yield bonds.
S&P Index – crashed in March at the fastest rate in history – and has recovered at the fastest rate in history.
Record concentration in S&P – the Big Tech FAANGM index (Facebook, Alphabet, Amazon, Netflix, Google, Microsoft) dominate the index
Vaccine rolled out in record time – Never has a vaccine for a major pandemic been produced and ready for inoculations of the public in such a short time (there are currently nine being produced). Thanks mostly to the commercial pharma sector. Meanwhile, the government-run bureaucratic NHS dinosaur is making a dog’s dinner of the vaccination roll-out to the UK public. Lesson? Leave it to private enterprise (or the Army) to get the big jobs done.
The madness of the tortuous wranglings of the Brexit politicians – Are we there yet? Wake me up when it’s over. Incidentally, many top politicos are lawyers and these are expert at dragging out disputes to rack up bigger fees. Is there a possible connection?
Rewards for failure – too many to mention especially at the upper echelons of government and business. In my profession, there are no rewards for failure. And that’s just the way I like it.
Trading Review of 2020
STOCK INDEXES – My worst call of the year was my bearish stance on the stock indexes after the Corona Crash bottom on March 23. I stayed too long with bearish calls on the rally, although losing little as I was able to invoke my life-saving Break Even Trading Rule on the recoveries. In fact, many of my short sales were timed from highs to produce small profits when covered on the dips.
US DOLLAR – My long-term analysis calls for a massive reversal in the dollar out of its bear trend, but I have been too early so far. We have used close stops for protection.
US GRAINS (Soybeans, Wheat, Corn) – I am most proud of nailing the multi-year lows earlier in the year. For instance, I advised members of VIP Traders Club to go long Soybeans at $8.50 and $9.25 regions. It is now trading at $13.20 and at one of my major targets I set back in June. I can now shout: “Beans in the Teens!” as it has just made a six-year high above thirteen dollars a bushel. Bingo!
Just a small £20 per pt bet carries a £25,000 gain so far.
STOCK INDEXES – Before the Corona Crash, I managed to nail the high in the Dow at 29,300 in February based on my reading of the Elliott waves and sentiment. I advised members to short there. We then rode the Crash down and covered our final short very close to the low at the 19,000 area – a massive swing down of 10,000 pts..
Just a small £5 per pip bet resulted in a profit of £50,000. You don’t need many of these trades a year!
COFFEE, COCOA, SUGAR – These are known as the Soft Commodities and once again, I managed to nail the major lows. For instance here is Sugar
It had been in a major bear market since the 2016 high at 24 cents/lb in common with most other commodities (over-supply). The final flame-out occurred in March at the Corona Crash low – and that is when I started getting really interested in the potential for a multi-month/year bull run.
With it trading under 10 cents in March, I figured the downside risks were very low as very few traders were interested in it as a long trade – and the few hedge funds that did trade it were hugely bearish (COT data showed this in spades).
Just a small £20 per pip bet carries a gain of £10,000 so far.
NATURAL GAS – Again, I identified the multi-decade low in March following the Corona Crash at an astonishingly give-away 1.5 cents per 1,000 BTU
We took some profits at around the 3.0 high.
A small £10 per pt bet resulted in a profit of £10,000.
If you wish to join us in these very exciting opportunities in 2021, take a two-week Free Trial to my VIP Traders Club. We trade not only commodities but stock indexes, currencies and T-bonds. Apply for your Free Trial here.
And kick off 2021 in a new direction!
Summary of 2020
Overall, we have had a terrific year. It is not every day (or year), you can locate multi-year/decade lows in major markets and ride the recoveries. I am pleased my analytical Tramline methods have proved so useful again.
My Major Regret in 2020?
I failed to see the profit potential in the most worthless vehicle out there – Bitcoin! Does anyone really understand what they are trading? I certainly do not. The in-crowd talk about the blockchain that is going to revolutionalise the world of commerce. But just like Godot, we are still waiting. If it looks like a Ponzi, smells like a Ponzi, and runs like a Ponzi, it may well be a Ponzi.
But it fits right into my Mad, Mad, Mad, Mad theme like a hand in glove! So I made a choice of either ignoring the whole load of nonsense – or make some money. Sadly, I made the wrong choice. It was one of my Woulda Coulda Shoulda trades (I see it is now trading at $33,000 as I write – up $4,000 on the day)
The Elliott waves are pretty clear – we are now in a third of a third up, and is in the most powerful wave in the book.
Of course in today’s world of arcane derivatives, there doesn’t need to be anything real underlying this market – just the belief of the many participants that they are trading a market that has willing buyers and sellers, just like the Soybean market (that has a real commodity underlying). It is probably no different from the VIX market for measures of stock market volatility – underlying that is a just formula; nothing real.
The bottom line is that real money can be made or lost trading it – your account balance will definitely prove that!
My Predictions for 2021
Most pundits cannot resist the annual ritual to make predictions so here is mine.
We shall see more of the same. Markets will go up and down according to the Elliott waves – and changes in sentiment.
Some thoughts on the business of trading
Finally, every trader/investor needs great discipline to have a long trading life, especially in the essential aspect of risk (loss) control. I maintain that almost anyone can size up a market situation correctly (at least once a month!). But extracting good profits consistently is a much harder task. Emotions get in the way. Doubts creep in.
It is so tempting to grab a quick profit on a winner, and to let a loser run a little longer just in case it suddenly does what you planned for it all along. That route is the surefire way to having a short trading life.
I have a great many more failed trades that winners, yet I am in overall profit. That is because the size of the fewer winners is much greater than that of the losers (see above). I cut my losses quickly and let the profits run on my winners. Sadly, I cannot say ahead of time which trade will be a winner or a loser. You just have to try each set-up and test where it will take you.
I live with uncertainly in every trade. There are no certainties in forecasting the markets. Only when the market goes my way after entry and starts racking up a profit can I say it is a potential winner. The others flame out.
When young, I loved fishing in the local rivers. Sometimes I found a great spot on the bank, conditions seemed ideal and I chucked in the excellent groundbait I had carefully prepared the night before, had the best float for my line – and yet no fish was interested in being caught all day. Zero.
On another occasion I recall, the river was fast-flowing and impossible for fishing as any groundbait I threw in was quickly swept away. But I stayed with it and caught the biggest bream I had ever caught.
Was it luck? Maybe. But to win, you have to have the discipline to be in the game when all looks against you. But keep a close stop!
Happy New Year!