Today’s post will be short and sweet.
Yesterday many of the fast money community got their face ripped off in gold. One of the chief proponents of the shiny yellow fellow has been “renown commodity legend” Dennis Gartman. And this is what Dennis had to say about yesterday’s ugly swoon.
SPOT GOLD: What a Disaster!: Gold is still up sharply for the year to date, but after yesterday’s debacle it certainly doesn’t feel that way! This trend line’s been broken and bounces are to be used to lighten up. We’ve really no choice, have we?
“As for the precious metals, what can one say other than “We truly didn’t see that coming!” The light at the end of the tunnel was a fully loaded train heading right for us and we smashed into it! We were concerned and indeed we voiced that concern in our comments yesterday that $1305-$1310 in spot gold could be hit and that stop loss selling could follow hard upon. However, we actually believed that the follow-on stop loss selling would be far, far less severe than it proved to be. Indeed, we had hoped that the selling would be sated quickly and thought it possible that a “reversal” would be possible. It was not.
Although I am a big long term precious metal bull, I have been concerned about the over crowded nature of the trade for quite some time. Dennis might have been surprised by yesterday’s action, but I wasn’t. When hedge funds all have the same position on, it is only a matter of time before there is a manic rush to the exit. It’s just the state of the brave new investing world we live in.
Precious metals might be a crowded trade, but it doesn’t hold a candle to the most crowded trade of them all. Although many will disagree with me, I contend we are in the midst of a fixed income bubble so large, most can’t even see we are in it.
Not only that, but most financial pundits spits out nonsense that resembles an echo chamber of negativity. It seems as if most traders are positioned for a perpetually moribund economy.
This theme was thrown for a bit of a loop this morning when the ISM non-manufacturing number was released:
According to Dave Lutz at Jones Trading:
ISM SERVICES EMPLOYMENT GAUGE RISES BY MOST SINCE 1997 <- this is ~80% of the US Economy!!!
Bonds immediately tanked on the news. And well they should. There is far too much pessimism built into all fixed income.
It might seem like you have missed the move, but I want to leave you with two charts. The first is a longer time frame chart of the US 10 year yield:
This latest sell off is barely a blip. Don’t forget that the overweighted fixed income bulls have not even started to think about selling yet.
The second chart is the MOVE Index. Think about this as the VIX for bonds.
The next financial crisis will not emanate from the stock market, but instead start when Central Banks lose control of the bond market. While everyone else is busy buying VIX volatility, I would much rather pick away at owning bond vol.
I guess what I am saying is, get your cheap bond puts while you still can…
Thanks for reading,