A Big Bet Against the World's Most Popular Trade

The Federal Reserve remains 'hawkish'... The end of 'euro QE' is official... A big bet against the world's most popular trade... Why Steve believes oil prices are on the verge of another huge decline... Don't miss Sjug's next 'big idea'...

Yesterday's Federal Reserve interest-rate decision held few surprises...

As expected, the central bank's Federal Open Market Committee ("FOMC") voted unanimously to raise interest rates again this month. But most officials now expect to raise rates an additional two times this year, instead of just one. As the Wall Street Journal reported...

Federal Reserve officials signaled Wednesday they could pick up the pace of interest-rate increases this year and next to keep a rapidly expanding economy on an even keel.

Central bank officials voted unanimously to raise their benchmark federal-funds rate by a quarter-percentage point to a range between 1.75% and 2%. It is their second rate rise this year, and they penciled in a total of four increases for 2018, up from a projection of three at their March meeting.

In short, the new Jerome Powell-led Fed continues to grow more "hawkish" – or in favor of tighter monetary policy – than under either of his predecessors, Janet Yellen and Ben Bernanke. And while it may not happen immediately, history suggests higher interest rates will eventually hasten the end of the long bull market.

The European Central Bank's ('ECB') June policy meeting also went largely as expected this morning...

Following in the Fed's footsteps last year, the ECB announced an end date for its own quantitative-easing ("QE") program. However, unlike the Fed, it said it plans to hold interest rates steady significantly longer. From a separate Journal report this morning...

The European Central Bank is closing a chapter on one controversial policy, government bond purchases, while extending the life of another: negative interest rates.

The central bank Thursday laid out plans to wind down its giant bond-buying program by the end of this year, but said it likely would wait "at least through the summer of 2019" before raising its deposit rate, now at minus 0.4%...

As we noted yesterday, the Fed, ECB, and the Bank of Japan's QE programs alone have accounted for virtually all of the $10 trillion-plus in "easy money" that has flooded the world over the past several years. Today's announcement means two-thirds of this stimulus will soon be actively receding.

The Bank of Japan holds its own June policy meeting tomorrow, but no changes to QE or interest rates are expected.

Switching gears, our colleague Steve Sjuggerud says it's finally time to bet against one of the world's most popular trades...

As he explained in his latest issue of True Wealth Systems, published last week...

My friend, I've been waiting a long time for this month's opportunity to come together. Not patiently, either. I've been downright giddy to make this trade. But the timing is critical, so I've held off...

[But] that's what we're doing this month. We're taking the other side of the world's most one-sided trade.

We're betting AGAINST oil.

As Steve noted, oil isn't something he has written about recently...

But he and his team have been following it closely for months, just waiting for a good opportunity to short it.

Unfortunately, oil prices have just kept drifting higher and higher.

As longtime Digest readers know, this rally has largely been attributed to Saudi-led oil cartel OPEC. Along with Russia and a few other countries, OPEC has done everything possible to push oil prices higher over the past 18 months.

The group agreed to slash its own oil production beginning in early 2017. And unlike similar agreements the group has made in the past, most members actually followed through this time.

The group has produced roughly 2 million fewer barrels of oil per day over the past year. And it as hoped, oil prices have moved higher... from around $50 per barrel when the cuts began to near $70 today.

There's just one problem...

Despite these significant production cuts, global oil production has actually increased over that time. More from Steve...

That's right, the world is actually producing more oil today than it was before OPEC began cutting production. The culprit is the booming U.S. oil industry...

Earlier this year, U.S. oil production hit all-time highs. It broke over 10 million barrels a day for the first time in decades. Take a look...

Oil production is booming in the U.S. There's no doubt about that. And the increase in U.S. production since early 2017 has more than made up for OPEC's production cuts.

In other words, one of the biggest "reasons" for higher oil prices today is largely a mirage. Meanwhile, we're now seeing signs the deal could finally be faltering. Just last week, reports indicated both Saudi Arabia and Russia – by far the two largest producers in the agreement – have begun producing more oil than promised.

And as Steve noted, if global production is up despite OPEC cuts, what do you think will happen when OPEC stops cutting production? He says the answer is obvious.

The world will end up flooded with oil again... And prices will plunge as a result.

But bearish fundamentals are just half the story...

You see, oil's relentless rise has made it one of the most popular assets on the planet today. Almost everyone expects oil prices to continue moving higher. And investors and traders have gone "all in."

In fact, Steve says the situation in oil today reminds him of two other "crowded" trades in recent years...

It happens more often than you might think... Folks see prices moving. They see others making money and they want to follow along. Pack mentality sucks in investment dollars as prices rise and gains rack up. Then, suddenly, the majority of folks have all placed the same bet. It's so common, it's not even surprising these days...

Just think about the housing boom of the 2000s. Prices rose and rose. It got to the point where folks went "all in" – they assumed lower prices weren't possible. That didn't work out well. Prices did fall... precisely when there were no buyers left to prop up the market.

It was the same story with bitcoin and cryptocurrencies last year. We saw a full-blown mania in the final months of 2017. The idea went mainstream. You couldn't avoid it...

Every other investment news article was about cryptos. Stories of bitcoin millionaires were everywhere. I even spoke to cab drivers and stay-at-home moms who were enthusiastically buying in to the hype.

What happened next? The only thing that could... There was no one left to buy... no one left to prop up prices... So bitcoin crashed by over 50% in just a few weeks.

Steve shared a chart of recent Commitments of Traders ("COT") data to show just how extreme the "mania" in oil has become...

The COT report tells us what futures traders are doing with real money. In this case, we're looking at speculative bets on oil. And as you can see, speculators all agree that higher prices are on the way.

Recently, bets have hit the most extreme we've ever seen in the COT for oil... when sentiment hits this kind of level, big declines tend to follow. Just look at what happened the last three times positive sentiment hit an all-time level...

The first of these times was in 2011. That might not look extreme on the chart above, but it was the most bullish reading in the history of the COT at the time. Oil prices peaked a few weeks after that. They ended up falling 30%-plus in just five months.

It happened again in 2014. Again, it was the most bullish level we'd ever seen in the COT report at the time. And one of the most severe crashes we'd ever seen happened next... Oil was well over $100 a barrel when sentiment hit its extreme in June 2014. By January 2015, prices were below $50 a barrel. That's a fall of 50%-plus in just seven months. This was by far the most extreme decline after an all-time COT extreme.

To be clear, Steve isn't predicting a similar crash in oil today...

But today's record COT extreme suggests we could see a significant decline in the next several months...

We're not predicting a 50% fall in oil from here. But we don't need that kind of decline to make money... You see, even last year, oil suffered a hefty decline thanks to overheated sentiment...

In February 2017, the COT report once again hit a new all-time bullish level. Oil went on to fall 20%-plus in just four months. The uptrend ended up taking back over, but properly timing that fall could have meant big profits.

Today, we have a similar setup in place. The COT report recently hit the most extreme positive reading we've ever seen. It has bounced back a bit since prices fell, but we still have big upside potential here.

The last three times we saw similar setups, oil prices fell an average of around 35% in five months. And oil's fundamental picture says we could see a similar fall this time.

Given Steve's outlook on oil, you may be surprised to learn he's actually incredibly bullish on commodities in general today...

In fact, he tells us he has only been this excited... and frankly, this certain... about a potential investment opportunity a handful of other times in his entire career.

Like when he was among the first analysts anywhere to turn bullish on U.S. stocks in 2009...

Or when he predicted a huge rebound in real estate in 2011...

Or most recently, when he practically begged his readers to buy Chinese stocks starting in 2016.

If you've been with us for long, we don't need to tell you how those calls have worked out...

U.S. stocks have soared nearly 300% and counting so far...

Average U.S. home prices have completely recovered to new all-time highs...

And while it's still early, Steve's True Wealth China Opportunities subscribers have already seen impressive returns. Twenty-two of his 24 open recommendations are "in the black," including 19 double-digit gains and two triple-digit winners so far. Meanwhile, the two "losers" are down just 2% and 4% to date.

All three of these calls had something in common...

They were incredibly contrarian at the time. Each had become historically cheap... yet practically no one was interested in buying them.

Investors were terrified of stocks in 2009... real estate had been "left for dead" in 2011... and Chinese stocks were downright hated – even by Chinese investors – in 2016 (and largely remain so today).

Steve says that is exactly the case with commodities today. After a multiyear bear market that has seen many commodities plunge by 80% or more, commodities are cheaper than they've been in decades... and investors have completely given up on the sector.

As regular readers know, Steve expects the bull markets in U.S. stocks and real estate to continue...

And of course, he's still super-bullish on Chinese stocks, which he believes are practically guaranteed to soar hundreds of percent over the next several years.

But he believes the opportunity in commodities could be even better. He's convinced we'll see average gains of 500% or more across the sector... with many individual commodities soaring multiples more.

Steve is hosting a special live event next Thursday, June 21, to explain it all...

And he has even agreed to give a way one of his favorites – an actual recommendation you can buy in your brokerage account – to everyone who attends, no strings attached.

Again, Steve rarely gets this excited about an investment opportunity. When he does, we always pay attention... and we urge to do the same. Go here for more details on next week's special event.