Checking in on Sjug's big bet... A new all-time extreme in the U.S. Treasurys... Why lower long-term interest rates are still likely this year... It's nearly time to go 'all in' on gold...
Back in April, we noted that our colleague Steve Sjuggerud had made a surprising bet on interest rates...
In short, contrary to just about everyone else in the markets back then, Steve believed long-term interest rates would move lower in the near term. And because interest rates and bonds trade inversely, he recommended a bullish trade on bonds to his subscribers.
Steve made this trade for one simple reason: Because so many folks were betting in the other direction. As he explained in our free DailyWealth e-letter earlier that month...
Investors are almost unanimously betting against Treasury bonds. They are nearly unanimously betting on higher interest rates...
If you are betting on higher interest rates today, you need to realize that you are part of a crowded trade. And when a trade gets this crowded, the consensus is usually wrong.
While Steve believed rates were likely headed significantly higher over the long term, he believed rates would fall in the near term, pushing U.S. Treasury bond prices up 15% or more before year-end. He recommended a specific trade to his True Wealth subscribers that could return up to 50% as they did.
When we last checked in on this trade two months ago, we noted both some good and bad news...
The bad news was that the trade had been disappointing so far. Interest rates – as represented by the yield on the benchmark 10-year U.S. Treasury note – did initially fall to nearly 2.75% by the end of May. But they had then reversed to near 3%, essentially unchanged from where they were when Steve originally recommended the trade.
However, the good news was that Steve's original reason for recommending this trade was still intact. In fact, it was even stronger. As we noted in the June 6 Digest...
Before you write this trade off as a rare "miss" for Sjug, you should know something important...
Despite the sharp pullback in rates in recent weeks, speculators haven't unwound these record bets. According to the latest Commitments of Traders ("COT") report, they've actually continued adding to them and now hold a fresh all-time record for short positions. Take a look...
In other words, Steve's bullish short-term bond thesis is even more compelling today than when he originally recommended the trade.
So where do we stand today?
Once again, interest rates are basically unchanged. Over the past two months, the yield on 10-year Treasury notes has traded in a range between 2.8% and 3.0%. It is currently 2.98% as of midday trading.
But believe it or not, Steve's bullish thesis not only remains intact... once again, it's even more compelling today.
Take another look at the chart above. You'll see that speculators were holding an all-time record net short position of around 450,000 contracts back in June. Today, speculative shorts have ballooned to an incredible 590,000 contracts... an additional 30% higher than the previous record set just two months ago.
Again, as Steve himself often says,
Like we said last month, Steve's prediction has technically been "wrong" so far... But we still suspect he'll be proven correct before long.
Speaking of sentiment extremes...
We're seeing a similar situation in precious metals. The latest COT report shows sentiment toward gold
Both large speculators and money managers – both of which tend to be wrong at extremes – are currently as bearish as they've been in decades.
Money managers are currently holding the largest net-short position on record... surpassing the previous record set in December 2015, just before the four-year precious metals bear market ended.
Meanwhile, large speculators – who rarely hold a net short position in gold – are holding their second-smallest net long position in decades. The only time their net long position was smaller? You guessed it, December 2015.
Like the extreme in Treasury bonds, this signal doesn't mean we'll see gold move higher immediately. But it's an incredibly bullish sign.
Here, too, Steve agrees...
As he noted in DailyWealth last week, he's now getting bullish on gold and precious metals again for the first time in years. From the July 30 issue...
Two years ago, investors were extremely optimistic on gold – to a record degree. To me, that was a dangerous sign. Nobody was left to buy. Everyone who wanted to buy had already bought.
Today, the story is completely the opposite... My friend Jason Goepfert of SentimenTrader.com – who does the best work of anyone I know on analyzing investor sentiment – recently wrote that sentiment among precious metals today is "among the worst since 1990"...
That's the story on gold. But the other precious metals are similarly hated... My colleague Brett Eversole recently wrote here in DailyWealth that platinum is now the most hated it's ever been.
We saw a clear example of just how bad sentiment has become last week...
Massive fund management firm Vanguard suddenly announced it was dropping precious metals from its Vanguard Precious Metals and Mining Fund (VGPMX). According to the company, the fund will now be renamed the Vanguard Global Capital Cycles Fund "as part of a restructuring intended to broaden the fund's mandate and diversify its portfolio."
Now, that is a perfectly legitimate reason to make a change to a fund. But history suggests these kinds of significant changes tend to occur near major market
You see, this fund used to be called the Vanguard Gold and Precious Metals Fund. Vanguard decided to drop "gold" from its name – no doubt as part of a "restructuring" – in May 2001... just before gold began a 10-year, 600%-plus rally.
In short, Steve says its nearly time to go be bold and 'back up the truck' on precious metals again...
He's just waiting for one final piece to fall into place...
Gold and platinum aren't showing any signs of life – yet – based on the trend. When they do, it will give us a setup for an excellent trade, when you look at the potential reward versus the risk...
Normally in stocks, I like to set up a reward-to-risk ratio of at least 3 to 1. That means if I think my upside in the stock is 30%, and I set a trailing stop at 10%, then I have a reward-to-risk ratio of 3 to 1. We may be able to do better than that in precious metals – once the time is right.
The time isn't right to push a big pile of chips toward precious metals just yet. I have rarely done this in my career. But I look forward to doing it – soon.
I urge you to start making some room in your portfolio for precious metals. I know I will...
We'll end today with a bit of housekeeping...
By now, most Digest readers are familiar with our popular weekly radio show – Stansberry Investor Hour – featuring Porter and nationally syndicated radio host Buck Sexton. (If not, be sure check out what you've been missing right here.)
But you may not realize we also produce a second weekly show: The Investors MarketCast, hosted by the Stansberry NewsWire team.
Each week, our colleagues Scott Garliss, John Gillin, and Greg Diamond – Wall Street veterans with more than 60 years of combined experience trading stocks, bonds, commodities, options, and currencies – sit down to share their thoughts on the latest news and events driving the markets. And if you haven't been listening, you've missed some great content...
For example, last week the team welcomed our friend Meb Faber – co-founder and CIO of Cambria Investment Management – to the program. The wide-ranging discussion included how he got started in the industry... how to control your emotions when investing... the biggest mistakes most investors make... a new
In this week's episode, they discussed what Apple's $1 trillion valuation really means for the markets going forward... reviewed the latest on the "trade war" with China... and welcomed our colleagues Ben Morris and Drew McConnell of DailyWealth Trader to talk about their favorite trading strategy for today's markets.
In short, if you enjoy the Stansberry NewsWire, we think you'll love The Investors MarketCast. And just like Stansberry Investor Hour, it's absolutely free. Apple users can listen and subscribe on iTunes here, while Android users can do the same on Google Play here.
New 52-week highs (as of 8/6/18): Apple (AAPL), Disney (DIS), T-Mobile (TMUS), Viper Energy Partners (VNOM), Verisign (VRSN), and Williams Partners (WPZ).
The responses to Porter's Friday Digest inquiry continue to roll in. As always, send yours – along with any other comments, questions, or concerns – to feedback@stansberryresearch.com.
"Porter – What a wonderful question. After all these years of great advice (11 for me), why haven't I taken it? Here's my sorry tale:
"You have convinced me to buy (variously) BSX, VISA, HSY, UA, WRB, TRV, MSFT, etc., and bonds. But there's something (emotional?) that argues. My heart insists on 'reversion to mean', and unless I'm tempted by a really good company suddenly hit (like BP's Deepwater Horizon or WMT's Mexican bribery a couple years ago), I just don't jump in. And when my head insists, the two compromise at some usually unrealistic price point. Or I lack the dry powder that day... Extreme Value and [Stansberry] Credit Opportunities' Golden Triangle are natural fits – my cornerstones; the perfect compromise for me. Over the years, your consistent refrain has been validated, and my emotions are being dragged, kicking and screaming, to the water trough. Your track record indicts my timidity. Thank you so much for your stubborn integrity. I'm getting there. Please don't give up on me (us all).
"One other note. One of my first lessons from you was that it is really hard to pick a good equity at a good price. But it's much harder to know when to sell. I have become convinced that Dave Lashmet and Dan Ferris have the right idea: The best exit is when the original premise changes. Maybe that involves TradeStops'
"'Dear Porter, I have never written a letter to you or your colleagues, but I wanted to answer this question since, for me, the answer is simple: I don't currently own any of these companies, BUT, I have owned all of them, and more than once. I like to think of myself as an investor but, upon careful consideration and
"Actually, I did invest in many of the companies noted in your Digest. I didn't invest in the others mainly because I didn't have cash available. It would have meant selling something else and paying taxes on that sale.
"I bought AAPL when Dan recommended it. Even when he had his dispute with MSFT I held on. Today I'm also still holding AFG, WRB, HSY and have acquired FB [and] DIS. I did not ever own GOOGL because I don't like their politics, but for the
"I believe your research is sound and that TradeStops will get me out of any mistakes or market distortions safely. Only my insurance holdings are larger than 5% of my portfolio and I'm diversified across many sectors. Maybe I just don't understand the problem well enough to be fearful." – Paid-up subscriber Bob B.
"For the dumbest reason of all... I hate stocks over a hundred dollars." – Paid-up subscriber Arthur S.
"Porter, in response to your question about purchasing some of your many recommendations – yes I did buy AAPL in June of 2013 (and still have it) after Dan recommended it. But if memory serves you wrote that you would be interested if it fell below $400 which it did and that's when I bought. I did not buy GOOGL, AMZN, or NVDA mostly due to the 'high' dollar amount per share. But also due to
"High price... I thought that there would be a big correction in 2015. Don't like Google as they track people. Don't like Apple as they do the same and their symbol is a bite from the apple. Do not like social media, so do not like FB as today people spend too much time checking about what man is saying instead of God. I am in my 60's and was afraid of a big correction. Not going to give much more detail as I know that you are smart enough to catch my drift." – Paid-up subscriber Rick M.
"Dear Mr. Stansberry, in reply to your request to explain
"I have the same resentment toward bitcoin et al. I suspect I'll be forced into a whole new monetary system because of all these stupid coins and miss out on an investment fortune by not buying them – too bad!" – Paid-up Stansberry Alliance member Robert H.
"Hi Porter, I have been a subscriber for at least 8 years (I think) and have done well overall since I started with Dan Ferris' [World Dominators] back then. In
"The answer to your question about the other ones, I think the high prices per share always scared me. I wanted more shares so stuck to the $30 – $60 range mostly, still based on Stansberry Research. I did just subscribe to [Stansberry's] Investment Advisory and want you to know I am greatly satisfied with all the guidance and information and heartfelt caring I have received through your company over the years and I admire and love you as a great human being. Your wife and sons are very blessed to have someone like you caring for them. Good luck winning the Marlin contest; you are awesome and I believe in you!! You can do it!!" – Paid-up subscriber Taral S.
Regards,
Justin Brill
Baltimore, Maryland
August 7, 2018