Pride Goeth Before the Fall? – A Performance Review of 2021

It’s been awhile since completing a review of market calls made here at  As my general knowledge of market inter-workings and crowd psychology has refined over the past several years increasing in nuance and depth, now’s as good a time as ever.

Let’s start with accuracy percentage and a list of the articles with basic details.  Then I’ll provide a quick, detailed breakdown of each call afterwards down below.  We’ll work backwards from the most current post, skipping 2 posts where I don’t make any directional calls or predictions.

Nine of the 11 asset forecasts between December 2020 and December 2021 were correct, for an accuracy rate of 82%.  Stellar by any definition, especially for a free blog written in spare time.  Each forecast was actionable via options, futures, the underlying asset, or simply raising cash.


1. Trading Brazil – 12/12/2021:  The Brazilian Real would strengthen against the US Dollar and Brazilian stocks were about to be re-rated higher. (CORRECT)

2. Options Markets Muting Signals – 11/20/2021:  Trapdoor underneath stock markets and potential for a large selloff in the near future. (CORRECT)

3. Insiders, Metaverse, and Options – 11/16/2021:  Options usage too extreme; quick & shallow selloff felt very close. (CORRECT)

4. I Can’t Fight This Feeling – 10/24/2021:  Commodities sentiment extreme and due for a selloff led by oil with a rise in the US Dollar. (CORRECT)

5. If Everybody’s Thinking Alike, then… – 9/13/2021:  Technically, I stated the cannabis sector looked as if it might be basing for a potential up-move.  I didn’t actually make a directional call, but I’ll still own it. Same goes for EWZ, for which I actually did make a directional call 3 months later. (WRONG)

6. Volatility Interpretation – 9/1/2021:  Volatility was about to show its face in stock markets. (CORRECT)

7. I Don’t Know Why I Talk About Crypto in a Public Setting – 8/30/2021:  Ethereum on the verge of another run upwards. (CORRECT)

8. The Best Part of Waking Up – 7/22/2021:  A correction in coffee was imminent. (CORRECT)

9. Bitcoin – A Quick Technical Read – 7/16/2021:  I thought BTC had one more puke-dip into the $20k range, anywhere between $21k and $29k.  Major whiff.  My article actually bottom-ticked that particular correction before BTC went on to return over 100% within 4 months. (WRONG)

10. Oil Taking Its Breather…Finally – 7/7/2021:  Oil correction had begun (not obvious yet) and XLE would sell off accordingly. (CORRECT)

11.  Beware the Secular Trend’s Short-term Counter Move – 12/28/2020:  The Euro/USD pair had reached an extreme point and a USD rally looked primed, which would coincide with potential fear-events in the equity markets. (CORRECT)


So that’s the quick and dirty.  Keep reading below for a bit more detail and to view the charts better illustrating each forecast.  Each chart will have a yellow circle denoting the date the article was published.

Trading Brazil:

EWZ Performance

Calls on EWZ were the chosen expression for this trade.  Pre-tax return was 100% in less than 2 months.  While everyone has been focused on energy, I focused on an EM component that looked ripe to provide a kickstart to 2022 trading.

Brazilian Real Strenghening Against the USD

Real strengthening vs the USD.  Any reader could’ve bet futures here on the currency pair for a tidy profit.

Options Markets Muting Signals:

NASDAQ Performance

This particular article actually top-ticked the NASDAQ Composite, but I didn’t go short here.  Hindsight being what it is, I should have, but instead I simply raised cash levels for the opportunities that are currently availing themselves.

S&P 500 Performance

My focus was on the NASDAQ in this article however one has to include the S&P 500 if one is going to comment on general equity markets.  No top-tick as there was a bit more demand for the S&P 500, but within a matter of weeks, the trapdoor opened for this index, too.

Insiders, Metaverse, and Options

SPX Performance Turkey Day

You could almost smell the move coming, like a turkey basting for hours.  Then, Black Friday delivered a little fear for the unprepared.  No trade here as raising cash was the strategy, and the ensuing rallies assisted with that process.  Going short up until the past few months was a dangerous endeavor and understanding option flows was and is critical.

I Can’t Fight This Feeling

DBC Performance

That little 11% jaunt downward in the underlying ETF over the next month resulted in a 135% pre-tax return on simple Put purchases.  Of course, energy as a sector is a different beast entirely now, and along with inflation, the Russia/Ukraine conflict has put commodities front and center of the financial space again.

USD Performance

The US Dollar followed it’s typical anti-correlation to commodities by rising.  Since that initial run upwards, it has chopped in this uncertain environment.  I suspect the ultimate, long-term path is downwards for the USD, but that’s a philosophical discussion for another time.

If Everybody’s Thinking Alike, Then…

MJ Performance

Ugh, what else needs to be said?  This one is ugly.  To reiterate, I did not actually make a directional call or bet here.  I simply thought that the bear market in cannabis may be reaching a nadir.  But investors and speculators had other ideas as the market pounded this ETF for an additional 50% loss subsequent to publishing the article.

Volatility Interpretation

VIX Performance

The article literally bottom-ticked the VIX.  Unfortunately, I didn’t directly trade Vol here.  I used the ensuing volatility to pyramid some positions in the long portfolios.

I Don’t Know Why I Talk About Crypto in a Public Setting

ETH Performance

Those percentages in the chart above were from the publishing date of the article (yellow circle).  The actual moves were,  20% as annotated for the first ascent, then a quick 50% downdraft followed by a 75% spike.  If you ignored ETH in 2021, or crypto period, then you missed some of the best trading opportunities of the year.

The Best Part of Waking Up

Coffee Performance

Coffee was the gift that kept on giving for about 4 weeks in late July through late August, before squeezing out of an old school pennant to what seems like non-stop upside.  The initial trade was simple Puts on the JO ETF for a 40% pre-tax return in a week.  Then I was able to scalp 20% in a week out of JO with some Calls before finally squeezing the last bit of Put juice for 10% in a week before THE breakout in coffee.

Subsequent to those trades, I did overestimate the extreme in buying-sentiment and underestimate the impact of the freeze in Brazilian crops.  Consequently, I gave back a bit of the profit with additional Puts and failed to capitalize on the ensuing multi-month rally as a result of my bias.  All additional lessons at a fair tuition price.

Bitcoin – A Quick Technical Read

BTC Performance

I darn near bottom-ticked BTC with this particular forecast.  So wrong!  As BTC goes, so goes the crypto markets so it wasn’t long before I was pursuing the other opportunity as noted above.  As has been said countless times by countless players, trading is all about managing risk (control losses & maximize gains).

Oil Taking Its Breather…Finally

WTIC Performance

Oil (West Texas Intermediate) was overdone.  I top-ticked the high in July on the day of publishing and was fortunate to estimate an unsurprising 20% sell off in the commodity.

XLE Performance

I favored Puts on the XLE as the expression for this trade and the market rewarded me with a 100% pre-tax return in under 8 weeks.

Beware the Secular Trend’s Potential Short-term Counter Move

USD Performance

I published this article in the midst of what felt like virtually everyone expecting the “obvious” demise of the USD.  The dollar’s imminent demise down into the $80’s has since proven to be fallacious logic.  Its haven status as the world’s reserve currency has kept it afloat and demand will probably keep it there for some time until internal and external geopolitical/economic events shift perceptions and capital flows.

Euro Performance

Once again, the anti-correlated pairing could’ve provided currency traders with an exceptional opportunity.  Admittedly, I failed to take advantage of this potential trade with a currency pair expression.

S&P 500 Performance

What I did do was expect more intense volatility.  As such, I purchased hedges which ended up costing me insurance premiums as the S&P 500 simply chopped for a month before continuing onward and upward.  Sure, I was correct about some volatility but wrong about the amplitude.  Still though, I contend that the price paid for peace of mind was worth it.

It’s my sincerest hope that if you’ve read this full performance-review that my skills and experience are apparent.  I’m not some wannabe, greenhorn daytrader posing as a professional.  Although I mostly showcase my technical analysis skills here at the site, I’ve honed my fundamental analysis skills for all asset classes and sectors.   Over the last 20 years, I’ve poured my heart and soul into building an amalgamated skill set around a professional-level understanding of investing, finance, banking, currencies, economics, accounting, business operations, sales, geopolitics, crowd psychology of markets, leading/managing/coaching, and asset management.

Now I’d like to test those skills in the appropriate arena.  If you’re here just to have a read, I hope you’ve enjoyed.  I’ll continue to intermittently share actionable thoughts.  But if any readers from the professional, financial space are interested in how I can benefit their organization, please don’t hesitate to reach out.  Email address is listed at the menu button in the upper-right of the screen.  My LinkedIn profile can be accessed at the About page by clicking the hamburger in the upper-left of the screen.

Here’s to a fruitful 2022 for any and all readers of

Evaluating Markets Not Called Stocks

In my last financial post, I stated that I thought the market would move sideways for approximately 7 weeks before a catalyst would present itself to drive the market higher going into the beginning of the summer. So far, so good. Yes, the market is up about 1.5% but it appears to be the start of a sideways consolidation as the market exhales some energy.

I suspect we see a little downside move over the next week or two, as part of the sideways action, followed by a move back up to current levels about 3 maybe 4 weeks from now. By then, that catalyst should present itself for the resumption of the trend back up to new highs. Will my hot streak continue? If past is prologue…


Right now, I want to talk about the US dollar and its potential effects on various commodities. Specifically, we want to watch oil, precious metals, and the grains.


It’s easy to observe the stiff support at $94 and I think this time is no different. I suspect we get a slight bounce of about $4 up to about $98. This is in line with previous bounces off of $94 during this 15-month consolidation. There are plenty of analysts out there who think the USD bull will renew to move a lot higher. The thesis of the trade being a fear-based allocation in light of a pessimistic international outlook to various economies and the worthless, respective monetary policies currently employed by central banks.

I disagree. When the big one hits, the real correction across all markets, the USD will at first be a bastion of relative strength but that sentiment will be temporary. The problem with the thesis that we are in the early phases of a USD bull is that it runs counter to the other widely held thesis that the next financial crisis will be co-focused around an international collapse in confidence in the USD. That’s a discussion for a future post.

I believe the momentum has shifted for commodities. I suspect the worm has turned in the precious metals complex. Corn, wheat, and soybeans are potentially at the beginning of a spike. Oil has been unstoppable, but that DOHA meeting of the controlling powers will have a heavy influence on trading behaviors. It’s not inconceivable that the USD and commodities could run in the same direction but that belies decade’s worth of a consistently negatively correlated relationship.

Specifically, I’m referring to short-term action. Months not years. But let’s look at multi-year charts for gold and the grains, of which I’ll use my typical go-to trading medium of JJG.



What goes up generally comes down. Gold has held strong with a sideways move off the hard spike higher to start the year, but with the pending move in the USD, I think we’ll finally see the correction that many have been calling for. You can see that around $1,140 represents a stiff area of support. I suspect that could be gold’s next destination over the next several weeks or months, however that still represents a higher-low leaving a new uptrend intact. If one were inclined to trade, that’s $100 of movement to design a short-term, multi-month play as it moves lower and then begins a recovery. One pattern to watch, if you believe in such hokum, is the little head & shoulders that has formed since February. Will the break of the right shoulder-base be a catalyst?



I have had a lot of luck trading this grains ETF. Some of my biggest returns in the shortest amount of time have come from scalping the market for a nice rip on these multi-month grain rallies. Sentiment, professional hedging, and seasonality point towards the potential of another run. More importantly though, price action agrees. It looks like a based-low was established to start the year and last week represented a possible higher low. The price action was especially promising to end the week. Position accordingly.

But if the USD is about to bounce, won’t that hurt commodities? Even agriculturals? Not necessarily. Oil will very likely be affected but again the speculator positioning by huge players could potentially cause another squeeze as much as the DOHA meeting could negatively affect prices. Gold sentiment was stretched anyways. But the grains don’t always run counter to the dollar. In fact correlations between the USD and grains do not share an easily deciphered message. Grains can and do run in lockstep with the dollar at times. Have a look below.


In two of the last 3 rallies, the grains (blue-dotted) ran concurrent with the USD. Even though the USD is potentially beginning a bounce, so could be the grains.

As stocks continue their consolidation, the USD should be the dominant theme in the markets as it moves upward over the next several weeks. Watch associated commodities. If you’re feeling really brave, try trading the other currencies with a rising USD as your foundation for analyses. Good luck out there.

Indicator Currencies

A couple of weeks ago on ZeroHedge, I happened to read a chart they nicked from BofA Merrill Lynch. Observe:


And just to be Captain Obvious, the chart is inverted as the South African Rand is not exactly a bastion of strength in light of the continued run on commodities. Inverting a chart allows for an alternative perspective, which we know is needed more than ever in these days of literally any trading edge being arbitraged into oblivion within a co-located microsecond. We’ll have to wait and see if Rand correlation to world markets continues to lead up to major market events, but there is no denying the importance of currency analyses in a macro outlook.

Speaking of Captain Obvious, this inverted Rand chart made me want to take another look at an inverted chart of the USD. I keep reading perspective after perspective about how the tightening of the US currency will lead to continued strength in the dollar as the US continues to be the strongest developed economy in the world. Safety, safety, safety will drive the USD trade according to expert analysts. This is in light of the fact that trader commits have already been showing some backing off in the long USD trade.

I am by no means an expert in currency trading, or for that matter, examining international capital flows. However, I pulled up an inverted monthly chart of the USD over the last 15 years and included a couple of indicators that I rarely use. The top indicator is the standard Ultimate Oscillator (ULT) with default periods of 7, 14, and 28. The bottom indicator is simply the 9-month of Rate of Change (ROC). There were some potentially telling relationships.


As denoted by the green circles, trouble was usually on the horizon once the ROC worked its way up to 10 or higher and then back down to crossover the zero-line. The lone exception over the last 5 occurrences was the late 2012 to early 2014 consolidation with heavy chop. Recently, the 9-month ROC just began to crossover below the zero-line again.

The ULT follows a similar path in that once it has breached a reading of 60 or higher and then began to work its way downward, USD price action generally began to deteriorate. Observe the price action in the dollar at each of the downward sloping blue arrows.

Despite what the indicators have proven to communicate on previous occasions, this is an obvious case of data mining and thus cannot be truly relied upon for making large scale investment decisions. None the less, I found the observations interesting as part of a larger overall analysis.

There are many highly-correlated relationships recognized between currencies and asset classes. Some of the obvious ones are the USD and commodities (inverse), CAD and AUD and commodities (direct), Yen and SPX (inverse), but it’s the dollar’s relationship with the Swiss Franc and gold that has me intrigued for a potential move.

The franc and gold have a long documented relationship of synchronous movement. Not perfectly, but with consistently high correlation. While the dollar tends to move opposite the franc and gold. Again, not perfectly but with consistent negative correlation. Observe this time-tested relationship for yourself.


Could the action be telling market players to expect some fireworks in the USD, franc, and gold in the first half of next year? There are a multitude of low-risk ways to go long or short the currencies using futures, ETFs, and options. I leave it up to the reader to decide how to potentially risk any capital.

Another relationship to watch out for due to USD correlation, is the ratio of the S&P 500 index to the CRB commodities index. Kimble Charting Solutions pointed out the “Eiffelesqueness” of this particular ratio. With the world economy continuing to slow down, it does appear as if there is no hope for iron ore, oil, and copper but we are at multi-year extremes and a close eye is warranted. They’re called counter-trend rallies and the adroit can exploit.


I hope you had a wonderful Christmas and I sincerely wish that 2016 truly brings good tidings to all Margin Rich readers…and profits, too!

Currencies, Derivatives, and Metals…WTF!

Since it’s been awhile, this piece is sort of a long one.  Read it in chunks over a few days if you have attention issues or if you get bored; but grab your mom’s reading glasses from Rite Aid and follow along because I’ve compiled more derivatives data that I think you’ll find useful even if you already feel knowledgeable enough about the subject matter. Now let me just state for the record that I’m not some cutting edge journalist or a former banker and I rely heavily on info garnered from public sources, but of course I make every attempt to validate facts. There is quite a bit of content form ZeroHedge in this post as they provide content with great depth when it comes to derivatives. I don’t claim to have perfect knowledge of the mechanics of the entire exotic derivatives universe, but I do feel I have a perfunctory level understanding which allows me to comment with relative intelligence on the subject. Now back to the message…

Volatility, volatility, volatility in all markets. Taper or no Taper? That’s the question that Mr. Market continues to ask itself across bonds, equities, currencies, and commodities; basically all the markets. Consequently, traders are being provided sweet treats in these markets because the volatility is virtually a trader’s best friend. If you’re trying to time the markets, I hope you’re effectively managing risk. If not, continue to stick with a long-term strategy that helps you feel comfortable because it really is one giant rigged casino and long holding periods are the big body guards of the unskilled timers.

I came across an intriguing article the other day from a trading site I like to visit, Please bear in mind that I greatly respect and enjoy the work generated by the team at MercenaryTrader, but I simply have a difference of opinion in regards to the following article. They have an interesting take on the US Dollar as they feel it is the premier currency now and going forward. I want to share quite a bit of their content here as they take such a stark, contrasting view to what the doom & gloom crowd believe is the fate of the USD. They present why the USD is in a secular i.e. long-term bull market and determine that the USD’s rise will highly correlate with the stock market’s own rise. Here’s a few choice thoughts from the piece by Jack Sparrow(they use nom de plume’s for their article writing because obviously the author’s not a fictional pirate):

Our thesis has long been that weakness in the USD was temporary — in large part driven by temporary unwinding of the yen carry trade. Basic fundamentals, plus confirming price action, put the USD in a long-term secular bull market after ten years of decline. This is the flipside of emerging markets imploding, which you also saw yesterday…Why did the dollar respond so powerfully to the Federal Reserve testimony? In part, we believe, because a clearer picture is finally emerging. The US economy is a juggernaut relative to dire Europe and weakening emerging markets. Asia is in a lot of trouble. Japan has already expressed the necessity of forcing a much weaker yen in order for Abenomics to work. In addition to this, you have serious credit crunch problems developing in China — and for the first time in a long time, the real prospect of a China crash. Investors are seeing inflation problems sweep through emerging markets — note the huge protests in Brazil. All these factors are combining to fuel a massive repatriation of funds out of EM assets and back into home-based dollars, again strengthening the greenback… As the great speculator George Soros once said, “I am good at riding the tide, but not the ripples of a swimming pool.” Translation: Traders need big trends to make the truly big money. The return of the US dollar — and the secular outperformance of the USD vs the rest of the world — is a HUGE, huge trend. HUGE.

Why has this possibility been so universally missed (or flat-out dismissed)? Perhaps, in part, because a large contingent of the trading community is bottom-up focused — not overly concerned with sea-change macro factors. And another large contingent of the trading community — call it the “Zero Hedge contingent” — has been myopically, religiously obsessed with the debt side of America’s balance sheet, without properly considering 1) the ASSET side of America’s balance sheet or 2) the positioning of the US vis a vis the rest of the world…

I mean, just stop and ponder for a second. The United States is:

· 1. an agrarian superpower (number one food exporter not counting multiple-country EU)

· 2. a military superpower (who else controls two oceans?)

· 3. a demographic superpower (look at our aging trends vs Europe, Japan, China)

· 4. a technology superpower (Google, Apple, Amazon, Intel, IBM, need I go on?)

· 5. a soon to be energy superpower (we are about to start exporting oil again)

· 6. the domicile of +$70 trillion in household wealth

· 7. the home of the most desired real estate in the world

And the United States government has access to all of the above, in terms of assets to draw down on, by dint of our representative democracy.”

MarginRich here; he goes on to explain the correlation values between the USD and the S&P 500:

Some other good news: A lasting resurgence in the US dollar need not be bearish for US equities. For many years, as I’m sure you’ll remember, the dollar was a key “risk off” indicator. When the dollar was up, equities tended to be down and vice versa. This was a function of heavy asset flows into emerging markets and multinational blue chips benefiting from emerging market revenues. But now the situation has reversed. With US domestic equities the new sweet spot for bullish positioning (see Bernstein argument), US equities can rise even as dollar flows repatriate back home to the United States. Think of this not just as a “great rotation” but a “great unwinding.” For a long time EM debt and EM equities seemed the place to be. With the dollar strengthening and the rest of the world faltering relative to the United States, that is no longer the case. With every uptick in the greenback, EM assets look a little bit less attractive in relative currency terms (not to mention the problems they are facing — riots in the streets anyone?). The massive over-allocation to emerging markets in recent years is being unwound, as the whole “emerging markets century” idea is getting its license revoked.

(And by the way, a side note to Jim Rogers: I love you Jimmy, your book “Investment Biker” was my literal inspiration for getting into markets. But your uber-bullish China call was about as long-term wrong as it is humanly possible to be. You are even wronger on that call than the Dow 36,000 guys circa Y2K bubble. And as for permanent gold bugs? Oh man. If you thought your world of hurt was bad already…)clip_image001The correlation chart above, from Bespoke Investment Group, shows how the US dollar / US equities relationship has changed. The dollar and US equities now have a positive correlation, rather than the negative one that persisted for years.”

MarginRich here again; what dollar bulls continue to completely fail to note in any of their commentaries or share in any of their trading strategies are any thoughts on the derivatives exposure of the biggest banks and thus the sovereign nations where the banks are domiciled. It’s as if the derivatives market and thus the shadow banking industry don’t exist to these people. I fully understand their views and theses but these could be perceived as somewhat short sighted as they fail to completely assess and include the notional derivatives exposure by the biggest power players on the planet. Let’s revisit what the derivatives situation looks like for the biggest banks on the planet(ex-China, ex-the rest of Westernized Nations, and ex-BlackRock). Keep in mind that after the 2008 crash, the Bank of International Settlements (“BIS” which is the central bank to the world’s central banks) changed the valuation method of derivatives for banks and thus halved derivative exposures across the world from approximately $1.4 quadrillion to between $600 & $700 trillion; of which all are just unfathomable numbers.  So here is what dollar bulls continually ignore, as reported by the US Office of the Comptroller of the Currency:clip_image003

I can’t begin to understand how the heck Deutsche was excluded off of this list. Through the alchemy of balance sheet netting and German domiciling, they’re not even in the top 25 of US holding companies, but observe a snapshot of DB’s derivative position and how that compares to the entire German economy(both courtesy of ZeroHedge):clip_image004clip_image005Once again, no big deal. DB only has Euro-denominated derivative exposure that is 20 times the size of the entire German 2012 GDP; and hell, Germany is only just the 4th biggest economy in the world. There is definitely no risk in that, because Germans can just print as many Marks as they need to deal with any potential liquidity or credit issues…oh wait…yeah the ECB. Well that’s how the Federal Reserve helps support Europe through the magic of currency swaps and the “unbiased” IMF.

In fact at the end of 2012, here is what the IMF had to say about derivatives via their staff discussion paper, “Shadow Banking: Economics and Policy“(again, courtesy of ZeroHedge):

Over-the-counter (OTC) derivatives markets straddle regulated systemically important financial institutions and the shadow banking world. Recent regulatory efforts focus on moving OTC derivatives contracts to central counterparties (CCPs). A CCP will be collecting collateral and netting bilateral positions. While CCPs do not have explicit taxpayer backing, they may be supported in times of stress. For example, the U.S. Dodd-Frank Act allows the Federal Reserve to lend to key financial market infrastructures during times of crises. Incentives to move OTC contracts could come from increasing bank capital charges on OTC positions that are not moved to CCP (BCBS, 2012).

The notional value of OTC contracts is about $600 trillion, but while much cited, that number overstates the still very sizable risks. A better estimate may be based on adding “in-the-money” (or gross positive value) and “out-of-the money” (or gross negative value) derivative positions (to obtain total exposures), further reduced by the “netting” of related positions. Once these are taken into account, the resulting exposures are currently about $3 trillion, down from $5 trillion (see table below; see also BIS, 2012, and Singh, 2010).

Another important metric is the under-collateralization of the OTC market. The Bank for International Settlements estimates that the volume of collateral supporting the OTC market is about $1.8 trillion, thus roughly only half of exposures. Assuming a collateral reuse rate between 2.5-3.0, the dedicated collateral is some $600 – $700 billion. Some counterparties (e.g., sovereigns, quasi-sovereigns, large pension funds and insurers, and AAA corporations) are often not required to post collateral. The remaining exposures will have to be collateralized when moved to CCP to avoid creating puts to the safety net. As such, there is likely to an increased demand for collateral worldwide.”

MarginRich again, so here’s the best part of that; the BIS states that once again due to the wizardry of netting that the world is only exposed to $3 trillion in derivatives. The precise number is $3.7 trillion as of the first half of 2012 which is basically the same number since 2009 after the crash in 2008, so there has effectively been absolutely no effort to wind down these derivative books which are of course only traded OTC which is why the shadow banking industry presents so much damn risk to the system. The kicker is that the BIS openly states above that there is only $600 to $700 billion backing these derivative transaction. My basic arithmetic skills show that as a very safe 5 times leverage. Thank god for conservatism by the banks, but if you take the collateral against the very real and un-netted number of $600 trillion then we calculate collateral coverage of approximately a tenth of 1% or for the layman, 1000 times leverage (as reported by ZH as well). But you may ask, well why does it say there is $1.8 trillion of collateral and what the hell is the reuse rate? That is how hypothecation comes into the picture. Financial institutions will re-post collateral that belongs to their clients in their own for-profit transactions, under the assumption that the game is such that they are guaranteed to get their money back or they’ll easily come up with the money if something goes south. This will occur with one piece of collateral between multiple entities and that is when re-hypothecation comes into play. How it’s legal is just absolutely beyond me. Feel free to revisit MF Global and the theft of innocent traders’ money who deposited their cash there for futures trading. JP Morgan re-hypothecated hundreds of millions, and by re-hypothecate I mean pilfer or let’s just call it outright stealing, from MF Global’s clients for bad bets that MF Global illegally made with depositors’ money. Many innocent people who trusted MF Global to just hold their cash as a trustee and simply help them facilitate futures trades as a brokerage are still waiting to be made whole. JPM doesn’t feel they have to give that money to the people it belongs to as they are first-in-line creditors, and the courts agree with them for now, so how this is all legal is seriously beyond me. Why would JPM be made whole before MF Global depositors when MF Global had to legally segregate depositor funds and thus could not post those segregated funds as collateral for MF Global’s own transactions, at least as I understand the laws and regulations? Anyways, that’s a discussion for another time and place but if you’re curiosity needs to be immediately satiated then you can visit here and here for a deeper dive along with the actual court case; both about Sentinel Management Group which is apparently establishing the case law however this definitely has the potential to get appealed and taken up to the Supreme Court.

Now all this talk of derivative exposure and bank collateral definitely sounds like the foundation for a long-term dollar bull market especially when you combine in the effects of quantitative easing and the inflationary effects on asset pricing. And if you don’t think asset price inflation exists, then please explain to me the rise of the stock market, the real estate market, the high yield bond markets, the fine art market, and of course the diamond markets, just to name a few several. The icing on the cake is how the US federal government intends to deal with any issues that could potentially arise in a liquidity or credit event in the banking industry. Observe the following chart displaying total FDIC assets, total US cash deposits, and the US derivative exposure all in one pretty little package(once again, courtesy of the OCC via ZH):  That’s right. Your eyes don’clip_image006t deceive.

The government has allocated $25 billion from the premiums paid by FDIC member banks to protect depositors in the event that a Lehman-style event occurs again. Do you feel good about the long-term condition of the USD? No doubt, the USD is the top of the currency game right now; but judgment day cometh at some point. I can’t tell you when. I’ve guessed somewhere in 2015 – 2016, but nobody can know. I will continue to say that you can only subvert basic economic and monetary laws for so long. At some point the unintended consequences of this entire 4 decade monetary experiment of exiting the gold standard in combination with the shadow banking system, will draw forth some sort of epic but indeterminate action. It’s guaranteed. Seeing the lack of liquidity in the system to deal with actual risks adds insight into the risks to your cash & assets and the plausibility of a bail-in using your money. The next event will be a triple-whammy as tax payers are hit thrice; once with the bail-outs and then again with the bail-ins and then again as I’m sure the capital gains tax will rise to some egregious percentage or windfall taxes are introduced. It brings clarity to the presentation I sent so many months back when I asked who the hell was JPM referring to in the slides about who will provide needed liquidity, what they leave unsaid is that “shareholders and creditors” really means you i.e. the depositor. Coming back to the buck and why we visited the whole derivatives situation, trend trading the USD right now is one thing but I think it is a stretch to label it as being in a “secular bull market” without fully considering the risks associated with the just-discussed derivative exposure.

Which brings us back to what I(along with countless others) continue to say will be the ultimate investment haven and of course absolute hedge to the the potential busted systems of the banks and governments…precious metals. By now I would understand if you’re finding it difficult to maintain positions in precious metals shares in your portfolio and have verbally cursed the day you may have taken a position in anything related to a precious metal. It’s easy to say right now I was wrong because I was so early and that the case for precious metals is totally bunk and busted. I won’t delve back into all the reasons why your portfolio is going to need precious metals to get through and possibly even prosper through the times I’ve already described.

You can call me a “gold bug” but I haven’t encountered too many gold bugs who’ve shorted gold(via the GLD) and the miners to wash the paper losses of the long-term precious metals holdings. I also am not going to present any new trading ideas for precious metals shares as I’ve already shared a majority of my favorite plays. I will fully admit to being early in some of the plays and I wish as much as any other speculator that I had waited until now to pick-up some of the best speculative names. I also wish I had a unicorn with a magical golden horn that granted wishes, but I’m content to live with reality.

I was sharing with a colleague in an earlier message regarding a junior silver producer to try and compare your situation to Dr. Michael Burry’s, the hedge fund manager formerly of Scion Capital from The Big Short. I know you’re all familiar but let me remind you that he was paying out millions in insurance premiums on the credit default swap derivatives on mbs, which he helped to invent, as a result of getting into the trade years early. His investors, who were humongous players such as Joel Greenblatt of Gotham Capital and White Mountain Insurance, were incensed at the very real losses the premiums paid represented in light of none of the derivative contracts paying off yet and housing just continuing to rise. They gave him hundreds of millions to manage and yet berated him incessantly and threatened him with litigation, but he was resolute and steadfast in his conviction that time would ultimately be the arbiter of value. When the bets paid off, his investors made hundreds of millions of dollars in one fell swoop and Dr. Burry was totally vindicated in his ability to foresee and sit tightly until the obvious end to the trade arrived.

And that is how you should consider your UNREALIZED, PAPER losses; as “insurance premiums” that are the cost of being years early in what has the potential to be the ultimate trade this decade. Think there’s a reason Dr. Burry bought a boat load of gold and farmland, closed up shop, and essentially dropped off the grid?  He just may be years early again.

Which brings us back to the shiny little metal which has caused so much pain and angst for speculators of all ilk. Gold has the potential to bring about a monetary revolution that will offset the full power of the USD over the coming years. Is the USD going to totally crash in value and be totally replaced by the Renminbi or SDR’s from the IMF? Obviously not. You can’t just displace an economic and military super-power who possesses the reserve currency in under a decade. The way the USD will drop in value will be the reduction in its use as the reserve currency around the world. Not totally of course, but as of right now, the USD has a 67% share of the currency market; a full 2/3rd. And virtually 100% for oil with the Petro Dollar, except where countries have worked out specific agreements with one another, which is already beginning to happen at a higher rate between China and other players. Take a gander at this article where China has worked out an agreement with the largest oil company on the planet in a $270B deal to double its Russian oil imports over the next 25 years. Even though the article did not specifically state which currency was used, I can state with fair assurance that it wasn’t the Petro dollar but instead probably a Renminbi/Ruble swap.

Now that USD reserve currency use percentage of 67% will inevitably drop to a much lower percentage of possibly between 40% and 50%, as the role of gold and other currencies increases and the other powers in the world decide they’ve had enough of the USD and wish to facilitate large-scale international transactions in different denominations. The drop to 50% USD use is a percentage that Ray Dalio, founder and CIO of Bridgewater, agreed would be probable. You may think to yourself, so what?  Who cares about a 17% reduction in the worldwide use of the USD as the reserve currency? Let me assure you that a drop like that can have earth shattering, negative impact to the markets.

And why do we even care what Bridgewater thinks? Well it’s because it’s the largest hedge fund in America with over $140B in assets under management. Dalio along with his Co-CIO, Robert Prince, consistently provide some great macro-economic commentary from an investment standpoint that simply has to be considered. Here’s another great quote from Ray Dalio regarding how the massive debt overhang of the Westernized nations will most probably be dealt with, “…one of 3 things will have to happen:  a global debt restructuring/repudiation; global hyperinflation to inflate away this debt, or a one-time financial tax on all individuals amounting to roughly 30% of all wealth. That’s pretty much it, at least according to mathematics.” Two of those outcomes spell nothing but upside for gold and Dalio said this back in September of 2011. Additionally, you’ve got Prince’s early 2012 commentary about bank debts and sovereign debts, “You’ve got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks.” And lastly from Dalio regarding Buffet’s take on gold, “I think he is making a big mistake.”

Now that gold is suffering the most intense drops of the 2 year correction, especially with last Thursday’s action, let’s take a look at some potential catalysts for the metal. Incidentally, I think the bottom of this total corrective move from the September 2011 high, will be be down around $1,200; so we’re almost there. Try not to throw up in your mouth as you read that and the following. We’re seeing all-time low stock levels at the metals warehouses at the bullion banks for delivery via futures contracts through the COMEX and LBMA. Additionally, the Commercials(classified as the major producers who hedge and the bullion banks who facilitate large-scale transactions) at the COMEX are the least net short since the selloff’s of 2001, which marked an absolute low before the major run-up to September 2011. In fact, the Commitment of Traders (“CoT”) report is currently showing the absolute lowest net short position since 2001, which was essentially the all-time bottom in the gold price after it was untethered from the dollar in 1971.

This can be observed in the first chart below. According to the creator of this chart, Tom McClellan, “Commercial traders of gold futures are showing one of the most bullish conditions in years. They are usually presumed to be the “smart money”, and so when commercial traders move to a lopsided net position as a group, it usually means that prices are going to be moving in their chosen direction…In the first chart below, the current reading is the Commercials’ lowest net short position (as a percentage of total open interest) since 2001, which was when gold prices were just starting a multi-year uptrend from below $300/oz. The message here is that commercial traders as a group are convinced that gold prices are heading higher. They usually get proven right, eventually, although sometimes we have to wait around longer than we might wish for “eventually” to get here.”

For the second chart McClellan stated, “One other way I like to use the data in the CoT Report for an interesting insight is to watch total open interest numbers…when the 3-week rate of change of total open interest drops below around -12%, it is usually a pretty good indication of an important bottom for gold prices. Whether or not this recent sudden drop in open interest is going to lead to a real and lasting uptrend for gold prices, or instead just bring a temporary pop, is something that this indicator does not tell us. But history says that it should be associated with a meaningful price bottom, which tells me that we should get some meaningful amount of a price rally from here.” I strongly recommend a visit to, as they provide outstanding commentary.


Additionally, demand for physical gold whether it’s bars, ingots, or coins has been through the roof and has stayed there since the down-move began in earnest back in mid-April. This kind of demand on quick moves down in a commodity always produces higher premiums over spot because the spike in demand paints the exact opposite picture of the tape that is trying to be painted with the paper market. McClellan produced some very interesting additional charts that also lend themselves to a potential rise in the gold price. Here is how he described them, “I have just learned recently that the behavior of gold coin dealers can offer us an interesting insight about where gold prices are headed, but perhaps not in a way one might have imagined. The Wall Street Journal publishes prices for gold coins on its web site every day. They even offer historical data going back as far as June 2007…What I discovered when looking at this data on American Eagle pricing is that the average premium over spot is around 4.88%.  But whenever it gets up above 6%, the days which follow nearly always see a rise in gold prices. That does not necessarily mean that a >6% reading is a bottom for gold prices. Absolute bottoms or tops are much less important than the direction forward from any given point, and when there is a bullish bias after a certain event, that’s really useful information…I just look at what the data say, and what I see in this week’s chart seems to show a periodically useful edge in terms of figuring out what gold prices will do, if one is willing to look patiently at gold coin prices every day and wait for those pearls to appear. Interestingly, this phenomenon is not confined to just American Eagle gold coins. Here is the premium over spot prices for Canadian Maple Leaf coins. The average premium over spot for Maple Leaf coins is 4.6%, and readings above around 5.5% tend to be followed by gold price rallies over the next several days in the same way that this principle works for American Eagle coin pricing. It also works for Krugerrands. When I say it “works”, I am referring to this phenomenon of the quoted coin price’s premium spiking up well above average, which for Krugerrands seems to be about 3.8%. Readings above 5.0% over spot tend to be followed by rising gold prices over the next several days. I don’t know if this is a case of the smart gold coin dealers sensing that a rally is coming, and thus bumping up their prices to take advantage, or if some other market dynamic is at work. I just know what I see in the data. One potential problem with this data is that it only comes from one source, and we don’t know how wide of a survey net they cast when gathering this price data. But on the positive side, the data are easily available. Interestingly, this momentary pricing anomaly for gold coins arrives at the same time that the Commitment of Traders (CoT) Report data are showing that gold and silver traders are at historic extremes of sentiment. In other words, things looks like a bottom for gold prices which should matter not just for a few days to follow, but for weeks or months.”


The CoT data of the bullion banks(the bullion banks are the big banks) and commercial hedgers is important because they have essentially positioned long ahead of the hedge fund/managed money group. Now keep in mind we are not talking about giant hedge funds that you know. We are talking about the smaller ones with extremely less talented management who have a stronger tendency to believe in their trend trading systems and follow the herd. This is important because the bullion banks seem to control the gold game with what could be perceived as the help of the central banks and the BIS. They can crush the hedge fund/managed money shorts and they will choose the time of when they feel like beginning to harvest those profits and drive the gold price upward. The data shows that may start occurring in the later Summer or beginning in the Fall. Either way, do not forget that at this point the bullion banks are totally and completely controlling the paper gold game. Observe the following two charts, first by Nick Laird at and second by ZH, supporting the reduction in the big banks net short exposure and the significant increase in the hedge fund/managed money gold shorts, which supports the charts up above by McClellan.clip_image012clip_image013

That takedown last Thursday was enough to put the fear in any weak-handed gold speculator/investor. It appears to have been the work of the gold manipulators, which by now is well documented as being the work of the bullion banks in conjunction with the BIS and with the full approval of the central banks. And if you’re STILL in the camp that doesn’t think the precious metals are not manipulated or reserve judgment then please get a clue. LIBOR was reported manipulated and entire debt markets all over the world were affected. FOREX rates manipulated by banks through the front running of the rate-sets through Reuters system affecting THE biggest market in the entire world. Sovereign bond markets of the Western world are outright manipulated and accepted as the proper course of action via the quantitative easing which is the market operations by the Western central banks to simply monetize their own debt. Precious metals are manipulated because they send a most important warning message to the world about what is impending, so yes, I tend to agree with the contention that the metals are manipulated because the psychological effects are absolutely required to maintain control of the entire fiat façade. Control of the metals will also be required to slowly introduce a fix to the system and thus we see the bullion banks positioning their banks to the long side and will allow the release of the paper gold price at their own behest.

William Kaye, a hedge fund manager out of Hong Kong who worked with Goldman Sachs in M&A before forming his fund The Pacific Group in the 90’s, reported on King World News regarding the continued trading in gold that is exceptionally questionable:  “It’s the end game of a fantastic manipulation of the markets. I’m looking at my screen now as we talk, Eric. I’m in L.A. (Los Angeles), but we are still in Asian (trading) time with London just coming in at the moment, and we’ve traded over 94,000 contracts. So passing the baton to London we will have already traded 100,000 contracts. A normal night (during Asian trading) would be 20,000, to put that in perspective. So the question is, who is selling all of these contracts at levels that are multi-year lows? Who’s so keen to sell?… And if you need to sell, why are you selling at the worst time of day? Why are you selling in Asian time, which is always the thinnest section of trading?  Why don’t you wait for London and Chicago to take over? And the answer is very obvious, these markets are clearly and blatantly being manipulated. The people doing it have clear price objectives. My guess is they want to see a print below $1,300 (on gold) before they are done. That will allow people (trading for the bullion banks) to make profits on their shorts. The bullion banks, from the Commitment of Traders Reports that we’ve seen plus other information that we’ve gathered, strongly indicates that the banks, which are the  centerpiece of this conspiracy, have shifted rapidly from being on the edge of default, as ABN AMRO has already done, to being net long, and in some cases being very net long. So they (bullion banks) have taken the opportunity that’s been provided by the cover from what would appear to be official intervention, in what I suspect is the Fed and possibly the ECB, to take the other side of that trade. Now they are extremely net long and that sets the stage, in addition to a very promising technical picture, for a very powerful rally as we look at next week, into July and beyond. The second half (of the year) could be extremely explosive on the upside for gold and silver as well.”

Observe the following chart supporting Kaye’s thoughts and providing additional backing to McClellan’s charts up above. The very latest CoT as of 6/21/2013 was not available before I penned this, but several analysts contend that there is a small possibility that Commercials will actually print at net long next week for the first time since the beginning of the bull market, which would be very, very compelling for a potential trend change in gold if the $1,200 area is truly the bottom.


You’re all grown-up’s so you can ascertain for yourself the credence you put behind the entirety of what you have just read. The derivatives in combination with sovereign debts are the biggest economic issues in the world. I strongly advise you do not take your eyes off of them. Regarding gold, it’s my hope that if you were beginning to doubt the decisions you have made to position yourself in any precious metals or precious metals shares, that this article has reaffirmed your original reasoning. I, nor anyone, knows the when, how or what of the final outcome of the endgame here but as always; you know where I stand. SAND continues to be my absolute favorite way to play the precious metals and I continue to have no doubts about the final outcome of where SAND will trade.

A key to successful trading is risk management and hedging your trades accordingly. For you all, your hedges are generally your 401K’s and IRA’s that allow you to safely compound your investments in relatively safe, reasonably priced names. You get paid to wait with the dividends which fortunately helps you lower your bases and reduce the risk of your positions in riskier other plays, such as the precious metals shares or option moves. Concentrate on risk management and stick to playing the game within your tolerance levels. One should only speculate with capital they can afford to lose but more importantly, position sizing is critical. Going all-in in a game like this is a suckers bet, but I think failing to have any exposure to the precious metals sector would be foolish.

Read, Read, and Read some more.  Good luck out there.