The Cure? A Few Mixed Metaphors and a Good Bloodletting (SPY,GLD)

Stories abound of fortunes that were lost in a moment of anger.

 

Whether it was at the poker tables of Vegas or at the directors meeting of a Fortune 500 company, it’s all the same.  It’s happened aplenty on the sidelines of championship athletic contests, too, where a single, vicious outburst derailed the work of years and the cooperation and sweat of dozens, if not hundreds of individuals committed to a common cause.

 

And you can add to that list countless marriages, innumerable hospital surgeries, crucial military battles and even the fate of whole nation-states… sunk at the hand of an improper word delivered at the wrong time that broke the morale or concentration of key players in what, until then, had been an even-keeled endeavor stewarded by cooler heads.

 

Anger…

 

Sometimes the pressure is just too great.

 

During those moments even the juggernauts can run aground, the heroes slash their Achilles heels and, sure enough, the ship begin to take on water.

 

We’re not there yet…

 

There’s going to be a whole lot going wrong over the next few years, to be sure, friends.  And casting about for blame will be all the rage.

 

But will it really make a difference who’s at fault?

 

We don’t think so.  We believe proper preparation and sticking to one’s knitting is the only real ticket to surviving and thriving as the Great Unwind gathers momentum.

 

‘Why’ it happens may be academically interesting and worthy of a sentence or two, but being ready and getting through it is the real order of the day.

 

As to the aforementioned ‘why’, we say it’s the inevitable comeuppance for

 

  1. a number of grand fiscal and monetary errors undertaken by government and their banking buddies over the last several decades,
  2. a great deal of legislative and bureaucratic overreach,
  3. plain bad public policy, and
  • a libertine cultural milieu that discourages restraint.

 

And at this point, it appears there’s little that can be done to fend off the worst of it.

 

We should also throw in the following: that the lion’s share of the blame rests on our own weak shoulders for allowing it to happen, even if the cards were stacked against us, and it wasn’t always clear what choice we had.

The truth is, democracy may be “the worst system of government that exists,” as Churchill once opined, “except for all the others…”  And the bottom-line reason for it being so bad is that it requires too much grassroots oversight to keep it honest.

 

And none of us has the time.

 

Trusted your local representative, you say?

 

Not a wise idea.

Anyway, there’s still a great deal of money to be made doing exactly what we do here at Normandy, and, as always, we’re more than happy to have you along for the ride.  When the top is in and the wheels shoot from the axles, count on us to provide wise counsel and a cool head.  Until then…

 

Hold on tight, y’all!

 

We’re going to look at a trade now that requires your attention, so sit up straight and listen good!

 

It was launched back on the 25th of October in a letter called WAR! GOLD! DICTATOR! TRUTH!  There, we urged you to play a discrepancy we saw in the precious metals by buying the SLV March 17 PUT for $1.18 and selling the GLD March 112 PUT for $1.28.  Total credit on the trade was $0.10

 

And then?

 

We advised you to close out the long SLV option in our November 22nd letter, Markets Go BOING! for $1.72.

 

Today we’re recommending you buy back the short GLD PUT for all of $0.02.

 

And yes, we realize that commission costs are greater than the worth of the option, but we’re not interested in taking chances.  If the PMs reverse sharply, we stand to lose a great deal of “bird in the hand”, if you catch our drift.

 

Buy it back, get it over with, and call it $1.80 on zero money laid out.  Accounting for minimal commissions, that’s a take of 1100% in just three months.

 

That’s right…

 

There ought to be a law…

This Week’s Trade

 

We are witnessing something that is perfectly inexplicable at the moment, and that is, a market that’s melting up at the same time that nearly all traditional earnings and economic metrics, as well as fundamental and technical analysis are indicating that we’re overbought and due for a pullback.

 

The only data that contradicts that understanding is Main Street’s sentiment indicator, the American Association of Individual Investors (AAII).  Their weekly bullish sentiment figure still comes in at a relatively depressed 35.8%, while bears number just 27.6%.

 

Have a look –

All told, the average investor still sees the investing future as a murky, mixed to middling affair that won’t bag him much of a return over the next six months.

 

It’s the same way he’s felt for the last two years; indeed, bullish investors haven’t formed a ‘majority’ for the last 110 weeks!

 

Small investor sentiment, of course, is a contrarian indicator.  Until Joe Little decides to climb on board like a stallion, we’ll likely continue to see the indexes higher on an almost daily basis.

 

So what’s going to happen?

 

The truth is, the current trend could continue for another month just as easily as it could break and reverse course over the same period.

 

And that’s exactly how we have to play it.

 

Given the circumstances, the wisest course at this point is the non-committal one, a cheap, 60 day straddle that will catch the S&P 500’s next turn, whichever direction it may be.

- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]

With kind regards,

 

Hugh L. O’Haynew

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