Land of the Rising Gun Trade (KWHIY,GS,TLT,DJXT,DJXR)

 

We’ve spoken numerous times in this space on the theme of war and its place in the current investment cosmology, and we feel it’s time to expand that coverage somewhat today.

 

There are a great many conflicts underway globally that America is only involved in tangentially, but we believe that’s about to change.

 

There exists, for instance, the standoff between Russia and Ukraine, where U.S. forces have been growing incrementally; between Syria and a host of anti-government groups in that country, in which American forces have participated to date in limited fashion – although Russia’s recent entry into that sphere likely betokens an upgrade of American force in the region.

 

You have the Saudi-Yemeni conflict, in which Iranian and U.S. armed forces have until now played only supporting roles. Iraq, Korea, the South China Sea – across the globe, American servicemen are stationed in a great many simmering and outright hot locations that are just now about to get hotter.

 

1

 

The situation is unfolding, we believe, in tandem with an understanding that we’re on the verge of a global structural financial event. When exactly that event will occur is unknown, so the great powers are now engaging in a pre-breakdown ‘jockeying’ that they believe will best position them for a take of the spoils when the dust finally settles.

 

Will it be a World War?

 

It’s very likely the conflict will be global in scope, particularly because the major players are all currently engaged in advanced bicep-flexing exercises of one form or another – that includes the U.S., China, Russia and, yes, even Japan.

 

Not surprisingly, it’s only the Europeans who are struggling to assert themselves militarily, mired as they are in the worst of the financial mud of the times, fearful, too, of a new Russian invasion on their eastern flank, suspicious of flagging American support on their west, handcuffed internally by an unprecedented wave of immigration and refugee-seekers that tests their historically homogenous demography, and given, too, to that uniquely European penchant for philosophizing or otherwise dithering when the need for action is clear.

 

So much for Europe.

 

2

 

But where will it start?

 

The flashpoint for a full-scale outbreak of hostilities is also becoming clearer.

 

We can’t be certain, but we’ve a hunch the upcoming war’s Sarajevo, so to speak, will be Israel.

 

That country’s recent abandonment by the U.S., their increasing isolation diplomatically, mounting calls globally for the creation of a Palestinian State and an enormous concentration of American, Russian, Arab and United Nations forces on her borders, lead us to believe that the first salvoes of a genuinely global conflict will be fired over the high walls of Jerusalem.

 

It’s for that reason we’re watching developments in the Middle East very closely. And because the Israelis have an armed force that’s as potent as anyone in the region, we’re noting, too, how they respond to actions on and within their borders, for that will speak directly to what ultimately unfolds.

 

Precisely how and whom they choose to engage will be supremely significant.

 

How to trade this, Matty – let us know!

 

We’re going to offer you a trade on the foregoing in a moment. But first, we have three initiatives that require your attention. Let’s take a quick look at them.

 

First, on the 13th of August we penned a letter called We’re Selling the Bond Rally, in which we offered you two separate trades, one of which just closed favorably with the September options expiry.

 

The call was to sell the TLT September 126 CALL for $1.34, as we believed the stock had gotten far too extended at that point.

 

And it worked beautifully. The option expired worthless and we pocketed the full premium. 100% gain.

 

Next up was our trade launched September 4th. The title of the letter was The Goldman Sachs Strangle/Straddle Calendar Spread, and therein we offered the following curiosity. We sold a near term straddle on the stock and used the funds to purchase a longer dated strangle.

 

Well, the straddle was closed on the 21st of September in a missive called Unheard of Leverage on Bond Market’s Decline, netting us $446.

 

And today we’re closing the strangle. We have an open GS 195 CALL and an open GS 175 PUT. The former trades for $0.12 and the latter for $4.20.

 

Sell them both and you have $432, added to the straddle winnings of $446, and you have a gross take of $878. Take off the initial debit of $105 and your net winnings are $773 on $105 down. That’s 736% inside a month.

 

And that’s great.

 

Finally, back on April 14th, in a letter called A Rising Sun Pairs Trade, we went long the Wisdom Tree Japanese Tech, Media and Telecom ETF (DXJT) and shorted that country’s real estate sector (DXJR). We used the Wisdom Tree ETFs (DJXT and DJXR) because they were trading for nearly the same price and, more importantly, were hedged back to the U.S. dollar. That cut out any noise involved in the exchange rates between the two countries, allowing for a pure Japanese play.

 

We bought the techs for $30.92 and sold the real estate sector for $28.70, so the trade cost us $222 to initiate.

 

Today, we’re closing it down for a loss. The stocks recently moved in the wrong direction, and we’re not prepared to wait for them to reverse. We’re out.

 

DJXT can be sold now for $25.35 and DJXR can be repurchased for $26.66. That’s a loss of $131. Add it to the opening debit and your net loss is $353.

 

This Week’s Trade

 

We’re sticking with Japan this week – and our war theme – and offering this bombshell:

 

Consider –

 

1. Eleven new laws in that country now allow the Japanese army to fight overseas, anywhere the government believes the lives of its citizens are endangered.

 

2. The Japanese defense industry is now allowed to export heavy weapons and armaments for the first time since WWII!

 

3. The military budget in that country was also raised last year for the first time in over a decade, and we’ll likely see further raises so long as China’s saber rattling continues.

 

This is an explosive proposition, friends. A technologically advanced nation that enters the war business with guns-a-blazing and a top-end product.

 

Growth should be fiery.

 

The best of the Japanese defense stocks is Kawasaki Heavy Industries (OTC:KWHIY), makers of helicopters and ships, and currently vying to replace Australia’s aging submarine fleet. The stock has a market cap of $5.8 billion, a P/E ratio of 12.97 and a Yield of 3.24%.

 

It currently sells as an ADR over-the-counter for $13.92

 

Options Trader Elite recommends you 1) close your Japanese sector pairs trade as outlined above, 2) sell your Goldman Sachs strangle as detailed above, and 3) buy KWHIY with a stop at $13.

 

Many happy returns,

 

Matt McAbby

See what people are saying...

  1. Bonnie fuller

    UNSUBSCRIBE

  2. Lew Hodgerney

    Just a short note to let you know I like your thought process and look forward toward your insights.

  3. laurel

    timing IS everything

    nice trades on TLT

    tried to short ZB today to 157’31 a second time…got stopped out

    something else afoot

  4. steven m

    normandy has gone dark again – a few months ago they did the same thing, then just started back up again as if nothing happened. Don’t we pay for advice? I believe an explanation is in order, and a good one at that.
    If I didn’t enjoy your commentary I would have left a long time ago

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