Now is the right time for the ‘Trump Trade’
- What Jim said
- A leveraged Trump play
- We’re not pro-Trump, we’re anti-mainstream media
- Trump Trade 2.0
- Trump in, Yellen out?
Well, what do you know?
As the Washington Post reports:
‘In a four-way contest in a tracking poll conducted Thursday through Sunday, Trump had 46 percent of the vote and Clinton had 45 percent.’
Could Trump really win?
He could, you know. And we’ll show you how investors could protect their wealth from the outcome of a Trump win, and potentially even profit from it.
Overnight, the Dow Jones Industrial Average fell 105.32 points, or 0.58%.
The S&P 500 index fell 14.43 points, or 0.68%.
In Europe, the Euro Stoxx 50 index fell 32.1 points, for a 1.05% drop. The FTSE 100 fell 0.53%, and Germany’s DAX index lost 1.3%.
In Asian markets, Japan’s Nikkei 225 index is down 215.45 points, or 1.24%. China’s CSI 300 index is down 0.32%.
In Australia, the S&P/ASX 200 index is down 58.07 points, or 1.1%.
On the commodities markets, West Texas Intermediate crude oil is trading for US$46.39 per barrel. Brent crude is US$48.14 per barrel.
Gold is US$1,288.83 (AU$1,685.26) per troy ounce. Silver is US$18.38 (AU$24.03) per troy ounce.
The Aussie dollar is worth 76.47 US cents.
What Jim said
In a video specially recorded during The Great Repression investment conference last Friday, Jim Rickards said:
‘We have a US election, let’s see what happens. But I think there could be the possibility of a shock Trump victory. The markets are priced for Hillary Clinton, but if Trump wins I think Gold will go up $100 an ounce overnight.’
Overnight, the US market fell nearly 1%.
At the same time, the gold price gained more than 1%.
That’s the ‘Trump Trade’.
Trump is now ahead in the ABC/Washington Post poll by one percentage point. Late last week, before the US Federal Bureau of Investigation re-opened the case into Hillary Clinton’s email server, Trump was behind by one percentage point.
Just over a week ago, Trump was behind by 12 percentage points. That’s right, it’s a 13 percentage point turnaround.
Not only that, but the poll doesn’t fully reflect the potentially changed attitudes following the FBI announcement. That’s because only half the poll was taken after Friday’s announcement.
For months, the mainstream press has poured scorn on Donald Trump. Even the local mainstream press, including The Age and Sydney Morning Herald, have taken shots at Trump every day on their websites.
And yet today, a week out from the vote, Trump is one percentage point ahead. It’s a stunning comeback. Arguably, it could be the most stunning political comeback of all time.
We detail what we’re calling the ‘Trump Trade’ here.
A leveraged Trump play
The ‘Trump Trade’ is pretty straightforward.
There’s no secret to it: buy gold, sell stocks.
That has played out over the past week. Check out the chart below.
Click to enlarge
The white line is the futures price for the US S&P 500 index. The yellow line is the gold price.
I’ve circled the point when the FBI re-opened its case into Hillary Clinton’s email server. You can see the slump in stock prices and the rise in gold.
On the right of the chart, you can see stocks slump again, and the gold price rise. That was following the release of the latest ABC/Washington Post opinion poll, which showed Donald Trump up by one percentage point.
Does that mean Trump will win? No.
Does it mean that Trump will be bad for stocks and good for gold in the short term? So far, it looks like it. But who can tell?
Does it mean that Trump will be bad for stocks and good for gold in the long term? We don’t know.
But what we do know is that, regardless of how things pan out, there is plenty of volatility in store for the markets. Now check out this chart of the US Volatility Index, the VIX:
Click to enlarge
The volatility spike on the extreme right of the chart is part of the ‘Trump Trade’. In fact, if you just want to trade volatility, then buying call options on the VIX could be one way to play it. Although, if you know anything about options, you’ll rightly guess that the premium on call options has also risen in recent days.
For instance, the price of the VIX call option with an index strike price of 18, expiring in December, has shot up from US$1.40 last week, to US$2.28 today.
It means the VIX would have to climb to around 20.28 in order to break even. That’s just over 10% above where it is today.
Is that likely or probable?
The real question is whether it’s possible.
We don’t know whether Trump will win. And we’re not bothered whether he does or doesn’t (although, we do like the idea of Trump poking a finger in the eyes of the Washington Post, New York Times, and the Sydney Morning Herald).
But from an investing point of view, it’s important to understand the impact this has had and could have on the markets. It’s why we suggest you check out our ‘Trump Trade’ here.
We’re not pro-Trump, we’re anti-mainstream media
If you think we’re cheering on Trump politically, don’t get ahead of yourself.
Ours isn’t a ‘vote’ for Trump, rather it’s a ‘vote’ against the mainstream media.
In the same way that we were happy to see Jeremy Corbyn re-elected as leader of the UK Labour Party.
Corbyn is an old school socialist. I doubt if there’s more than a handful of issues where we would agree. But when the mainstream press, both left wing and right wing, try to shout down a chap who has consistently held the same views for 40 or more years, we’re happy to stand up for him.
Most politicians blow with the wind — they’re after the easiest path to power.
Trump Trade 2.0
Just so you’re clear, there’s more than one ‘Trump Trade’. There’s the trade I’ve taken to calling ‘Trump Trade 2.0’.
It involves gold, but it doesn’t involve buying gold.
It involves a different way to buy gold…a leveraged way.
Over the past week, the gold price is up 2%. But another way to buy ‘gold’ is up 3.3%.
In fact, overnight, this other way to buy gold saw a 3.2% gain. And more gains could be on the way if the odds of a Trump presidency grow.
What is this other way to buy ‘gold’? It involves buying a particular type of gold stock. For full details, go here.
Trump in, Yellen out?
If you’re sick of Trump, get used to it. There is almost nothing of as much interest to grab our attention over the next week.
The only other thing worth noting is tonight’s meeting of the Federal Open Markets Committee (FOMC), the US Federal Reserve’s interest rate setting committee.
The market has just a 16.1% probability of the Fed raising interest rates tonight. But the thing that will interest markets the most is any subtle change in wording, and any indications of whether the Fed will cut rates in December.
Remember that current Fed chair, Janet Yellen, has been on the receiving end of Trump’s criticism of the Fed. If Trump wins next week’s vote, it could cast doubt on whether Yellen would remain as chair, or whether Trump would try to boot her out.
And what would that mean? That’s right, more volatility. Maybe the call option on the VIX isn’t so expensive after all!