Greg Goes Short

Friday, 19 June 2020
Melbourne, Australia
By James Woodburn

 

The numbers coming out of the US this week were surprisingly good…

Shoppers opened their pockets and money spilled out into malls and auto dealers. The Wall Street Journal reported a record May for retail sales. Stocks and markets bounced.

Why then — on the exact same day — did Greg tell his readers to go short?

More on that in today’s video with him and Murray Dawes below.

Before we get to that though, there’s been some action this week amongst the editors.

First point of order: today we are officially reopening the doors of Murray’s excellent trading service, Pivot Trader.

If you’re not a subscriber of Murray’s service, this is your chance to find out what he does and why he’s one of our most praised editors. Well, recently we created a four-part course called The Metronomic Trading Workshop.

It explains and shows Murray’s methodology pretty well, and you should get something out of it regardless of whether or not you decide to put his service to the test for real or not.

Anyway, it’s only open for the next five days, starting today. So do check it out.

The week kicked-off with two alerts from Ryan Dinse…

Ryan was expecting a dip and then the bounce, as he told his Billion Dollar Breakout Trader subscribers:

Well, right on cue we finally got our market dip late last week.

The Dow Jones plummeted almost 7% on Thursday and our market joined in the selling on Friday.

The US market bounced a little on Friday, so I expect our market to do the same today. Though it could be an interesting week.

But like we said in Thursday’s weekly update:

There’s no question that this surprisingly strong market will need to slow down at some point. Every bull market dips at some point.

And at that point the bears will be out saying that a second collapse is coming.

Any second wave of coronavirus will add fuel to that fire too.

But I think right now that any pullback will be a ‘buy the dip’ opportunity for us. And I’ll be on the hunt for small stocks that are holding up OK on any pullback.”

I think today’s trade idea is the perfect “early dip” candidate.

Ryan actually offered two trade ideas this week, though the trades are yet to fall to his buy zone. As of now, the dip isn’t in, but his subscribers are ready.

Meanwhile (not surprisingly) Vern Gowdie is on the other side of that thinking…

Here’s what he told Gowdie Letter subscribers:

I am writing this in the afternoon of Friday, 12 June.

The Dow had an overnight fall of 1,862 points and the ASX 200 was off about 100 points.

While the Dow’s fall made for a great headline, it merely blew the froth off a very bubbly market.

The latest valuation table published by Ned Davis Research shows the US market flashing RED!

The Insider

Source: Ned Davis Research

There is absolutely NO value to be found in the US market.

Even blind Freddy can see that fundamentals are being ignored.

At present, the sole driver of market momentum is speculative fervour.

Trying to gauge just how far and fast this youthful enthusiasm for hot stocks will go is an almost impossible task. 

Is the Dow’s 1,862-point correction the dawning of reality or will it a rallying call for the buy the dippers?

Vern’s taking a bet that it’s the former, and reiterated a further recommendation of 10% of any capital on his BEAR and BBOZ investments. These two ETF plays are structured to benefit as the markets falls.

He won’t mind me stating those specific recommendations here, either. He did it himself in a recent open invitation to The Gowdie Letter.

But you’ll want to understand his key reasoning (and the risks) before considering those moves. Vern actually does both in the letter linked above. You’ll need to be able to cope with losses while waiting for any anticipated correction.

Whatever the case, Vern is buying more at these levels.

A new chapter for Sam Volkering…

Meanwhile, Sam gave his final crypto round up to Secret Crypto Network.

For those that don’t know, Sam’s decided to part ways with us on a fulltime basis.

Sam’s done an amazing job these past seven years. He’s been a true pioneer in the ideas he’s uncovered for our readers.

Not only has he worked extremely hard and been one of the most prolific editors in our business, he’s an absolute diamond of a bloke, too.

So, from me on behalf of all the team here and also on behalf of all our readers, I’d like to take this opportunity to wish him all the best in the next chapter of his career.

However, it’s not really a final goodbye. We’ll still be publishing his VIP technology letter, Revolutionary Tech Investor as he writes that for the UK market, too.

It’s just that he’s devoting his fulltime work with our affiliate company in London. It does mean, though, that we are closing down the Secret Crypto Network service.

I just wanted to let you know.

Now, how come Greg decided to ‘go short’ this week?

Check out the video he, Murray and myself recorded yesterday at around 11am. Either click here or on the screenshot below to play it.

 

Woody:

Hi, Woody here for The Insider. Now, I’ve dragged Murray and Greg back on camera today because I thought we could follow on from the number of conversations that we’ve been having lately about whether we are approaching a turning point. It’s kind of weird though because the first time we had this chat, it was around four to five weeks ago and we’ve had ups, we’ve had rallies, we’ve had crashes. We’re almost back to the same point we were when we first started having the conversation. I just thought rather than cover that same ground, perhaps we can look a little further out.

Woody: I thought that’s why I’d start with you, Greg. We were chatting this morning just before this call. You’re kind of looking a bit further out to September because the consumer spending figures, the near term consumer spending figures in the US, have come out a lot stronger than expected, that they’re stimulating like crazy. I think it was 6.6 trillion now. It was essentially artificial government support, but you’re looking out to September as being a pivotal, pivotal point. I believe you put a short on. So I thought you could kick off the conversation by explaining why and what you’re seeing that far out.

Greg:

Yeah, no worries, Woody. Yeah. Look, there is a lot of stuff going on in terms of liquidity and stimulus. I think that’s a big part of the reason why we’re seeing the market move so far so quickly, and that’s been a theme of our discussions the last couple of times we’ve met. How long can this continue to go on? When will the markets retrace a lot of these gains we’re seeing purely based on central bank support, government support? And you’re right, between the Federal Reserve’s balance sheet expansion and Congress stimulus efforts, we’ve seen six trillion dollars going to the US economy in just the past few months. Of course that’s going to translate into these huge share price gains because where else is the money going to go to?

Greg:

What I’m looking at, we’ve been talking about these potential turning points and what I’m wondering is, at what point will the market start to look forward a few months and how will they interpret the withdrawal of some of this stimulus? A few other things just for the Aussie market, for example, a few of the things I jotted down that is going to be approaching in the next couple of months. We’ve got free childcare ending on the 12th of July. The JobKeeper payment is ending for childcare workers very shortly as well. At the 7th of June, there were 500,000 mortgages with 172 billion that had been deferred. Those payments deferred freeze up money to spend elsewhere. Of course, a lot of that money will be going into consumer discretionary purchases.

Greg:

By the end of September or at the end of September, a six-month moratorium on residential and commercial evictions will end. That means reality is going to hit a lot of people who haven’t been able to afford to pay their rent. They’re going to have to do something about that. The end of September, JobKeeper payments could be wound back before the September end date. The government’s already started to talk about that.

Greg:

As you spoke about a little earlier, as the economy opens up and the job positions are opening again, especially for, I guess, the retail worker and cafe and casual workers and things like that, a lot of workers are reluctant to go back to work because it’s better for them to stay at home and get a larger JobKeeper payment. So the government is going to have to pull away some of this stimulus spending. Of course also at the end of September, you’ve got the $550 coronavirus boost to Newstart payments disappearing as well. There’s a lot of money that’s going to start to exit the economy.

Greg:

For me, I’m looking at a lot of these consumer discretionary stocks that have outperformed massively. They’ve had very, very strong runs over the past couple of months. If I see them start to turn down in the weeks ahead, then that’s going to be a suggestion to me that perhaps this very quick rebound that’s probably better than a lot of people expected, we’re going to see a bit of reality hitting in the next few months. That’s really what I’m looking at is, what does the world look like when there’s less support for the economy and for stock markets?

Woody:

Do you think they’ll actually let that happen though?

Greg:

Well, I guess it’s not a case of letting it happen. They’re certainly not going to pull that support in one go, but they’re going to ratchet it down. Of course, the way stock markets react, it’s all about the rate of change. So if the rate of change starts to drop just slightly, that’s going to have an effect on stock prices. As you mentioned before, that’s why I put a short on the ASX 200 just yesterday actually purely because I thought, well, if there is going to be a turning point in this market, it’s going to happen pretty soon. If I’m wrong, the risk reward ratio is pretty good. So if I’m wrong, I’m not going to lose too much money if I’m out. If I’m right, sorry, it’s going to do very well. I think Murray’s probably on a similar thought pattern to that. Look, we’ve been talking about turning points. If we get one, it’s going to be pretty soon.

Woody:

Murray, what are your charts telling you about that then? Because I know Wednesday’s Insider, you were talking about the fact that if bond yields aren’t allowed to rise and the money printing continues, we’re in for a pretty inflationary period. You’re on mute, Murray, by the way.

Murray:

I’ve been muted. There you go. Look, do I know that inflation is coming down the pipe? I don’t because inflation has been something that we had our eyes on for the last 10 years and it’s never shown its head, has it? It’d be a pretty big call to come out and say you know that inflation is coming. But I just think there’s a lot of talk about the Fed possibly doing yield curve control, and that would be actually putting their foot on the long bond. Something like the 10-year yield, an area which they haven’t really had control over. But of course, if they’re keeping rates near zero, they’ve had an effective way of managing the long bond. They have been buying the long bond with QE.

Murray:

But here is where they’re saying that they’re going to actually say, ‘No, it cannot go above this level,’ which is price fixing. That’s price fixing at the core of asset markets worldwide, which is the government debt markets in the US, which is such an important pricing mechanism for everything. That step, if it’s coming from the Fed, I think it’s a very big step and ultimately negative. It may work for them initially, but I think once you say that your long bond cannot rise at all, and then you’re issuing trillions of dollars from Trump to try to get re-elected to spread as he can and the Fed is buying all of that debt with printed money. If you can’t see that from a pretty rational perspective that that’s going to lead to problems down the pike, for me, it really stands out as something that can end up being an inflationary kick off.

Murray:

The first signs of that will be with gold really shooting. I think everything’s just pointing to…whatever happens from here, gold is looking pretty solid and it’s been solid even though marks have been rallying, gold’s been holding up near its highs. You’d think there’d be a bit of selling based on taking away the safe haven aspect of gold, et cetera, but it’s just been holding in there. I think it’s a big picture possibly where we’re getting closer to that point of that massive bust out in gold where they’re really starting to stuff with things.

Murray:

But as far as the markets go, yeah, I got short yesterday. I basically bought lots of puts. I very rarely do that sort of thing. Went short in the US market and I sold out of stocks last week before that big sell-off. DOW fell 7% in the night. I mean, you say that the market is at a similar point. It’s at a similar point, but a lot has actually happened where you’ve had the big selling that I’ve been talking about coming at the sell zone of the wave in the crash. When that came in, where I expected it, and it was big. That’s the big picture selling that I’ve been waiting for.

Murray:

This rally in the last week has really been just shaking out the short-term traders who’ve been trying to get short, and now it’s starting to turn back down again. For me, the setup is something that I very rarely see and it’s after the fastest crash in history. For me, I’m really on tender hooks and I’ve actually…I mean, I said in my update yesterday, this could be the trade of the year. Yeah, I’m basically thinking if the momentum shifts back down here and the 200-day moving average is not far below here, if that cracks, I think the market can really get pounded quite quickly.

Woody:

Are there any other sectors or things that you’re actually long in, or is it just gold?

Murray:

I’m long. I mean, I’m long on a bunch of stocks and I’ve bought some internet retailers even just to have for my own benefit, just so I’m getting it right for you. Look, I’ve then bought media companies and taking profits. Even smaller cap companies in different sectors, but basically taking pot profits in them. I’m sitting back, and my stop-loss is at a point far enough away where if the market does get pounded and we get taken out, we’ll have no loss.

Murray:

I’m really trading carefully as far as my longs are concerned, but we know the amount of stimulus that’s happening. Who knows, it could keep going to the upside. I’m weary, but what’s my overall portfolio? Probably pre-market neutral. I’ve gone short all of that and I’m long stocks. I think the US market is going to get hammered, but there are stocks that I like long term.

Murray:

Look, it’s a very tough environment due to all of the constant intervention and the aspect of, is there going to be a second wave? We’re seeing things happening in Beijing with the virus, we’re seeing things in the US states that are starting to pick back up. Look, it’s a pretty dynamic environment, but right now my charts are basically saying it’s one of the best opportunities for me to get short in the short term.

Woody:

Traded year. That’s a good one. Hey, Greg. So you’ve got a short one, but you also mentioned a play in the US dollar as well.

Greg:

Yeah. I mean, that’s another, I guess, form of a market hedge. I mean, even though the US is printing loads of dollars like every other central bank around the world, in times of stress, the US dollar does get stronger. I think the Aussie dollar has had such a spectacular run. The Aussie dollar, I think, will have trouble sustaining that run given that we’re not really in [inaudible 00:15:26] economic expansion. My view is that that run is effectively over at around the 70-cent level. So I put them on a buy US dollar position around there.

Greg:

Just to sort of give you some context, longer term, I’m reasonably bullish on stock markets. There’s a lot of stocks in the Aussie market that a reasonably good value. Shorter term, I’m concerned purely because of the liquidity that has [inaudible 00:15:52] prices in the short term. We’re not really sure what some of these stocks and earnings are going to look like once a lot of this stimulus moves back out of the market. So long-term bullish, short-term bearish, and just to, I guess, create a bit of a profit opportunity around that short-term view. Long US dollar and short the Aussie market just to try to have some profit opportunities.

Greg:

But I think if we do get a solid pull back from here, it’ll be a really good opportunity to pick up some stocks that are showing reasonably good value. For me, it’s not all bad. I think there’s plenty of good things to look at, but based on the amount of intervention that we’ve had, you just need to be a little bit nimble about the way you look at things, because the volatility that that creates does mean that stock prices can move very quickly and quite a lot in a short space of time. So you really just need to manage that potential volatility and not get into a position too quickly when you think that there’s a shorter-term risk.

Woody:

That’s been really interesting. I thought we could end on more of a different slant of a question, more macro sort of question. Greg, are we approaching, forget the welfare state, are we approaching the welfare world right now? Where it gets to a point where it’s more profitable just to literally stay at home than actually go to work because the government’s got your back.

Greg:

Yeah. Look, I mean, you’re seeing so many examples of that and it’s not just this COVID-19 thing that’s brought it out. I mean, as a society, we’ve been lurching to the left and to the welfare state for many years now. If you look at what a lot of these protests are about and young kids through with their ideas about how the economy works and they’re sort of cheerleading for socialism, it’s a real concern about the way the world is going.

Greg:

But at the end of the day, you cannot get paid by printing money and doing nothing. There will be some sort of a feedback loop that just tells the world, this is not how things work. I mean, we all know that you get paid from working hard, adding value. Really, if everyone wants to sit home and do nothing and get paid by government printing press, that’s when inflation starts, because nothing will be produced and there will be more and more printed dollars chasing those fewer produced goods. So that’s really the outcome of that sort of mentality. As the saying goes, you reap what you sow, so if that’s what we think how the world should work, then we’ll certainly be shown that that’s not the case.

Woody:

Yeah. Murray, I guess we’ll end on you because we’ve got Pivot Trader opening up next week for a new wave of people that want to try it out. Have you got any final remarks, any final thoughts, what people should be looking for next week?

Murray:

Next week. Well, yeah, like I just said, I’m currently looking at this market as one of the best opportunities I’ve seen in a while to get short. I think we can have a pretty quick sharp 10% correction even, 2,800 is my initial target in the S&P, which is at mid point of the whole crash. So usually markets oscillate and return to the midpoint because that shakes everyone out. Bulls and bears. So if we do turn back down, I mean, it can be a pretty sharp move to there. I’m basically setting up trade so that I can take advantage of that and then hopefully make money whatever happens from there. I want to get myself in the cheap straddles, as it called. So I’m buying out of the money puts. Market will get there, take a profit, buy calls, and create a straddle. Then from there, I don’t really care what happens. Clients will make money either way.

Woody:

Yeah. There you go. Well, thanks guys. I think that’s a good place to wrap up and we’ll have more for you next week. Cheers.

Murray:

Cheers.

Greg:

Thanks, Woody.

Have a great weekend.

Cheers,
Woody