Flash Update – December 4, 2020

Published on: December 4th, 2020

The reflation story is picking up a head of steam. Some action is required, especially in currencies and precious metals. For good order, stops and targets have been tweaked in existing positions to align them with developments since Julian’s last In Focus. Everything is consistent with the orientation analysis of the Deep Dive last weekend.

Comments

  • JS
    J S.
    7 December 2020 @ 14:52
    Really appreciate your comments. Do you worry that short USD, long reflexive has become a consensus trade? Some parts of it taken to a extreme (COT positioning). Thank you!
    • HM
      Harry M. | Real Vision
      14 December 2020 @ 18:10
      With regard to this, in a morning chat with JB this morning and this idea did come up. I think COT is only a sample of real fx market positioning, but we notice that a number of banks have recently come round to our way of thinking on this. And there are mixed messages on whether there is a chance of a funding squeeze over year end. So whether you still want to be in this trade over year end depends on whether you are taking a long term view or more of a trading view.
  • SS
    Shanthi S.
    7 December 2020 @ 09:53
    Thank you Julian! Great stuff.
  • JM
    Joeri M.
    5 December 2020 @ 10:29
    Hi Julian, I have a question regarding your view on gold, silver and the mining stocks. In the first half of 2016, the gold and silver price increased sharply. In the second half of 2016, interest rates started to rise and gold got crushed. You got that completely right in 2016. I'm wondering now why gold wouldn't react the same this time as it did in 2016. If interest rates start to rise again, why wouldn't gold start to decline, just like it did in the second half of 2016? Real interest rates are now already extremely low...
    • PT
      Pradeep T.
      5 December 2020 @ 12:34
      Julian mentioned that Fed will be forced to do a yield curve control to ensure that rates don't raise (otherwise govt/corporate debt will be a burden)... which implies that Fed gives up on taming inflation; and so the bull case for gold.
    • SC
      Sanjeev C.
      6 December 2020 @ 00:15
      Gold is more correlated with real rates, which is: nominal(market rates) minus inflation. So it depends on extent of change relative to inflation
    • JM
      Joeri M.
      6 December 2020 @ 18:24
      Hi Pradeep and Sanjeev, Thanks for your answer. I understand the ycc argument and this is long term bullish gold indeed. However, I'm worried about the time between now and when we'll get ycc. Rising nominal rates will probably also lead to rising real rates since real rates are already very low. Once ycc is active, rising inflation expectations will lower real rates again. So long-term I'm bullish, but short term I'm in doubt with regard to the fundamentals. For those interested, I wrote an article on the technical aspect of gold. Gold always shows the same pattern once it breaks all-time highs. We saw it in 1978, 2007 and 2010 for gold in the us dollar. We saw the same these last few years for gold in the euro and GBP. I made a historical analysis in the following article: https://en.theadaptive-investor.com/post/dream-scenario-in-gold-is-starting-to-unfold The technical picture looks perfect for me, I'm however not certain about the short term fundamental case for gold...
    • SS
      Shanthi S.
      7 December 2020 @ 09:45
      I share your concerns on the short term Joeri. Hoping it does pull back hard for a nice buying opportunity. Will read your article. Thanks for posting the link.
  • MC
    Marcin C.
    6 December 2020 @ 15:58
    Hello I understand the logic behind commodities being good deflationary trades with a weakening dollar. The problem being that for gold and silver the correlations vs dollar have shifted from highly negative to postive recently (0,50 for last 30d) meaning usd down, gold/silver down. It seems to be connected with rising yields for us treasuries recently. With rising real rates gold is not a good investment.
  • JK
    James K.
    4 December 2020 @ 21:34
    Silver, 2nd 1/3 buy @ $22- ? The lowest recent low I show on Bloomberg is on 11/30 is $22.59- ?
    • JL
      J L.
      5 December 2020 @ 10:13
      21.9 cash silver 22.005 first future
  • JK
    James K.
    4 December 2020 @ 21:39
    Julian/Harry .... thoughts either way on PDBC .... ? TIA
    • JK
      James K.
      5 December 2020 @ 02:05
      BTW, that’s a commodity ETF
  • JH
    Joshua H.
    5 December 2020 @ 00:33
    Raoul made a good point in the last conversation regarding the perceived conflict in views... its mainly a timing difference... JB has a shorter outlook and RP is looking out 6-12 further in time. As for platforms.. TastyWorks is excellent in all regards but I am goingnto open an Interactive Brokers account to grab access to more obscure instruments. Looking forward to the December conversation... what a year it has been. What a group to be a part of!
  • AI
    Andras I.
    4 December 2020 @ 23:24
    As there are more and more people from overseas here and everyone is focused on return, something to add...as obvious as it sounds: If you're investing in USD but you're spending in other currencies (CNY in my case), this is a good spot to think about hedging your currency risk as if Julian is right things can get nasty! Even in a range bound DXY environment of last few months, I could have lost over 8% over a few months as USD.CNY went from over 7 to 6.5 - if I didn't hedge (using CNY futures).
  • WM
    Wai M.
    4 December 2020 @ 16:30
    how to sell DXY?
    • BM
      Brent M.
      4 December 2020 @ 16:41
      I'm wondering the same thing. Also, wondering what platform is recommended to take a EURUSD or USDBRL Position? I know Raoul commented on one a few months back, but I can't seem to find that comment. Can anyone advise on the best trading platform for such trades? My current trading platform only lets me trade equities, Etf's, and options. I couldn't figure out how to just buy the Nikkei, so I bought a JPN Nikkei 400 ETF. I would love to be able to take positions more exactly to the ones Julian and Raoul are posting. What platform offers this? As a bonus, it would be nice to have a leverage option as well as one can do with FTX for Crypto trading. Taing a little leverage with managed risk through utilizing their stop loss targets would amplify the trade returns. Currently not able to do this.
    • HM
      Harry M. | Real Vision
      4 December 2020 @ 17:23
      Re Brent M's question, I use Interactive brokers who have a BRE future. Its quite a small tick size so relatively comfortable to use. The obvious alternative is to use the Brazilian equity ETFs.
    • AI
      Andras I.
      4 December 2020 @ 23:06
      DXY: DX futures (on ICE) ara available on Interactive Brokers (after updating permissions) - data can be purchased separately if needed (they only provide delayed and ICE is a bit expensive if only used occasionally). This can be leveraged of course. Although ICE doesn't seem to publish static margin requirements, only their risk model, currently on IB the initial margin requirement is $2300 for a contract (current month worth $90735 at the moment), commission at $2.2. DX futures options are also available but I think I would steer clear of them considering timeframes are questionable with too many dependencies. Alternatively the most popular seems to be the UUP ETF or options or it's short variant UDN. BRE: There is one ETF I just found (out of curiosity as I'm already overweight EM and like Harry said BRE futures are probably a better way) called BZF by Wisdomtree..but seems like it's small ($23M) and questionable liquidity with a relatively high (0.45%) management fee. I previously held the Wisdomtree emerging market strategy ETF (CEW) that holds Brazilian real, Mexican peso, CNY, IDR....etc. Relatively liquid (although not like FX or futures) and has options...if you're looking for a more diversified EM/USD option.
  • ly
    lena y.
    4 December 2020 @ 20:53
    I have to say this has been a good year! For me spiked up my usual portfolio with a little crypto improves my performance and I thank both Raoul and Julian for it! Happy Holidays gentlemen!
  • BK
    Brian K.
    4 December 2020 @ 18:23
    I've used the Sprott trusts for trading positions in silver and gold in the past. Unfortunately, they do not have a pure platinum trust (paired with palladium). Does anyone have any experience or thoughts on Aberdeen's physical platinum trust (PPLT)?
    • cd
      chris d.
      4 December 2020 @ 18:47
      Hi Brian. I have been in and out of it a couple of times. Its seems relatively liquid and as you've probably checked trades close to the platinum spot
    • BK
      Brian K.
      4 December 2020 @ 19:47
      Thanks Chris D.
  • SC
    Sanjeev C.
    4 December 2020 @ 19:27
    Thanks for the update, @Julian. I am new to RV Pro and wondering about your thoughts on GDXJ v/s GDX? Not worth the volatility?
  • cd
    chris d.
    4 December 2020 @ 18:45
    Thanks Julian. great update. just wondering though if you have any preferred commodity ETF's. on one video someone mentioned a metals ITF, but i can't find the reference again. Do you know of it or another? Chris
  • Dv
    Daniel v.
    4 December 2020 @ 15:18
    As long as I have been a Pro Member (April 2020) Raoul and Julian have opposite views: Long USD vs Short USD, Long Bonds vs not liking bonds, Selling GLD&GDX vs buying it. (Almost) All-in BTC vs thinking governments will step in and ban it. The list is longer but so far Julian is killing it. Raoul has mainly be very successful on his crypto trades.
    • CH
      Charlie H.
      4 December 2020 @ 16:36
      Long almost any risk asset has been favorable since the March bottom. Julian definitely nailed it with the anti-USD/reflation trade especially with Silver and short USD. Raoul while slower on GLD/GDX/Silver did take positions on those long. Short USD has been painful but definitely made up with long BTC/ETH. Long bonds not as bad but still negative for now. In aggregate both have done well since the bottom. Moving forward I think the risk is we go parabolic in all risk markets setting up a potential bust.
    • HM
      Harry M. | Real Vision
      4 December 2020 @ 17:25
      Exactly how my thoughts are evolving Charlie H. Thing is, the key difference between JB and RP is what happens after that bust. JB would argue that we will get more of the same stimulus and extend and pretend and that it will be successful in reflating markets.
  • RL
    Robert L.
    4 December 2020 @ 16:36
    Excellent paper, thanks Sir!