Remember just a little under a year ago we were told that all that was needed to get back to normal was a 2-week lockdown in order to ‘flatten the curve’? Those were the days! But no worries, we are most definitely NOT going to bitch about the COVID crisis today. Instead let’s be productive and go over two exotic concepts that are usually relegated to a small group of insiders active in the commodities futures market: Backwardation and roll-yield.
The retail option bubble continues higher with institutional traders watching on in utter awe as to the outright insanity that is taken place in front of their eyes. And of course are taking full advantage per the old aphorism that a fool and his money are soon parted. This is going to be extensive as I’m literally going to bombard you with charts and graphs today. So grab yourself a cup of Java or whatever non-GMO organic sustainable cruel-free tasteless concoction that tickles your fancy, strap yourself in, and get ready for a wild ride.
Okay, not really as I’m a cantankerous old fossil who still clings to his 5 year old iPhone 5SE (I hate large phones and anything > 4 inches is competition). But that also means I’ve been around the carousel a few times and therefore recognize a premium setup when I see one. And let me tell you – big tech was literally throwing itself at me last Friday. And to no surprise a few small gambles taken then have all paid off in spades. Let’s review – or in case you missed out (again) – watch and weep:
With a new administration on its way in and growing concerns about the Fed’s unmitigated money printing initiatives many are starting to wonder if the big stock market party of the Trump years is finally over and where we may go from here. Given that social spending is expected to massively increase along with taxation in the upper income brackets the dynamics that have been driving the market could rapidly be shifting.
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Social media giants have been channeling their inner Wile E. Coyote over the past few days for rather obvious reasons you are most likely aware of but which clearly fall outside the context of what we do and worry about here at Red Pill Quants. Again, there is a myriad of places that relish in that kind of discourse and if you feel like yelling at and insulting people you’ve never met on the Internet you’ll be much better off over there. So let’s put our respective political ideologies on ice for a moment and simply look at what’s going on from a purely strategic perspective. Or in other words – how we can we take advantage?
If there is one unrewarding duty I continue to claim my own then it is to caution you against relating your trading activities with your own personal beliefs, may they be ideological, political, spiritual, religious, or otherwise. I am not saying you should abandon them in any way. Quite on the contrary – they may be the ones that keep you sane as a human being, especially in these trying times. Bu if you hazard in participating in the big game you will have to force yourself to draw a clear line between your actions as a trader and any other pursuits or interests in life.
Given all the political drama drowning out any common sense at the current time I wouldn’t blame you for having missed the news. Turns out 140,000 jobs were lost in December alone and I fear things may only get worse from here. Unfortunately if 2020 reconfirmed anything then would be to never underestimate the market’s ability to fade structural economic problems of tectonic proportions. However as the old saying goes: you can run but you can’t hide (forever) as we are now starting to see the first emerging cracks.
In 1815, Rothschild made his now famous statement: “I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls the British money supply controls the British Empire, and I control the British money supply.” I read this statement as a young man and while it instantly became ingrained into my conscious it henceforth established the basis for my general outlook on life. Which in simple words boils down to “fade all the noise and just follow the money“.
For 2021 won’t be a year for the faint of heart. If you’re happy that 2020 is squarely in your rear mirror, then keep in mind that despite all the political and social chaos you may have endured we at least enjoyed a roaring stock market. When was the last time you witnessed a whopping 42% rally in the SPX – or any other sector – in the course of only 9 months? Okay, except for BTC perhaps 😉