Saturday, October 02, 2010

Emini Futures Trading / The Beat Goes On

The beat goes on. And on...and on. Despite numerous potentially market moving economic reports, despite multiple speeches by Bernanke and others, the market is about as tightly wound up as I've ever seen it. Although we saw 1 short lived spike to the upside and 1 quick trip to the downside, the majority of the week was spent in a 7-8 point trading range on the December S&P 500 Emini contract. The spike low touched our Weekly Trading Zone at 1127/28 and the spike high touched our Weekly Zone at 1151/52. However, the majority of the weeks trading played out between our Weekly Zone of 1136/37 and 1144. Why 1144? That was the weekly settlement price back on Friday Sept. 24th. On the 30 minute chart of the ES below you will see how it played a critical role the entire week. In fact weekly settlement price for this week was just below 1144 at 1142.25. After 5 days of trading the net result is we are now down 2.75 points on the week. Before I show you the 30 minute chart, I want to point out the powerful rounding top that appears to be forming on the daily chart. Globex has been excluded.
S&P 500 Emini Futures / ES / Daily Chart / Day Session

Last week John Paulson made a dramatic and what we feel to be prophetic speech before a packed audience at New York's University Club. In case you don't know who Paulson is, he's #45 on the Forbes list of the world's wealthiest billionaires and is worth approximately $12 billion as of 2010. On April 16, 2010, the New York Times reported Paulson had earned $1 billion in 2007, $2 billion in 2008, and $2.3 billion in 2009 from fees received from his hedge fund by betting against subprime mortgages long before the term became well known.
For those who have listened to this radio program over the last 5 years, you know that in 2005 we were pounding the table on 3 major issues - 
  • Don't buy real estate
  • Don't borrow money on an adjustable rate mortgage
  • Do buy Gold
It's very easy to say that now but we were saying it back then without the benefit of hindsight. Day, after day, after day. If you're new to the show and did not hear our dire warnings, we invite you to go back and listen to the audio archives. This is not to boast that we were right, it's simply to make a point that our thinking while somewhat unpopular at the time, was very much in line with what Mr. Paulson was doing. As we were ranting to our listeners about what not to do, we had no idea that JP was actually taking it a step farther and putting real money to work betting that the housing market and the U.S. economy at large would crumble. We were both right, he just made all the money. We've continued to pound the table on buying Gold for the past 5 years, and over the last 2 years we've added a new rant - 
  • Buy Real Estate (as much as you can)
Now, back to Mr Paulson's speech. Forbes' Bob Lenzer reports Paulson saying:
  • "If you don't own a home buy one."
  • "If you own a home, buy another one, and if you own 2, make it 3."
  • "While you're at it, lend your relatives money so they can buy a home."
  • "Buy Gold"
Now I'm no Paulson. I'm just your humble talk show host who trades his own account. And that's my whole point of bringing up his speech. I want you to take this seriously. We've been bullish on housing for a while now. On the show you've heard us talk of our recent real estate investments. Since December of 2008 we've bought a 2 bedroom / 2 bath condo in a gated community. A 3 bedroom / 2 1/2 bath condo in the same gated community. A 5 year old, 4,000 sq. ft., two story home. Total spent - $219k. The last time the 2 condo's sold they went for over $100k each. The home was previously on the market at $399,000.00. Using conservative accounting, we purchased $600k worth of real estate for 36 cents on the dollar. I point this out not to convince you how clever we are, but to let you know that although I did not bet on, nor profit from, the demise of America, I am very much betting on the rebuilding and recovery of America. My Gold and Silver was bought long ago. Those holdings continue to increase not only in value but also in quantity. (read more) I am however, still on the lookout for more real estate. As quick as the signs go up, I'm making the calls. We probably inspected well over 100 properties before we settled on the 3 we bought. It's not free money friends, but it is real money. If you don't listen to me, at least listen to Paulson, the guy who made over $5 Billion from the housing crisis.

Back to the speech: His reasoning is that home prices are great, the bond market is dead, and commodities like gold, which he also has a big prediction for, are on the rise.

According to InfoWars, he told the audience that he thinks the price of gold will hit $2400-$4000. And a whopping 80% of his assets are in gold.

Given his expectation for further money printing by the Fed – and that in 1980 the gold price rose by 100% more than the correlation implied – Paulson noted that the price of gold could hit $2,400 based only on monetary expansion, and as high as $4,000 per ounce based on a projected overshoot. 

Lastly, he noted that 80% of his assets are denominated in gold. 
We rarely hear Paulson's opinion on the market unless it's filtered through his stiffer research reports. As a result, he has never been so extreme in his predictions as he seems to be now.
Here's what Paulson sees coming:
  • Low double-digit inflation by 2012, killing the bond market, and restoring strength to equities and gold.
  • 2% GDP growth for 2011 and 2012
  • Gold hitting $2,400 to $4,000
It's worth noting that if gold goes to $4,000, Paulson will be a top contender for the richest man in the world. For the record, we'll say it again - Buy Real Estate, Buy Gold & Silver.
Weekly Trading Zones / Weekly Review

S&P 500 Emini Futures / ES

Dow Emini Futures / YM
Euro FX / 6E

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As always,
Pray Hard & Trade Safe!
CT
 
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