'Safe Haven' death spiral - part II

Discussion in 'Trading' started by Ghost of Cutten, Aug 11, 2011.

  1. One by one, the so-called 'safe havens' in the market, which are supposed to be secure, low-risk places to park cash, are going to get taken out and shot. CHF, ZB, GC, JPY - the usual suspects.

    We saw it with the Swiss Franc, which dropped a ruinous (for longs) 8% in less than 48 hours. And we have just seen the beginning of it in US Treasuries, which gapped down >1 handle in 1 minute. Expect to see a ZB 130 print within the next few days or weeks.

    Gold itself is off $50, but you ain't seen nothing yet. Expect a down $100 day fairly soon. And silver will get annihilated also. The Yen will follow, especially if the normally timid BoJ get some courage to intervene.

    Anyone long these assets is going to get destroyed. They are all full of both leveraged momentum speculators, with lots of stop-loss orders below the market, which - if triggered - will set off a selling stampede; and longer-term 'investors' with no balls, who ran headlong into them in the last week due to fear and panic over mostly meaningless rumours over US and French solvency. When both the hot money and institutional dumb money are long up to the gills in ludicrously overpriced low-return assets that have run up massively in a short time, their inevitable liquidation will NOT be a pretty sight. A 1 1/2 handle T-bond gap, and a 8 handle CHF selloff, will be just the beginning.

    I suggest acquiring September expiry puts to exploit the forthcoming carnage.
  2. luisHK


    Interesting post, let's see though if another leg down for equities and up for "safe haven'" is not to follow.

    Awesome move back down from the CHF, but it's been wild the last few days - I probably should have averaged down somewhere, now eurchf is at abt my cost
  3. emg


    u ever thought ZC, ZS, ZW, CT, SB, LC, FC, and LH may consider the new safe haven instruments?
  4. gnode


    I actually started buying 105 and 120 strike puts, January 2013 on GLD.

    If gold goes up more I will buy more puts at higher strikes.

    This is a bubble that has been building for a long time. Think of who owns gold: scared people. And they have been buying gold for 5+ years. Think all their sell orders will fill at once?

    People who buy out of fear will sell out of fear.
  5. joneog


    Agree, to an extent. These trades are all over-extended but I think after some carnage the long-term trends may continue.

    I sold all my CHF last week(unfortunately before that huge last spike up); have sold about 40% of my longterm gold holdings and the remaining is hedged into Sep which I may roll as needed; pretty much no treasury exposure because the opportunity cost of cash is so low.

    A lot of people shorting SI against GC as a hedge, I wonder if the opposite trade may work considering the recent divergence of the two.
  6. Whoever believes any foreign currency or risky asset is a safe place to park cash shouldn't be trading.
  7. gnode


    Higher margin requirement means sharper downward carnage in gold.

    More hair trigger than it would have been. People will get forced out faster and it will feed on itself hard.
  8. m22au


    Agree with some of what you wrote.

    Maybe it also depends on the magnitude of the decline and timeframe - do you have specific downside targets and timeframes for these instruments?

    I believe that ZB will be well-supported so long as Bernanke does not act super-super-recklessly. This is especially true if my more bearish economic view plays out.

    For example $TYX was at 3.46% in August 2010, reached 3.50% recently, and if deflation takes hold, then it could go below the August 2010 low.

    In July 2010, gold found support at its 150 DMA at 1155, and then in January 2011 the 150 DMA was also strong support at 1309. Today the 150 DMA is much lower at 1482.

    Gold could quite easily fall $200 from here, and still maintain its multi-year uptrend. With JPY and CHF losing safe haven status, central banks are increasingly adding to their gold holdings.

    As you know gold collapsed in 2008, but it was just a quick and savage multi-month decline before it reached new highs. The same could happen again.
  9. gnode


    I am uncomfortable about central banks loading up on gold. That just seems irresponsible at these prices and will fuck their balance sheets when a crash does happen.
  10. m22au


    Well I guess it's the theoretical question is "what is your definition of safe?"

    I am 99.99% sure that the US Treasury will not default, but if Bernanke is successful in creating inflation above, let's say, 4%, then treasuries will give a negative real return. In that environment, treasuries yielding below 4% are not safe.

    For what it's worth I believe that the UK inflation rate is much higher than prevailing gilt interest rates (GoC can you confirm?).

    The number one factor influencing gold prices over a timeframe of years is the level of real interest rates.
    #10     Aug 11, 2011