"Deflation won't be Tolerated.
We will Print All the Money Needed
to Invite Inflation!"
Last year I predicted that Inflation will stay in the long run but will peak before the U.S. unemployment reached 8%. Since making that prediction, we had lightened up our positions in Crude and Natural Gas, while adding our positions in Sugar and Gold. That went pretty well to a certain extent, but I must say I was somewhat overwhelmed by how far and fast the Inflation trade faded as financial participants began to deleverage at a global scale. Roubini was out warning us of a Global Deflation -- how scary was that? -- which I didn't buy into, of course. We were down right across the board at some point while we were away for holiday. Had the Deflation scenario been played out, had Gold been traded down to $600 or $200 as some experts had predicted and called for, I would have been proven wrong. I stuck to my gun and I was right. The Inflation trade began to make a U-turn after the global deleveraging; Gold made several headline news worldwide as it broke new highs several times this year while some agricultural commodities such as Cocoa and Sugar had some fantastic runs. Deflation? What Deflation? I can see a number of experts began to flip-flop their predictions.
As soon as the ordinary people began to catch up with the role of Gold in an environment of competing fiat currency debasement, while some mainstream experts began to realise the Unofficial Weak Dollar policy that we had been talking about, Gold seemed to have made a temporary peak around $1,200 together with the euro. Crude too began to experience some selling pressures. Not only that, long-term US Treasury began to sell down, driving up interest rates at the long end. Stocks right now are yet to follow in a big way. I am not going to speculate on what the markets are going to do in the short-term. I am going to stick to what I believe will work: the long-term Inflation trade. To this end, I am planning to increase my bet in Natural Gas. Therefore, we took profit off our newly added position in Crude last Friday, with an aim to deploy the capital in Natural Gas later.
Newly added Crude position this year:
- Long from 68.07
- Hedged at 75.00
- Unhedged at 70.80
- Took profit at 69.80 last Friday
- Profit: 5.93
- Long from 80.90
- Hedged at 75.00
- Unhedged at 70.80
- Average cost for remaining position: 70.80 (CLZ08)
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