Mid-Year Update, GS, AAPL, TBT, Gold, Silver

Our 2013 Outlook appears accurate, and the mid-year mark seems a good time to review it. 

In the items below, the year in parentheses is the year for which the call was made.  So "(2012)" means that was the forecast at the end of 2011 for the year 2012, and "(2013)" is the review of that forecast and updated call made at the end of 2012 for the year 2013. 

The forecast for the year appears within quotations and is italicized.  Our update today for each item begins in bold.


"1. We wish a very happy, healthy and prosperous 2013 to you."

"2. (2012) We should continue to do well in the new year with our core positions and ideas ; short China, short gold and silver, long U.S. dollars. Short Brazil looks good to us too, but we do not yet have a re-entry on that position.

(2013) We were wrong on all of #2 though all were essentially flat.  No idea about 2013, but if we have to guess we'd say the same as above."

Our usual China short, FXP, is up 55% so far in 2013. 

Gold (GLD) is down 24%, silver (SLV) is down 38% and our remianing silver short (ZSL) is up 121%. 

Our preferred USD long (UUP) was recently up 5.5% which is a lot for a currency position, and is currently up 2.9% from January 1st.

Our preferred Brazil short (BZQ) is up over 70%

Going forward, we remain comfortable with this outlook however at least some of these gains should be booked.


"3. (2012) At some point in the future, perhaps in 2012, a long-term trend change in U.S. interest rates will happen and TBT will rocket. We diarized an initial entry in TBT in early August, too early and at too high a price. At the time we wrote that "we'd not be surprised to see it as low as $20 but if it gets there we'll possibly buy more." TBT has spent the last three months between $17.50 and $23 but we've not added to our position as we fear it may go much lower still. Those without a position may wish to speculate on an initial or partial entry at current prices.

(2013) Factoring in the 1:4 split in 2012, those prices quoted above should be $80, $70 and $92 respectively.  TBT began 2012 at $63.45 (split-adjusted).  It then did go "lower still" and by mid-year looks to have bottomed and the "long-term trend change" we mentioned may have begun. We remain long-term bullish TBT."

Here's a 2-year TBT chart, which shows we called it correctly:

TBT should continue higher after a pull-back.



"4. (2012) We're neutral on U.S. equities at present. Our macro market calls have generally been excellent in this blog, and in our personal accounts we normally trade in accordance with those views. Equities at present are extremely overvalued on a fundamental and logical level, and a massive tanking in equities would be nice in the sense that it'd punish the complacent and provide sane pricing for the prudent, but that doesn't mean a massive rally couldn't currently be underway which wipes out the bears, thus we trade based on technical and trend considerations rather than fundamentals. Time will tell, and we'll try to trade the swings successfully along the way. When we've a firm opinion on upcoming market direction, we'll post it.

(2013) Equities did continue higher, wiping out many bears, and have been flopping about ever since.  Markets remain extremely overvalued."

Markets were extremely overvalued at the start of 2013, and over the first 5 months of the year became much more so. 

As we demonstrated last post, we eventually became fully short hours before the year's high (so far?) and the DJIA has dropped 6.5% in the month since.  Markets remain extremely overvalued, but that doesn't mean they cannot go much higher.  It just means there are few, if any, true value positions to be taken.   


"5. (2012) We believe fear over the euro situation is mostly mass hysteria, and it'd be very good for western economies in the long run if there were to be an end to the common currency with banks and bondholders taking their deserved lumps. For once we'd have truly "free markets" but instead we'll probably suffer continued "extend and pretend" jawboning and policies, thus perhaps a continuation of the past eleven months of wildly-swinging markets.

(2013) Nothing was settled in Europe, and nothing has changed.  It was indeed much ado about nothing, and like the ridiculous U.S, "fiscal cliff" hysteria, is not worth our attention or conjecture."

Exactly correct. Even the "bank crisis" in Cyprus (remember that?) proved to be of no consequence. 

At the time we wrote: "Cyprus [is a] non-issue [...] European events continue, as they have for years, to be of no apparent concern to investors and we shouldn't be surprised to see markets once again at new all-time highs in the coming days."

A few days later the market was indeed at a new all-time high and by two months later the DJIA was 1000 points higher.


"6. (2012) An observation : the Dow Jones Industrial Average is currently at the same level as it was mid-February, early and late March, mid-April, late May, mid-June, mid-July, early August, late October, mid-November and early December.

(2013) It was at that same level in mid-2012 and could easily be again before too long."

That seems premature, in hindsight, let's even call it wrong ... for now.  We still believe markets will be much lower than at the start of 2013.  The question is "when", and for that we have our lines in the sand...


"7. (2012) Early in a new calendar year markets will often establish a tend and continue from there in the same direction. Roughly 12250 in the DJIA has been a good over/under line since February and might continue to be, meaning for the long term we should on net think bullishly above that line and bearishly below.

(2013) That proved an excellent strategy, as the DJIA was below 12250 for only 3 days mid-year.  For 2013, that over/under line is 13000.

8. (2012) Another good litmus test is Goldman Sachs (GS) below $87.50 being very bearish for the market overall, and below $100 mildly bearish. Bullish above $100.

(2013) This year: bullish above $112, mildly bearish below, and extremely bearish below $100.


9. (2013)  We'll add the litmus test of AAPL <> $500."

Anyone who stayed long while the DJIA was over 13000 should've made a killing this year, much more so if they turned fully short when we did at the exact highs so far. 

In late April we warned of a "pending equities dump" and updated the over/under lines for the DJIA and GS to DJIA 14550, GS above $137 bullish, below bearish, below $125 extremely bearish.

Today's low for the DJIA was 14551 and it's highly likely a bounce is underway.  GS remains well above $137. 

At times we seemed to be the only Apple bears, but with the stock having collapsed almost 45% while markets overall kept hitting new all-time highs, there are now a lot of bears so of course we're considerably less bearish. 

Call us neutral, but not bullish AAPL in the longer term.  A bounce seems due in Apple shares and for those having waited to cover shorts or for a good long entry point, now is a good time:

Gold and Silver:

Again referencing our last post, while precious metals did not drop on Friday they did on Monday and we added to all of the positions we'd listed. 

The chance of a bounce is now 80% in our estimation, which means there's still a very high chance of a further collapse in which case we'd top up the positions further.  A 20% chance of a continued collapse is huge, especially when speculating using levered positions and options as we mostly are. 

Playing this bounce, should one even occur, is for consistently successful and disciplined speculators.  Those trying to get rich quick or make up for their past losses should have nothing to do with it.  In fact, they probably went "all in" last week or last month and are now answering margin calls, or perhaps begging friends and family for funds or even filing for bankruptcy.  If not now, they certainly will someday if they persist in such reckless speculations.  Don't let it happen to you. 

Be prudent and stay hedged.

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