Tax & Financial Consulting Services
Why this Summer Trade Can Hand You 25% in the Process
Karibu (Welcome) G&G Readers,
Didn’t have room or time to add this to the June GGIS portfolio update I sent out a couple days ago. In addition, I wanted to give you some deep down analysis to why I make my recommendations to help educate you and hopefully give you some insight in to what I’m looking for when choosing my next investment opportunity…Enjoy!
Well…like any drug addict, the U.S. economy is about to go through a similar painful withdrawal process. Only instead of drugs, the Fed’s money-printing program, known as quantitative easing (QE), is our crack cocaine. We’re far past addicted to that free-money policy.
With the end of QEII approaching here the end of month, markets are facing some horrible withdrawal symptoms. When this “hangover” sets in, stocks and commodities will fall. Commodity currencies will suffer this summer until this hangover runs its course.
This is the reason why I’m “HOLDING” off right now buying commodities because I’m waiting for the pullback to load up on them instead. The good news is there are some incredible opportunities to short certain commodity currencies in the short-term — and profit off this “withdrawal.”
I will show you a creative way to do that right from your stock brokerage account. But before, let me show you why there’s a perfect storm forming for a deeper correction in commodities.
Our Economy Is Quitting Cold Turkey
After the global recession in 2009, the Fed started printing money to buy newly issued debt from the U.S. Treasury. This free money policy did its job — markets rallied back significantly.
But drugs can’t last forever. When the Fed completed the first round of QE, stocks and commodities went through a major correction.
The Fed, and just about everyone else, realized the economy was falling apart without our free money policy. After the crack binge, the drug addict went into shock.
What was the solution? More crack! The Fed decided to implement a second round of money-printing, known as QEII. But now this second round will be concluded in June.
The size of the Fed’s balance sheet increases when it buys bonds with money created out of thin air. So that’s a good measure of its money-printing activities. For the past six months, the Fed’s balance sheet has steadily risen right along with commodity prices. The Fed’s balance sheet and commodities moved together about 86% of the time.
** Sidebar: If you’ve never listened to the audio “The Creature from Jeckyll Island” to get an understanding of what QE is, I think it would be worth your time.
Click on the link below:
This is a strong indication commodities will go through a significant correction once the Fed’s balance sheet stops growing by leaps and bounds in June. In fact, we’ve seen the beginning of it in the past few weeks.
The end of QEII could not come at a worse time. The latest economic data shows the U.S. economy is slowing down. The housing market is already going into a double dip, while manufacturing activity is cooling. Meanwhile, unemployment remains stubbornly high.
Obviously, the drug addict is not ready to let go of its crack.
To make things worse, other economies are also slowing down. That includes emerging markets, which have carried the global economy on their shoulders for a while now.
Central banks around the world are also raising interest rates to fight inflation. Those higher rates will continue to dampen economic growth in countries like China and Brazil.
It’s very likely that higher interest rates and less monetary stimulus will reduce global growth. That’s what copper is telling us…what’s “COPPER GOT TO DO WITH IT.”
Copper Says Global Economy Is Not that Healthy
Copper is an industrial metal used in several industries, including construction and technology. Those industries only demand more copper when economies are growing at a healthy pace. That’s what makes copper so sensitive to economic trends. It’s also why traders like to say “copper has a PhD in economics.”
The current price action in copper is alarming. It’s telling us that the global economy is not as healthy as many think. I’m watching copper’s chart closely, and I can see there’s a high probability copper will move lower from now on. The chart is forming what’s known as a bearish “Head and Shoulders” pattern — which any trader could tell you is bad news for the asset in question.
It means the recent correction in copper prices is just the beginning of something bigger.
How to Play the End of QEII from Your Stock Brokerage Account?
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As always…feel free to pass this information on to anyone you think is interested in increasing their tax & financial IQ.
If you need a one-on-one consultation to learn how to implement these investments or any other on the GGIS portfolio, feel free to contact me to setup an appointment.
Metta (Wishing You the Best)
Asar Gary Gray
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
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LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. Nothing herein should be considered personalized investment advice. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.