Market Review

What are we to make of this week in terms of risk off or risk on? Stocks down, Treasuries and gold up, suggest it was risk off.  On the other hand, the Rogers Raw Materials Fund was up a smidgen and that half industrial/half monetary metal, silver, spiked dramatically up 8.17% compared to “only” 2.47% for the 100% monetary metal, gold. The gain in the energy heavy Rogers Fund is easy because oil rose significantly this week. WTI was up 18.9% to $29.43. Those who follow the oil markets say it is rising relentlessly, with market sentiment gaining steam as supply shut-ins mount and demand begins to come back. Also, there is a view that OPEC could keep cuts beyond June. As far as silver is concerned, like gold, the bullion banks have a downside bias that they are able to impact to the downside by their sheer volume of paper bets against the metal. But I’m hearing that demands for physical delivery of the metal especially among retail clients has been unusually heavy. The wish from any fair-minded investor whether you have a vested interest or not is that these short-term manipulators get smoked out of the market because they have an unfair ability to use newly created money to smack down rising prices. If you don’t believe that, I would suggest you do a bit of research starting with the Gold Anti Trust Committee (GATA).

There are of course massive deflationary pressures that we have really not encountered much yet. But it’s hard for me to fathom how there will not be massive losses and erosion of capital for banks. Yes, I know we have been told that the U.S. banks are well capitalized compared to 2008 and much better capitalized than the European banks. But the amount of corporate and personal bankruptcies from the current lockdown is massively larger than anything we saw in 2008-09. Based on Michael Oliver’s work and warnings about the banking sector, I did buy June 19 KBE $28 Puts on KBE (S&P Banks Select Industry Index) then sold them this week for a profit. My experience with put and call options is to take a profit when you have one and don’t get too greedy. But I have a feeling that there may be a lot more money to make on the short side of the banking sector in the not-too-distant future. Of course there is always the likelihood that at some point the Fed will come in and buy the bank stocks and thus pull the rug out from under the shorts. I also sold a GDX Call this week for a profit. I may look to buy another slightly out-of-the-money GDX call or a silver call because it seems to me that silver may finally be starting its bull market run.  

About Jay Taylor