2011 Macro Startegy

The shit's really going to hit the fan when the Fed finally figures out they can't keep stimulating without causing serious inflation. Ironically, the country will collectively shit itself when the price of replacing cotton Fruit of the Looms jumps 20 percent over the summer.

long dollar, long food( especially rice ), not sure about oil and gold, maybe we can wait for a while for gold.

current thoughts.

I'm really looking at long put spreads on VXX. Crazy deals right now.

I am not 100% confident the the 10% correction, but if I was I would buy Calls on SPXY (300% short on SP500) and sell putts on the calls. it is about a 30X leverage if you do the math.

I think in the short run the ECB raising rates is going to boost US exports and make an increasingly strong case for a hike in rates stateside. No way QE is renewed and I expect a quarter to half-a-point by the end of the year. Oil and the european debt crisis are probably the two biggest impediments to an orderly transition out of ZIRP and QE2 at this point.

I'm anticipating high oil prices hobbling an otherwise strong global economic recovery and higher rates in the rest of the world. This would help the US economy by depreciating the dollar (good for our exports). Slightly lower equity markets in US to do higher oil prices. Interest rates rising slowly but very cautiously--Bernake doesn't want to repeat the mistakes of the Fed in the Great Depression.

I don't think we'll have much inflation aside from what oil prices might do. Even if we do it will be like gasp 4-5% which comparatively either to the rest of the world or to US economic history is a joke. Economists have long known about inflation bias--an irrational fear of inflation. Hence the commodities bubbles we see now: many people buy them as a "play on inflation".

Over the last two years, the S&P has had an 85% correlation with the Fed balance sheet. What do you think will happen?

I like to hold positions for 3 months to a year +

I have Dec '11 $1.50 - $2.00 cotton bull call spreads + selling front month options to pay for spreads and ease the tension of volatility (hedge funds will continue rolling contracts forcing the Dec contract to explode in value)

Covered calls in the Australian and Canadian dollar futures (They have abundance of commodities with little political turmoil)

Long bull call spreads in June '11 Gasoline/Rbob $2.65-2.75 & $2.90-$3.00 (seasonality trade, I do it every year)

Just my two cents.....

What are your thoughts on the supercycle? I saw JR saying the other day that he has been long every single commodity for 12 years, given that in his original analysis he stated these supercycles last for 10-15 years is the bull move in commodities long in the tooth or is it about to go parabolic?

I believe we will make new highs(even with these current pull backs) in all commodities due to the fact that inflation isn't stopped over night. The thought of economic recovery is a joke in my eyes, we are actually lagging, not gaining steam in growth. Through my research I personally see at least a decade more to go in this commodity bull market. JR spoke of super cycles(constant explosions to the upside) which will plateau, given his 10-15 year range. That doesn't mean we will stop after that figure... just slow down. As long as America is being outpaced in economic growth(which we have, hence him being long the past 12 yrs), in my honest opinion you should be long commodities, you would be a fool not to. Short term there is too much volatility, that is why I choose to hold positions.

Ps - I'm not saying short term trading strategies that capture profit through volatility isn't a great idea in futures, but it just doesn't fit my trading style.

Bravo, bravo. Hah. I totally agree with you here man. There is no way that the economy is actually recovering and I even doubt that this current run up we're in is even sustainable. Funny enough, I was just listening to your boy Jimmy and he was saying the exact same things you did:

http://www.youtube.com/embed/L7nEjyoF8uU

Whoa guys, the economy has definitely been recovering over the past two years. About as anemically as humanly possible and in complete disconnect with the market that has been distorted by QE2 and ZIRP, but the economy has still been recovering. We're adding jobs again and economic activity has rebounded beyond the shadow of a doubt. Yes, unemployment is still very high and housing is a basket case but we are in a recovery. A fragile one, that stuff like higher oil prices and sovereign debt crises could derail. The current environment definitely looks like a slowdown but that was to be expected. None of that dampens the long-term outlook on commodities though. I think Bravo is absolutely correct in that EM markets are going to drive demand to vertiginous heights.

Excellent radio clip Jorge....

@ GoodBread

What do you think will cause for America to be able to sustain it's current "recovery" as well as INCREASE GDP? I am not attempting to bash your views/create an argument or anything in those regards. I would just like to hear your honest analyst of how you think we will move forward. I'm interested....

If we manage to avoid a serious risk-off situation wherein the world pours back into the dollar, the USD should stay weak, possibly break through its trendline on the downside if the inflationistas of this world are to be believed. That's pretty bullish for exports, especially considering the rate hikes going on in China and Europe. Manufacturing is one of the sectors contributing the most to NFP numbers right now and that trend could continue. Inflation will start to become a concern, but by being the last to raise rates and having the weakest inflation numbers so far, we could pull through better than most.

In the case of a serious dislocation (oil, Europe...) the dollar and Treasuries will probably gain and we'll have the benefit of low yields to absorb these shocks much better than Europe or emerging markets. GDP wouldn't really be doing much in this scenario, but the rest of the world would probably be doing a whole lot worse.