Trade Alert: $TLT PUTS | RISK ON or RISK OFF


BotTrigger Trade Alert: $TLT January 2019 $125 puts bought / added @ $10.30 with a 5% allocation


Today’s update is simple. Stock action over the next six months depends upon Fed Chairman Jay Powell. On February 28th Powell testifies before Congress. On March 21st he’s expected to hike interest rates in his first official meeting. The market knows very little about Powell and will be obsessing over his every word. We do know Powell went on record in 2014 as having serious concerns about the Fed’s unprecedented trajectory with its balance sheet:

‘I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons. First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market.’

‘When it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response...Another way to look at it, though, is that it’s not so much the sale...it’s also unloading our short volatility position.’

‘I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.’

Powell has inherited a nightmare. It’s one thing to embark upon a transparent bond repurchase program as a way to recover from crisis like Ben Bernanke did. It’s an entirely different thing to do what Janet Yellen did. In February 2016 everything changed for Yellen. She transitioned the balance sheet into buying massive amounts of VIX manipulation, oil futures, S&P futures, etc...Yellen had no boundaries in her quest to boost the market. Now it appears to be Powell’s job to unwind the balance sheet and raise interest rates. As interest rates rise it’s quite possible that all three asset classes could crash...real estate, stocks and bonds. Will Powell play hardball with the stock market in a way that Yellen never did? Is he ready to allow markets to behave as free markets or will he maintain the Yellen doctrine for four more years? These are questions that will soon be answered.

There’s one other thing we know about Jay Powell. He served as head of the Fed’s cryptocurrency task force. Watch YouTube videos of Powell’s recent speeches and you quickly learn he is pro-crypto and pro-free market innovation. Is it possible that Powell was brought in as Chairman to crash the fiat system, write down our debt, and transition America into the digital currency age? It seems far fetched, nevertheless, it is a possibility. This man of mystery is all-of-a-sudden the most powerful financier in the world.

What would you do if you were Powell? Such a loaded question. If he chooses to play hardball by raising interest rates, unwinding the balance sheet and bursting the tri-bubble it will lead to a swift selloff. Corrections usually happen much more quickly than uptrends in a matter of days, weeks or months rather than years. On the flip side, if Powell chooses to maintain market stability than the status quo playbook will dominate the next six months. Today’s Fed minutes of Yellen’s last meeting are meaningless. Powell’s future direction means everything.

Today we’re adding a 5% allocation of TLT puts. 10-year yield is up to 2.94%.


Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”