Smashed ‘em Bro!

There is a late night sports show in Australia and New Zealand which I’ve watched only once or twice. It’s called “Crowd Goes Wild.”

They have this segment they run where they usually show a rather spectacular rugby collision or tackle. It’s very aptly termed, “smashed em bro.”

Getty images
Getty images

The equities markets selloff this week amounts to a “smashed em bro” moment for many, myself included. I had a few (too few) shorts as hedges, which alone flashed green amongst a sea of red. It was brutal.

Just as a rising tide lifts all boats, so too a receding tide takes the good out along with the bad. This is an environment that is rare and offers us some spectacular opportunities.

As my friend Harris Kupperman mentioned to me last night, “I’m just looking at the large cap mining stocks trying to figure out why 5-6x cash flow is the right number if most are set to see production growth. I’m in awe.” Now, Harris is a very smart guy, and I’m comforted to know that he sees the same opportunities in this as I do.

I dislike buying mining stocks in general simply because they’re un-investable – period. They are however fantastic trading vehicles.

Mark wrote an article recently titled “Gold Stocks-Are You Kidding Me?” he mentioned the pessimism in the gold community and the fact that even the gold newsletter writer guys have been throwing in the towel. Sentiment for mining shares is near rock bottom. Net spec longs in this market are well down. In short, the structure of the market is heavily loaded on the bearish side.

Are we at exhaustion yet? I don’t know, but the way to hit home runs in any market is to buy when things are cheap and sell when they’re expensive.

Lets revisit some macro questions, shall we.

On the 29th February the “Bernank” mentioned that the Fed was done with quantitative easing. No more money printing folks. There it is from the horse’s mouth. I think that statement, after the last few days action, together with what’s coming, will go down in history along with other such statements such as, “I did not have sexual relations with that woman…”

The Europeans have just voted in the village idiots with a very clear, distinct message to the market. We don’t want austerity pain. Print us rich please.

All of these actions tell us one thing. I spoke about this very phenomenon previously when discussing Davos-Profiting from the Asanine.

The fed has been purchasing in excess of 60% of all issued treasury debt this year; this is with a backdrop of waning demand from foreigners. Pray tell how they are going to keep this up without the printing press?

All indications at this point tell me this market is cheap. Is it going higher? … Undoubtedly so. Is it going higher tomorrow? I don’t know, nor do I care.

Make your own mind up, but when I can buy long-dated calls on GDX for next to nothing, or sell Jan 2013 $44 puts for $5 .50 I’m willing to put down my coffee and take a good hard look.

– Chris

“You’re either a contrarian or a victim, the choice is yours.” – Rick Rule


This Post Has 4 Comments

  1. Pete

    Care to say which date and strike you’re looking at on these GDX calls?

    1. Chris MacIntosh

      A basket. Just take a look at pricing. At the moment even the at money calls are cheap. I’m interested in the Jan-13 options…both for calls but especially for writing. I mean you can write the $50 puts for nearly 10pts. If you get it put to you you’re buying GDX at $40. I don’t mind getting paid to play and if I’m wrong about short term volatility and I get my contract put to me I’m happy to buy it even cheaper.

  2. Pete

    Man I wish I had acted on this idea! Moved $ to my TOS (Ameritrade) account to execute on this strategy 10 days ago and then did not pull the trigger because I was doing other stuff. The puts went to $12 and are now at $7.55 – after Friday I am damn interested but don’t want to chase the price……There is a moral to this story which you guys have described many times……

    1. Chris MacIntosh

      Maybe next time Pete. Where you can buy the calls out to such an extended timeframe for so very little all you need is a bump to recoup your initial capital while leaving some house money on the table. These situations crop up if you’re nimble. Maybe next time heh.

Leave a Reply