We Are On The Edge

Submitted by QTR’s Fringe Finance

At the beginning of the year, I not only laid out 24 stocks that I would be watching for the year based on what I thought the macro environment would do, but I also detailed gold and miners as what I would buy if I had to narrow things down to one trade only.

It’s been a great first six months for this potential trade, with the VanEck Gold Miners ETF (GDX) up about 24% and the SPDR Gold Shares (GLD) ETF up about 19%, roughly the same as spot gold which opened January at $2062 and now sits over $2470.

I was reading the news last night and, taking into account how odd trading in the market has been over the last two sessions, I presented myself with the same question:

If I had to put on one trade right now for the rest of the year and narrow it down to one position, what would I do?

I think the answer is simply that it would be long volatility or long the VIX in some way right now. Not only are we simply due for an enormous spike in the VIX, but there’s also no shortage of catalysts that can make it happen over the next six months, in my opinion.

We took the next step in the President Joe Biden freak show yesterday when, just six hours after President Biden said he would consider dropping out of the race if a medical condition emerged, he “coincidentally” announced that he had tested positive for COVID-19 later in the evening. Then, despite testing positive, Biden was seen walking around without a mask on. And you guys wonder why I write entire articles dedicated to the Democratic party’s inability to finesse their strategies…

Regardless, after a week or two of Biden appearing as though he may have once gaian firmed up his grip on the nomination, especially given the news regarding Trump’s assassination attempt usurping the news cycle, it once again appears as though his party is turning on him.

Politico was out with an article yesterday saying that the Democratic Party, led by Nancy Pelosi, is ‘convinced Biden will lose’. Democratic leaders like Pelosi, Adam Schiff, Chuck Schumer, and Hakeem Jeffries are all now reported to have suggested that Biden step aside. And, in a crucial difference, headlines started to break late last night and early this morning that Biden was “receptive” to the idea and had queried his team as to whether or not Vice President Airhead had a better shot of beating Donald Trump in the general election than he did

Also politically, although I have publicly encouraged otherwise, the temperature surrounding the Donald Trump assassination attempt continues to have everybody in the country on guard.

With five months left until the election, it is only common sense to believe that other “surprise” political news could emerge. Except, this time when it does, the country will already be in a heightened state of alert due to the events of the last week. This makes it more likely than normal that we would see volatility related to the upcoming election, in my opinion.

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On top of that, the stock market as a whole is starting to show signs of weak knees, as I’ve been predicting would happen as a result of interest rate hikes for the better part of the last two years. One sign of approaching volatility in markets isn’t always that stocks go down quickly, but that they sometimes swing wildly both up and down—something we saw this week after the Dow 700+ points in one day, only to see tech stocks collapse the most since 2022 in the next session.

The rotation from technology to industrial stocks and boring value stocks that I talked about just days ago in my portfolio review appears to be taking place. Check out the 6% divergence all of a sudden over the last two sessions.

Either way, this volatility in markets could continue not only as a result of said rotation, but also eventually as a result of the economy’s gears locking up and high-interest rates finally wreaking havoc. As we get closer and closer to the first rate cut, I continue to believe that this could be the ultimate “sell the news” event and could mark the beginning of a large correction in equity markets.

As a reminder, all of this is taking place at a time when the country has unsustainable levels of debt, a growing deficit, out of control spending and is entering a period of fiscal dominance.

On top of the election and the market, all of the standard risks I pointed out at the beginning of the year remain in place: you have President Biden creating turmoil by restricting Chinese chip manufacturers, we still have an emerging conflict between China and Taiwan, Israel is still engulfed in its conflict in the Middle East, and Ukrainian President Volodymyr Zelenskyy is still begging the United States for more money to perpetuate the country’s non-stop conflict with Russia.

Finally, we still have a wildcard with the BRICS nations potentially challenging the US dollar, and one of our closest allies in the dollar, Saudi Arabia, drifting away from the petrodollar. This is a catalyst that would likely take years to develop to a point where it would have a meaningful impact, but in my opinion, the gears are whirring away in the background, and just because we can’t see the consequences yet doesn’t mean that we should ignore this potential seismic change in progress.

For me, it’s just a numbers game. If I had to look at the trade that has the “most ways to win,” I’m not sure anything else right now has a better setup than being long volatility. Since COVID, the VIX has been trading systematically lower and lower while markets have done nothing but go higher and higher, both in defiance of a very risky macro environment. We are so overdue for a “CNBC anchor meltdown style market move lower” that it hurts.

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.