Trade Of The Year - Part III

<< Read More: Trade of the Year – Part II

Is the Economy at the cusp of the next recession? or maybe worse?

Part II takes a look at the macro economic backdrop for the trade of the year. Spoiler alert- its not a pretty picture, but don’t think doom and gloom, instead embrace crisis and opportunity! With our understanding of the history of oil we now focus on the macro backdrop for our Big Trade.

“When the tide goes out you find out who has been swimming naked”– Warren Buffet

“This time around everything gets revealed in the next recession”– Plunger

In the next recession those leaning the wrong way… the levered players, will be forced to heave out their non-productive assets at fire sale prices. Commodity producers with entrenched costs will have to increase production as lower prices beget even lower prices since insufficient cash flows can only be recovered through higher volume production.

Today’s economic narrative is inflation is perking up and the Fed is finally getting some traction in reviving the economy. Inflation up, Trump up, real estate up, and now the economy finally up. The Fed has told us they can finally start raising rates because the economy has reached sufficient strength. If you accept this narrative then you reside with the majority of opinion. You are in good company as they say.

One makes the big money by taking a major position against the consensus and being right! That’s what this BIG TRADE is all about. Its the principle of seeking the outsized risk/reward ratios to make the big bucks. If you had bet $2 on Secretariat to win the derby you would have only won a single buck! Instead we are going to be like Karen Taylor and buy Seattle Slew for $17,500 and collect close to a $50,000,000 in lifetime earnings. Ok, maybe a little hyperbole here, but you get the point. We take on some risk, but we see a bigger reward.

The prevailing narrative is wrong! The inflation is not going to stick! The entire Trump inflation narrative is going to get unwound. Essentially that’s it… that’s the concept for the Big Trade.

Part II provides the economic backdrop for our trade and later in part III I will introduce the specific trade itself. The trade may not seem like a blockbuster at first, because its not a huge percentage move, but its the implications of the trade that make it The Big Trade. A central tenant of trading is to get the main concept right. If one can do that then the other things fall into place. That’s what this is all about, its a macro trade and other trades branch out from it.