by Jake Weatherly, Maverick Biz Dev & Community Commando
January, 2011 – Market Outlook
With Maverick1000 Members #28 John Carter and #30 Hubert Senters
We were fortunate to have John Carter and Hubert Senters lead January’s Mindstorm call, in which they shared valuable insight on both immediate opportunities in the markets as well as long-term trends—what to watch for and what to avoid.
John and Hubert’s company, Trade the Markets, is a day trading / online trading community of thousands of traders who learn about online stock market trading, E-Mini futures trading and Forex online trading. These Mavericks use internet marketing to reach broad audiences—from individuals to institutions—with daily video newsletters, a discussion forum, a download library, member courses and webinars, and much more.
In the first half of the call, John provided an extremely insightful macroeconomic view to help Mavericks understand the unprecedented forces at work now, which are extremely important as we make decisions to build and protect our wealth.
Here’s what John had to say:
After 2008 and early 2009, when it seemed the world was coming to an end, the markets have recovered and we’ve had a substantial rally. In fact, the S&P has doubled since then. So this begs the question: Short-term, are the markets going to continue moving higher, or have we reached a point where they will roll over? There are some big-picture forces at work that we have to be aware of:
- Government stimulation of the economy
As long as this is the case, it will be difficult for the stock market to go down…but how long can this go on?
- Biggest trend on the planet right now…
It’s not the price of oil or gold. The biggest trend, which will have the most significant worldwide impact over the next decade, is the amount of debt that has been created. The key to making money over the next few years is an understanding of who is burdened by debt and who is not.
- The US has trillions and trillions of dollars of debt.
If the United States’ debt was distributed among all citizens, each man, woman and child would personally shoulder over $176,000 in liabilities. The interest payment alone is $375 billion per year—and this debt is only going to continue to grow.
As you do your financial planning, understand this debt is never going to be repaid; it will never go away. This phenomenon is not just specific to the US—it has happened all over the world, in most of the developed nations. Most of the countries in Western Europe, for example, employed the same strategy with the same results as the United States: unshoulderable debt.
On the other end of the spectrum, John talked about the BRIC economies (Brazil, Russia, India, China), which are not debt-ridden and growing quickly. The contrast in strategies between the BRIC economies and the Western world has formed the largest economic dichotomy of our lifetimes—emerging economies are getting stronger, while debt-ridden economies continue to fall under more pressure at an accelerated rate. John’s big takeaway here is to understand the long-term implications: debt will keep downward pressure on the US dollar, and upward pressure on tangible assets like gold. Emerging growth economies will continue to become wealthier and more powerful; and as a result, the balance of power will continue to shift steadily from west to east. This means there will be long-term upward pressure on raw materials like food, agricultural inputs and building materials, as these commodities will be in consistently high demand for many years to come.
John cautions to keep your eye on the markets, not the news—markets lead and news catches up. The biggest thing going on now, as shown by the markets, is interest rates. The Federal Reserve is buying US bonds at an unprecedented rate—with money they are printing. In essence, we are funding our own debt to keep interest rates low. This is called “monetization of debt,” and it’s not a good thing. As John puts it, monetizing debt “is like the fox guarding the henhouse.” The long-term implications are higher inflation and a weaker US dollar. This is not an issue that will present itself in the next six months; it is something that could take a couple of years to play out.
Despite the government stepping up their purchase of bonds, bonds have spiked sharply down. This is a fundamental shift from normal conditions. What does this mean? Inflation is on its way; the market always knows. China is no longer buying our bonds. They are purchasing tangible assets instead of US debt. John’s advice: Be careful with where you park your assets, because in an inflationary environment, “cash is trash.” Inflation is coming faster than most think, and you won’t see this in the financial news. It won’t be the big factor in 2011, but be prepared for inflation in the long term.
So what’s the bottom line, according to John?
- Gold and silver will continue to climb higher, but follow John’s lead and look for a weakness in the next few months; use it as a buying opportunity—silver at the $20 level and gold at the $1,100 level.
- If you are looking to put money into the stock market long-term, put it into emerging markets, not US stocks. John likes some solid ETFs for that—iShares Malaysia (EWM), the Templeton Emerging Markets Fund (EMF), and iShares BRIC ETF (BKF). There are, in John’s words, “buy and tuck away” stocks.
- In the end, the fundamentals, including inflation, upward pressure on raw materials, and a power shift to emerging economies, are going to happen, but they are not immediate. Realistically, they may take several years to a decade to unfold.
And for the rest of 2011… John’s expecting the 1300-level S&Ps and 12,000 level Dow to hold, but expects some weakness for several months. For Mavericks trading currencies: Despite weakness predicted for the US Dollar in 2011, it’s due for a technical bounce very soon, which could mean weakness on the Euro.
In the second half of January’s Mindstorm call, Hubert Senters took John Carter’s macro and micro economic overview, and dug into trade setups for 2011 that capitalize on the trends his partner shared.
Based on John’s macroeconomic overview, Hubert said to consider going long on wheat, corn, soy and crude oil. Use currency futures, exchange-traded funds, or proxies with stocks that track those. Or, consider fertilizer companies and large agri-business if you don’t want exposure to the futures market. Remember: you can still get into a dangerous position with margin accounts, so don’t get over-leveraged – finding yourself in this position usually means you’re getting greedy.
Hubert was extremely tactical during our call, sharing valuable gems for Mavericks looking to take specific actions backed by top-notch experience and research. Specifically, Hubert covered some interesting sling trades:
- Dow—Shorting from 11,973 to 11,700. Target 11,400 to 11,200. Stop at slightly above most recent high. The same analysis applies for S&Ps, NASDAQ & Russell indexes.
- Bond market—It should be rallying, but it’s not. Bracket a trade on 30-year bonds.
- Crude Oil—Initiate a long trade now, with a target just shy of 100, and a stop at today’s low.
- Longer term (1 – 3 years): Natural gas with target north of $6.
According to Hubert, one of the most interesting markets is gold, and he plays it both ways. Here are his strategies:
- Intraday trade (a.k.a.: putting it on in the morning and getting out before the end of the session—in and out in less than 24 hours). Hubert’s overall strategy for this short-term approach is to use these filters: If gold is up >$3 on the day, go long. If gold is down >$3 on the day, you want to be short. For intraday, use a 3 point stop loss.
- Minor sling trade (1 to 3 days, even 3 days to a couple weeks): 6pt stop loss with an open target.
- If you have gold in your core long strategy (which you hopefully did at or around $600), hedge your position by playing the opposite side to wash out losses—don’t cash in when gold starts to roll over! After all, gold is likely to go to $1,500. Instead of pulling out when gold rolls over, hedge your position by shorting gold to ride it down, while still staying long. In this scenario, you protect your long position while profiting on the roll-over in the gold market.
It was interesting to hear Hubert’s personal allocation strategy. He splits between sling trades, day trades, and automated trading systems (black box, algorithm-based systems that do your trading for you). Specifically, Hubert allocates 50% to sling trades and 30% to day trades, while 20% goes into automated day trading and sling trading systems.
Hubert then gave valuable insights into the mistakes all traders make. Most stem from:
1. Self-esteem issues that affect our trading decisions.
2. Lack of a trading/business plan.
3. Not following the established plan…and whether because of point number one or two, not staying in the trade as long as one needs to is a fundamental (but oh-so-common) mistake.
What was Hubert’s final tip? Get in on an upcoming IPO, like LinkedIn this year or Facebook (likely 2012). Consider these for your childrens’ and even grandchildrens’ accounts.
For the full wealth of insights, details, tips and tools, listen to the January 2011 Mindstorm Call here: https://www.box.net/shared/static/sj9t7rk6a9.mp3
About Trade the Markets:
John Carter and Hubert Senters have been in business together for almost ten years. They started when the Chicago Mercantile Exchange asked what they were trading and invited them to teach people through traders’ expos. In those first sessions, they didn’t realize they weren’t supposed to live-trade, and they got mobbed by groups of 400-500 who noticed they weren’t pushing slides from yesterday’s activity. They then quickly realized they were looking at a solid business opportunity—trade live with people who want to learn. People love seeing real trades and witnessing serious gains and losses.
So in addition to live trading at expos, John and Hubert started doing videos (mainly because Hubert didn’t want to type newsletters). Their opt-in strategy includes two free videos per night—one from John and one from Hubert. After 2 – 5 months on average, most subscribers convert to paid membership, which includes purchase services like indicators, training, access to live-trading chat rooms, and live-trading webinars.
Other than SEO and improving landing pages, it’s the improvements they’ve made to the customer experience that generated a serious tipping point and competitive advantage. John and Hubert work hard to get to know all of their customers personally—1,000-3,000 on a monthly basis—even calling all new members to thank and welcome them. (Subscribers often can’t believe they take the time to do so!) Additionally, they offer one free monthly live-trading webinar for all members. Ultimately, John and Hubert focus on helping people, instead of just selling to them, setting themselves apart by really caring about their customers and clients. And it shows.
For more information, visit www.TradeTheMarkets.com