The World’s Two Most Legendary Traders Tipped Their Hand – Are You In?

Keith Fitz-Gerald Aug 24, 2016
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In a move that’s overshadowed by non-stop election coverage…

…two of the world’s most legendary traders just took mega-bear positions,

And…

…Fed Chair Janet Yellen is scheduled to speak from Jackson Hole, Wyoming this Friday in what could be one of the most important speeches of her career.

Coincidence?

Here’s what they know about what she’s going to say.

And, how you can profit.

Two Legendary Traders Are Betting on Chaos

George Soros and Paul Tudor Jones are two of the most legendary traders of all time.

Soros is best known for shorting the British Pound Sterling in 1992 and banking more than $1 billion in a trade that brought the Bank of England to its proverbial knees.

Jones is best known for having predicted Black Monday in 1987 and tripling his money, also in a single trading day.

Both men are worth billions today, having gone on to helm some of the biggest, most sophisticated trading operations the world has ever seen.

And, both men have recently put on S&P 500 put positions representing record levels in their collective management history.

…ahead of Yellen’s speech.

S&P 500 put options are, of course, a specialized bet that the S&P 500 will decline. They’re used by traders who have very specific expectations with regard to how much the index will fall and by when.

Soros Fund Management, for example has doubled the amount of puts it owns on the S&P 500 to four million, representing a notional value of $839 million against roughly $4.1 billion in assets, according to its most recent 13F, a quarterly report filed by institutional management in accordance with SEC regulations.


At the same time, Tudor Investment Corporation has more than doubled its S&P 500 puts to a notional value of $1.7 billion, representing 37% of their disclosed long equity exposure of more than $4.7 billion.


…again, they’ve put these positions on ahead of Yellen’s speech.

Which begs the question… why?

There are three possible explanations.

First, both men clearly believe that the markets are going to be volatile, so they want holdings like the S&P 500 puts to hedge their upside, much as we do here at Total Wealth.

Second, they also know that the markets have an upward bias and that growth is ultimately rewarded with higher prices. So they’re keen to protect that potential.

And, third, both men are looking for absolute profits when Yellen finally steps in it and everybody realizes that she’s lost control.

The key takeaway here is that they’ve set up for a drop.

Enter Yellen.

She and her team at the Fed lost control a long time ago, which means that traders working with real money instead of fancy, out of date, academic models and flawed data are the more relevant input when she steps up to the microphone Friday morning.

They’re going to be looking for hawkish changes to her language, just as I am because that’s all she’s got left… her language.

Yellen has finally realized that what she says carries enormous weight and that any slip up in interpretation risks cratering the world’s financial system.

So she’s going to jawbone the ongoing rate hike speculation to death and try to convey a tough, “in-charge” posture while also relating that she’ll stay the course until we get a better handle on the data.

The way I see it, there would be no point hiking rates in a world where virtually every other central bank is experiencing deflationary inputs and lowering them.

So what I think she’s going to do is kick the can down the road, saying something like “we don’t know enough – about the data – yet to make a conclusion.”

At the same time, I also see her being just arrogant enough and desperate enough to try a rate hike in September despite the chaos it will cause.

I can think of only one reason she’d take the hit now… because she knows that raising rates now gives her the room to lower them again next year when all the cockamamie stuff the Fed’s done to date really comes home to roost.

And I think that’s what Soros and Jones are betting on, both literally and figuratively.

Now, normally playing along with billionaire bets is a bad idea, not to mention impossible because the average investor has neither the sophistication nor the capital to do so.

But in this case, you’re in luck.

There are a number of easy to implement ways you can “take the trade” and potentially rack up some legendary profits of your own.

For example…

Investors favoring limited risk and a simple approach can buy a specialized inverse fund like the Rydex Inverse S&P 500 Strategy Fund (MUTF:RYURX) or pick up shares in the ProShares Short S&P 500 Exchange Traded Fund (NYSEArca:SH).

More sophisticated investors may want to buy put options on the S&P 500 itself or even sell calls against the index. You could also consider buying VIX calls to play volatility, because that will rise as the S&P 500 falls. I generally favor either “At the Money” or just “Inside the Money” in situations like this, but that’s just me. Your risk tolerance and expectations are obviously different, so take that into consideration when thinking about a trade like this one, especially with options.

No matter what route you choose, though, I want you to keep two things in mind.

First, Soros and Jones are both known for being technically proficient traders. That means they’ve got a firm handle on risk management, even though I believe they’re both motivated by profits in this instance. They’ll be gone faster than a New York cabbie if Yellen somehow keeps a lid on things Friday and traders make a move higher.

And, second, neither man has “bet the farm” here. Instead, they’re both using exceptionally large S&P 500 put options as part of a disciplined investment strategy, exactly as you should.

In closing, this kind of stuff can be scary to the uninitiated… I get it.

But that’s not you.

You’re here and a part of the Total Wealth Family, which means you’ve got a tremendous advantage over other investors who are flying by the seat of their pants.

Coming into Yellen’s speech, I think it’s very important that you remember every significant crisis over the past 2,000 years has led to significant profit-creating opportunities.

You’ve just got to be savvy enough to hunt them down, flexible enough to take them when the days are darkest and the potential returns highest, and disciplined enough to make your move.

I’ll be with you every step of the way.

Until next time,

Keith

32 Responses to The World’s Two Most Legendary Traders Tipped Their Hand – Are You In?

  1. ron piretti says:

    las vegas bets

    • Keith says:

      Hi Ron.

      Perhaps, but even professional gamblers hedge…or walk away.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  2. Prof James R Thompson, Rice Univ says:

    Yellen attempts to prop up the dollar by threatening to raise interest rates.
    This causes panic among holders of gold mining stocks. Gold is a natural hedge against the world economy inefficiency as
    well as inflation.
    and all currencies. Yellen wants to kill it. If she does not increase the Fed rate, than gold will
    creep back up and the dollar will be under pressure. If she increases the Fed rate now, an obvious reccesssion may result. If she does so closer to Christmas, then retail is threatened. My guess is she does not increase interest in September.
    Already her “maybe so” threats have crashed the gold market, at least temporarily. She is truly the wicked witch of the east. She wants to turn paper into gold and gold.

    • Keith says:

      Hello Professor and thanks for chiming in.

      I agree with your logic but would respectfully add one thing…gold is now a collateralized asset and the dollar remains the best horse in the glue factory. That means both are affected by derivatives trading – which is why the former hasn’t taken off and the latter hasn’t crashed.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  3. Prof James R Thompson, Rice Univ says:

    Yellen is trying to crash gold by threatening to raise Fed interest rates.
    Just her threats seem to be having this effect. We have become sheep to
    be led by such as she. Quantitative easing has created an enormous inflation threat.

    • Keith says:

      Hello again.

      No doubt about it but the liquidity is sufficient to absorb the inflationary input to date. How much longer traders will put up with this remains to be seen.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  4. Prof James R Thompson, Rice Univ says:

    Yellen is threatening gold as a hedge against inflation. Just her threats of a small interest rate increase
    are panicing gold bugs. I do not see why.

  5. Richard Yorston says:

    So, if I understand correctly they think Yellen is going to hike the rate causing a decline in sp500, equities in gold/silver, bonds etc and cause the dollar to go up. Why would she do this? I understand arrogance, this is just stupid. If this does occur how much downside is there on gold/silver? And would it be just short term? Gold/silver has already fallen big, especially miners, could they see a much bigger slide? Should I get out of gold/silver miners?

    I will try to place what was suggested above. Hopefully, this works.

    • Keith says:

      Hello Richard.

      Stupid is being very generous in my opinion. I find it hard not to choose a string of much more choice and far less appropriate words whenever I think about the damage the Fed has done to the economy.

      As for the trades I’ve mentioned, it’s important to remember that both Soros and Jones are traders. I’d bet dimes to dollars that they’ll start moving money the moment traders do when Yellen takes the mike. So you want to adopt a similar mindset if you’re going to follow along with something similar. A day or two may be the entire life of the trade here…again, though, we won’t know until she starts talking.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  6. Harold Hansen says:

    Well, if I can get this straight. All the numbers are fixed, money disappearing, she can’t believe what’s she’s seeing .
    Would you not want to quit your job?
    Am I right in assuming this, or am I missing something?
    How can money add up when the fed is throwing money out of cargo
    Planes all day?
    Just add numbers to this and take money from that, and not one swing
    Bob does a damn thing. Nice knowing ya Ms. Yellen!

    • Keith says:

      Amazing isn’t it, Harold!

      The key is the $1.5 quadrillion dollars worth of derivatives out there. As long as those continue to trade and central bankers continue to believe they’ll win, macro traders will be hard pressed to lose. The only question is how they time their bets and the risk they take on in the meantime.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  7. Mark says:

    Thanks for your interpretation and I happen to agree with your logic relating to the conservative approach.

    • Keith says:

      Thanks for the kind words, Mark.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  8. Brian says:

    Interesting info about the size of those guys management portfolios. But, as Suggerud said, if everyone expects the s&p to go down, then it wont’t go down. When everyone agrees, everyone is always wrong.

    • Keith says:

      Well put Brian.

      The truly legendary Jim Rogers put it to me this way years ago in Singapore when we were discussing the early stages of the Financial Crisis… if everybody goes to one side of the boat it makes sense to go to the other.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  9. Tom Walton says:

    Do you know the expiry date of the Puts they purchased?

    • Keith says:

      Hello Tom.

      Not off the top of my head but we’ll take a look and get back to everybody.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  10. Graham Bergersen says:

    The USD should fall significantly soon: what weighting might you suggest for the two bear funds mentioned?

    • Keith says:

      Hi Graham.

      I’d be very leery that the dollar will fall. A lot of people have gone broke making that bet in recent years – figuratively and probably literally, too. The dollar has risen and will continue to demonstrate surprisingly stability because it’s still the world’s go to when the stuff hits the fan. The other thing to think about is that there is not another currency capable of absorbing the excess should the dollar drop.

      I believe the Yuan will ultimately fill that role as a partially asset backed currency which is another subject for another time.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  11. Tim Case says:

    So how do i know when to get out if I buy $500. Worth without losing my investments?

    • Keith says:

      Hi Tim.

      Unfortunately, I can’t answer that because I don’t know your individual risk tolerances nor your investment objectives. You could use a % stop or even a $ based stop or simply a time based stop. I suspect most professional traders will hedge coming into Friday but lift those hedges no later than Monday.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  12. Drew McKenzie says:

    Here’s ALL the data you need to analyze Ms. Yellen’s decision ….

    Election 11-8-2016

    • Keith says:

      Hi Drew.

      It’ll be uuuuugggge…or classified.

      Sorry I couldn’t resist given what a mess the election process is on both sides of the aisle.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  13. R. J. says:

    If you’re up for short-term inverse ETF buying, can stomach the volatility, and know when to get out, consider the 3x inverse funds, SPXS and SDS.

    πŸ™‚

    • Keith says:

      Spot on RJ.

      Just make sure you keep the time ” in trade” to a minimum to avoid the tracking error associated with leverage ETFs.

      Best regards and thanks for being part of the Total Wealth Family, Keith πŸ™‚

  14. Prof James R Thompson, Rice Univ says:

    Soros and Yellen are both in the tradition of Anton Meyer Rothschild .
    Anton said “Let me control the currency of a nation and I care not who makes its laws.”
    Goldman-Sachs is part of the ownership of the Fed. Do you really think Yellen makes
    decisions without input from G-S and Soros? We cannot get out of the hole we are in by allowing people to play
    financial tricks (tool boxes). We need to increase productivity. Our high schools teach anti-Aristotelean logic
    (two plus two is nwhatever you dream it to be). Too many sociologists. Too few engineers and scientists.
    In my market model graduate classes the vast majority of students are from the PRC. And they pay around 60k per year, to be students (in the Engineering School). since they are excluded from US Scholarships. Confucius taught the same logic system as did Aristotle. For these people, Marx and Mao are very dead and Confucius is the go to philosopher. We should not allow Greenspan, Bernanke, and Yellen to ruin the American economy. En passant they are destroying American civilization.

    • Will S. says:

      Unfortunately Professor, there are too few jobs – widely distributed – to make studying Engineering, and the other similar disciplines to ensure, that the student gains a career out of it, while short-term financial considerations are uppermost in management’s mind.

      I speak as someone with three post-graduate qualifications, and who is unable, due to age and location to find a suitable position in a role I can apply my rapidly out-moded expertise to.

      The education system was predicated on the 1950s model of the economy with stable manufacturing industry holding sway over decades, while the financialization of the world – in large part due to the Fed, and its tentacles, has completely revolutionised the process of manufacture so that change of technology, and products is perhaps a decade or slightly longer at most..

      This has made studying to gain a specific discipline un-economic. The individual cannot hope to study to sufficient depth, and make the price of education pay, unless they can apply their skills and gain economic advantage from that education over time. So that leaves a conundrum… How do we train and educate in a world of rapid technological change? and… WHO should pay for it?

      My argument would be those corporations who derive benefit from that education. Now, employees need to relearn several times throughout their lives, and industry over perhaps circa $100 million in market cap, should largely foot the bill.

  15. Les Wilson says:

    Interesting article. So would your assessment make gold a buy at this level or stay away for now?

  16. Daniel says:

    I would never do anything George Soros does even if I stood to make $10 billion. Soros is scum and would love to destroy America. Screw him and anyone who worships, follows, and tries to emulate him.

    • Rob says:

      Not just America but the whole western world.

      I’m not sophisticated enough to know the exact reasons scum Soros and that other guy have for buying all those puts but it looks more like hedging and capital preservation than a bet on the collapse of the market, after all, if they indeed knew exactly what would happen wouldn’t they sell their long positions and just go all short?

  17. Harold Hansen says:

    Keith,
    I love what you guys do on the pricing of some of the fine work that comes out of there.
    I mean times are not coming up roses right now , and although Bill
    May get $240 for his newsletter, we all know it gets the big drop.
    There’s a lot of good work that Bill does, and you too Keith, that helps us
    Smaller guys keep going! How can I find out more on VA benefits and
    Social Security. If they pull that plug, I’m dead. And so are a lot of others
    That have fought, and now were pushed under the rug. I’m a nice guy,
    But I don’t like what they’re doing to our country. Why is it that I feel like
    They just don’t care? And why have they waited until the last minute?
    Do we still have the military with us? I have to wonder sometimes.
    Thanks Keith, write your heart out. Do you know where I can rent a small
    Place outside of the US? Thanks Keith!
    So, thanks a lot! Harold

  18. Dean Gulbranson says:

    Question, is the US Dollar going to be dropped as the World Currency soon and replaced by a New World Currency ? What then, with all of the countries still holding Billions of US Dollars ? The huge rush of all of this cash coming back to the USA . . .what will it be worth ?

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