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The Most Crowded Trades

Tyler Durden's picture




 

Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the smarter money?

Crowded Trade #1 - US Equities.

 

Crowded Trade #2 - Short JPY


 

Crowded Trade #3 - Short Precious Metals

 

and it's at record-levels of margin...

Current levels of both Net Free Credits and Margin Debt indicate extremely bullish sentiment in the equity market, the implication is contrarian bearish.

 

But the 'smart money' is hedging...

Based on BofAML's exposure analysis, macro hedge funds continued to add to their shorts in risk assets including the S&P 500, NASDAQ 100 and commodities.

 

Charts: BofAML

 

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Mon, 05/06/2013 - 10:04 | 3534045 rajat_bhatia
rajat_bhatia's picture

Include physical gold in the list too, hey goldbugs! 

Mon, 05/06/2013 - 10:07 | 3534058 tsx500
tsx500's picture

...and don't forget to include pedophile trolls who live in their mommies' basements !!

Mon, 05/06/2013 - 10:31 | 3534122 kliguy38
kliguy38's picture

disinfo/paid troll......if it didn't work for them they wouldn't pay these guys

Mon, 05/06/2013 - 10:42 | 3534156 FL_Conservative
FL_Conservative's picture

I feel absolutely fucking brilliant every morning with my S&P and RUT index shorts as my face gets ripped from my body.  Talk about an out-of-body (or maybe that's out-of-mind) experience.

Mon, 05/06/2013 - 11:44 | 3534298 spastic_colon
spastic_colon's picture

ho hum.....remember when these indicators meant something, and BofA Merrill wasn't a paid shill?

Mon, 05/06/2013 - 14:00 | 3534715 Panafrican Funk...
Panafrican Funktron Robot's picture

The net spec longs of the first three charts total $32 billion.  How big is QE per month?  Ergo, facerip.

Mon, 05/06/2013 - 10:25 | 3534062 Dr. Engali
Dr. Engali's picture

I'd rather be more on than more off, maybe you can't read the gold chart that's included with all the chart porn. The day  everybody is rushing to buy gold instead of trying to berate it is the day I will think about unloading some of it.

Mon, 05/06/2013 - 10:11 | 3534067 LawsofPhysics
LawsofPhysics's picture

Wake me when the fiat price in dollars is back under $300 an ounce.  That's my dollar cost average on my physical holdings.  I never have a problem exchanging it for the "fiat du jour" or the value of another's labor.  So many paper promises in the world today, so little assets of real value, good luck with that.

Mon, 05/06/2013 - 10:43 | 3534161 ParkAveFlasher
ParkAveFlasher's picture

I'm getting tired of you bragging on every gold thread, LOP. "Oh, look at me, I'm dead sexy with my $300/oz dollar cost average, ohhhh, I bought when everyone sold, oooh, I'm sexyman."

/s

 

 

 

Mon, 05/06/2013 - 10:56 | 3534187 LawsofPhysics
LawsofPhysics's picture

Funny, nice sarcasm.  Personally I'm tired of the "goldbugs are wrong" bullshit.  See the great thing about freedom is that no one forces anyone to read anything, or even respond for that matter.  Yet so many feel inclined to do so  Personally, I like having that freedom.  Many of us had grandparents who survived a great depression and two world wars, some of us just happen to be paying attention to what they said I guess.  Sorry, I am getting distracted, did you have an actual point or tip for us?  Please, I really do want to find other investing avenues.  My current ones make me look like a kook.

Mon, 05/06/2013 - 11:18 | 3534230 ParkAveFlasher
ParkAveFlasher's picture

You just made another point for me.  You see, I'm not very quick. In fact I am slow and dull.

There are things on this earth that can be valued across generations.  These things resist the daily ebb and flow of the currents of trade and money, in fact when they seem to show sudden changes in price, you are seeing more a reflection of drastic changes in the marketplaces (and the surrounding economies) than a change in the value of the thing.

The quicker minds seem to always be chasing tops and bottoms, and trying to gain inside information and be privy to the skinny before everyone else. 

The slower minds build wealth in such a way as cannot be refuted by daily, weekly, monthly, and yearly fluctuations. 

 

Mon, 05/06/2013 - 14:15 | 3534777 Groundhog Day
Groundhog Day's picture

LOP,

I have one for you that you might appreciate.  I have a grandmother who is 85 with a 6th grade education, who was told by her grandmother with a 4th grade education to never sell your gold or gold jewelery.  Some things are just time tested and true.  BTW, yours truely convinced his mother to reduce her purchases of gold in 2000-2001 at 280/300 oz, cuz it doesn't pay a dividend and go up like stocks. I now apreciate the wisdom of some elders

Mon, 05/06/2013 - 10:35 | 3534136 Vooter
Vooter's picture

That's funny, because I can count the number of people I know who own physical gold on NO hands. If bullion is a crowded market, where's the crowd?

Mon, 05/06/2013 - 11:20 | 3534244 FL_Conservative
FL_Conservative's picture

Unfortunately, by the time your "crowd" figures out that they NEED gold or silver, there won't be any physical to be had....other than what's yet to be mined.  Good luck with that play!.

Mon, 05/06/2013 - 17:07 | 3535375 Herd Redirectio...
Herd Redirection Committee's picture

Bullion SHORT is a crowded market.  The chart shows Bullion LONG speculator positions, and its at quite the low, hence there are a lot of short trades on at the moment.  AKA the Fed and JP Morgue naked short selling futures contracts.  (sorry, the chart shows NET speculator positions, so either there was a reduction in longs, or a lot of short positions were initiated)

Mon, 05/06/2013 - 11:56 | 3534318 TeddyBear
TeddyBear's picture

 

YES

 

https://www.youtube.com/watch?v=WAaVK5AkZzI

Uploaded on Nov 29, 2009

Price is Right style, Mark Dice offers over $1000 worth of gold for free to random people walking by beach if they know how approximately how much value it has.

This cheers my day up every time I watch it:)

 

Mon, 05/06/2013 - 16:54 | 3535393 Herd Redirectio...
Herd Redirection Committee's picture

Its not just that the people don't know, its that they are oblivious to the fact that they have no CLUE.  And what is funny, is how WAAAAAAY off they are.  $17, $10, $1, thirty seven cents....  And gold is in a bubble...  Ask them how much real estate is in the area...  Bet you people could tell you that +- 20%!

Mon, 05/06/2013 - 12:13 | 3534360 Colonel Jessup
Colonel Jessup's picture

None of your friends are of Asian descent, right? In that part of the world, folks are buying with two fists. Here as well - your friends must have their heads in the sand. Call a coin dealer here and see how quickly they can deliver.

Mon, 05/06/2013 - 12:52 | 3534511 Tulpa
Tulpa's picture

Savvy physical gold owners don't advertise to people who know where they live.

Mon, 05/06/2013 - 11:36 | 3534281 TeddyBear
TeddyBear's picture

 

 

>>When a trade becomes one-sided<<

Gold coins = yes

 

I am not picking on you Tyler, Keep writing. We like you:)

 

Seems everyone is saying the DOW is to high.

 

 

Mon, 05/06/2013 - 10:04 | 3534052 pragmatic hobo
pragmatic hobo's picture

we live in bernanke's twilight zone where smart-money is dumb money and dumb-money is smart-money and where following the herd is being contrarian.

Mon, 05/06/2013 - 10:13 | 3534076 Cognitive Dissonance
Cognitive Dissonance's picture

Actually the herd is always right even when it's wrong simply because the herd is a force too large to mess with. The herd-market has always been stampeded in either direction throughout history.

The markets do not move. The markets are moved. Benny and the InkJets have simply added fuel to the fire.

Mon, 05/06/2013 - 10:21 | 3534097 El Viejo
El Viejo's picture

Yep, Psychology-Sentiment is a good trade also. So is Seasonality.

Mon, 05/06/2013 - 11:38 | 3534283 Lets_Eat_Ben
Lets_Eat_Ben's picture

Economics is a social phenomenon and is better understood as a social "science".

 

Mon, 05/06/2013 - 10:19 | 3534096 s2man
s2man's picture

I'm too hung over to wrap my head around that statement, so I'll just give you a + for confusing me.

 

 

Mon, 05/06/2013 - 13:55 | 3534696 Bob Sacamano
Bob Sacamano's picture

I'm with the CIA, but I tell people I'm with the CIC, so they think I'm with the CID.

Mon, 05/06/2013 - 10:08 | 3534054 Cognitive Dissonance
Cognitive Dissonance's picture

The unsinkable Titanic Molly Brown Ponzi fueled stock market.

Mon, 05/06/2013 - 10:12 | 3534074 Bearwagon
Bearwagon's picture

Strongly reminds me of the "Andrea Doria": http://en.wikipedia.org/wiki/SS_Andrea_Doria   ;-)

Mon, 05/06/2013 - 15:06 | 3535018 Muppet
Muppet's picture

Why did the passengers on the Andrea Doria not clean their hands before dinner?

They thought they'd just wash up on shore.

Mon, 05/06/2013 - 10:12 | 3534068 CheapBastard
CheapBastard's picture

Commodities --gold, coffee, copper, etc -- have been beaten down so bad while stocks at their all time high ....MSN financial web site recommends buying these commodities and dumping your stocks...take your profits...interesting.....I definitely sold sotcks and took money off the table since ... Kotlikoff says the GUbbermnint is going to print trillions moar for SS and other gubbermint programs....

 

I'm a Cheap Bastard.....

Mon, 05/06/2013 - 10:14 | 3534083 LawsofPhysics
LawsofPhysics's picture

85 billion per month, indefinitely, soon to become 120 billion, then 300 billion, where is this hot money going to flow?  Place your bets...

Paper fucking promises, nothing more.  Mind if I see the underlying collateral?

Mon, 05/06/2013 - 17:04 | 3535438 Herd Redirectio...
Herd Redirection Committee's picture

Just don't make bets, dont use options or futures, and your investment in commodities should be a fairly good idea.  There are a lot of silver and other commodity producers that have been beat up big time.  As long as you aren't using borrowed money (aka margin) there are some good deals out there (CDE, SLW), depending on how much risk you are willing to put up with.

Mon, 05/06/2013 - 10:16 | 3534088 HulkHogan
HulkHogan's picture

Dow 15000 here we come! I'm so excited!

Mon, 05/06/2013 - 10:24 | 3534099 jjsilver
Mon, 05/06/2013 - 10:27 | 3534115 LinesOnCharts
LinesOnCharts's picture

If you take a look at http://www.ici.org/research/stats, even though sentiment is high for US stocks, the influx of mutual fund and ETF inflows could keep it there for a while.

When the bulls stop buying, then take your position since no one can keep the price up any longer! =D

Mon, 05/06/2013 - 10:37 | 3534123 Quinvarius
Quinvarius's picture

The reversion to the mean of long stocks short gold is inevitable.  The world's dumbest trade took all the power of the government and the government supported banking system to support for a few months.  Like an army charging into the sea to combat the waves, once the splashing is over, the tide still comes in.

Mon, 05/06/2013 - 10:32 | 3534127 agNau
agNau's picture

Complete miss!

$ US

Mon, 05/06/2013 - 10:38 | 3534145 Hongcha
Hongcha's picture

No short yet ... they are going to run stops at 162 SPY and then fire at will ... I do like the underwhelming response to the upward revisions this morning ... wait until you see the whites of their eyes lads.

Mon, 05/06/2013 - 10:41 | 3534153 SheepDog-One
SheepDog-One's picture

STEP right up, place ya bets! EVERYONE'S a WINNA! Don't worry, we got a guy inside who has yer back named Bernank! Ya just can't lose....go to the window borrow some money and spin the wheel!

Mon, 05/06/2013 - 10:50 | 3534179 firstdivision
firstdivision's picture

When the last three graphs hit the net short zone, I'm going all in long on this pig shit of a market.  HF's have been nothing but wrong time and time again since the crisis.  Just remember that most of the time, banks are the CP to the HF bets.

Mon, 05/06/2013 - 10:58 | 3534198 azzhatter
azzhatter's picture

I was flipping the channels this morning and saw the latest episode of "Becky does Warren's shriveled up old cock" was on CNBC. Must be bullish. Get the old fraud Buffett out to trumpet buy and hold.

Mon, 05/06/2013 - 11:16 | 3534235 Zen Bernanke
Zen Bernanke's picture

Great information.  Thanks for posting.   However, it's not clear whether a crowded and well overbought s&p will bow to history and yield a correction with the central bank actively pursuing higher stock prices.    

Mon, 05/06/2013 - 11:20 | 3534243 Simple Simon
Simple Simon's picture

What about Crude oil and natural gas - some record and near record longs there

Mon, 05/06/2013 - 11:30 | 3534267 Balanced Integer
Balanced Integer's picture

I'm not sure what I just read. I'm just going to look at my stack of silver and be happy that my exposure to the stock market is minimal at the moment.

Mon, 05/06/2013 - 11:43 | 3534293 USisCorrupt
USisCorrupt's picture

It seems the BOMB doors are open, now allthat needs to happen is to let it DROP then IMPLODE! Let the BS END!

Mon, 05/06/2013 - 12:08 | 3534351 Fuh Querada
Fuh Querada's picture

To paraphrase Laurence Durrell - these trades are like nags, you ride around on them until you're tired of them, then you tie them to a tree and f**k 'em.

Mon, 05/06/2013 - 12:10 | 3534355 Fuh Querada
Fuh Querada's picture

....and hedge funds - a pack of chimpanzees running around in a circle with their fingers up each others' asses.

Mon, 05/06/2013 - 12:23 | 3534401 earleflorida
earleflorida's picture

'we are now entering the twilight-time zone of a 'hyper-contrarian gravitational model', last seen in 1986... as spiraling amorphously about a 'trailing halley's tail-- where equillibrium is the trade-off?'

Mon, 05/06/2013 - 18:44 | 3535744 AvoidingTaxation
AvoidingTaxation's picture

Hedge funds are hedging

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