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The Most Contrarian Trade You Will Ever Make

By Dr. Steve Sjuggerud
Wednesday, March 29, 2017

What kind of fool would bet on LOWER interest rates?
 
I would! And I did – earlier this month. Now we're making money on the trade!
 
I know it's hard to imagine that interest rates could go down. Everyone is betting on higher interest rates.
 
Let me share the story with you...
 
The latest issue of my True Wealth Systems newsletter was titled, "The Most Contrarian Trade You Will Ever Make." It went out earlier this month.
 
The benchmark interest rate has fallen from 2.64% on March 13... to 2.37%, as I write. (The "benchmark" interest rate is the interest rate on the 10-year U.S. government bond.)
 
A fall from 2.64% to 2.37% is a massive decline in a little more than two weeks... So what's going on?
 
Let me share with you some of the exact words I wrote to my True Wealth Systems subscribers earlier this month:
 
Here's what we're seeing right now...
 
Bets on higher interest rates have hit an all-time extreme, based on one of our favorite sentiment measures – the Commitment of Traders (COT) report... It shows the real-money bets of futures traders in dozens of markets.
 
Like most sentiment measures, the COT report tends to be "wrong at the extremes and right in between"... [Futures traders] tend to pile into a trade at the worst possible time.
 
Recently, the bets on the benchmark 10-year Treasury bond in the futures markets hit never-before-seen levels. Take a look:
 

Futures traders are bullish... more bullish than they've ever been. That tells me this is a crowded trade.

So what could this mean for interest rates today? To find out, we looked at what happened at previous record highs.
 
We found that bets neared this extreme level only once before – in March 2005.
 
Back then, interest rates on the 10-year Treasury bond dropped from 4.6% to 3.9% in less than three months. Here's what happened...
 
The Fed was in the middle of raising short-term interest rates from 1% in 2004 to 5.25% in 2006. In 2005, futures traders thought it was easy money to bet on long-term rates going up too. They were wrong!
 

Now, this 2005 trade lasted about three months – that's the typical life of a sentiment-based trade.
 
And that's what we're talking about this month – a sentiment-based trade.
 
It is not a long-term prediction on interest rates. It is a short-term trade.

I can't share with you the exact trade I recommended to my paid subscribers. But what I can do is remind you that sentiment trades like this often last for about three months... So there's likely a bit more "meat on the bone" when you make a trade like this. It has big potential upside in a short period of time.
 
More important, I wanted to share a great example of what typically happens when investors are "all in" on one side of a trade... In short, you don't want to join them!
 
We're seeing a lot of parallels to 2005... Back then, the Fed was in the middle of RAISING short-term interest rates. Meanwhile, long-term interest rates shocked everyone and started falling.
 
That's exactly what we're seeing today...
 
Nobody believed long-term interest rates could fall while the Fed was raising interest rates... They didn't believe it in 2005. And they don't believe it now.
 
Earlier this month in my True Wealth Systems newsletter, we traded the opposite of, well, everybody. And we got it right.
 
If you're a subscriber who followed my advice, congratulations. You are bold. This should be the most contrarian trade you have ever made.
 
Good investing,
 
Steve

Editor's note: Steve's track record in True Wealth Systems is incredible. And he just put together a presentation on using his "D-30X" method to identify triple-digit opportunities in all corners of the market. To learn more about this breakthrough approach, click here.



Further Reading:

"Last month, bullish bets on oil hit their highest level in history," Steve writes. "But a popular trade is often a crowded trade – one that's nearing a top." He explains why his True Wealth Systems subscribers are already up double digits betting against oil – and why there are still profits ahead. Learn more here: The Fall in Oil Prices Is Only Beginning.
 
"'Everyone' thinks LA is in a bubble... But based on history, today's prices are not extreme at all," Steve explains. With low interest rates and short supply, U.S. home prices can still go a lot higher. But to take advantage of it, you have to ignore the noise – and be a contrarian. Learn more here: No Bubble in Real Estate – Not Even in Los Angeles.

Market Notes


A BIG INNOVATION AND A BIG UPTREND

Today's chart highlights the company behind a medical breakthrough...
 
Surgery is an invasive and potentially dangerous procedure. But it's often a necessity. And with the help of the "da Vinci Surgical System," it's only getting better...
 
Essentially, the da Vinci System is a surgeon-controlled robot. The robot follows the surgeon's hand movements, but its tools are smaller and more precise, so surgeons can use tiny incisions. For patients, that means quick recoveries and a lower chance of infection. In 2016, approximately 750,000 da Vinci procedures were performed – a 15% rise from the year before. And more than 4 million da Vinci procedures have been performed to date.
 
The creator of this technology is Intuitive Surgical (ISRG). As you can see below, shares of Intuitive Surgical have thrived over the years, recently hitting new all-time highs. With a breakthrough technology gaining popularity in the medical field, ISRG's uptrend will likely continue...
 

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