Two Billion-Dollar Buzz Saws by Jim Rickards
What an amazing month.
Not only did Donald Trump win the U.S. presidential election two weeks ago (something I predicted in advance would happen), but markets exhibited wild swings. Investors got whiplash based on secret middle-of-the night trades by two of the richest men in the world.
Carefully constructed election trading strategies ran into a pair of billion-dollar buzz saws, wielded by legendary stock trader Carl Icahn and hedge fund maven Stan Druckenmiller. Their combined predawn raid on the markets produced shocking results.
When the dust settled, the stock market was in an expected place by an unexpected path, and gold was in an unexpected place. The good news is that with these shocks behind us, we have much greater clarity on the path ahead. In fact, the opportunities for profit, especially in precious metals, are the best since late 2015. A review of the price dynamics of the past two weeks will explain why.
Going into Election Day, Nov. 8, I said the following:
“Trump would win despite overwhelming odds and universal opinion to the contrary; stocks would sell off on the Trump victory, but then bounce back based on consideration of his pro-growth policies; and gold would surge and hold those gains at a new, higher level.”
The trading strategy I recommended for my readers was to buy a put option on the S&P 500 with a quick exit and a call option on gold.
Most of this played out exactly as I expected. Trump did win the election. Stocks did sink and then bounce back. Gold did surge. But there were two trading shocks that frustrated the expected profit opportunity.
The first shock was that legendary stock trader Carl Icahn, a close friend of Donald Trump, left the Trump victory party in the middle of the night and ordered his traders to buy $1 billion of stocks even as the stock index futures were plunging. Here’s the story as reported by Bloomberg:
As Donald Trump celebrated his surprise election win over Hillary Clinton and equity futures swooned in response, billionaire investor and Trump supporter Carl Icahn headed home to start trading.
Icahn, 80, left President-elect Trump’s victory party in the early hours of the morning to bet about $1 billion on U.S. equities, he said Wednesday in a telephone interview on Bloomberg TV.
“I would have tried to put a lot more to work, but I couldn’t put more than about $1 billion to work, and then the market got away. But I’m still happy about it,’’ Icahn said. “The S&P was so liquid — it was unbelievably liquid — the world was going nuts. Last night it was amazing, the world was going into a panic…”
S&P 500 futures fell as much as 5% overnight, triggering trading curbs that prevent further declines. Contracts on the benchmark index all but erased that decline by the time markets opened at 9:30 a.m. in New York, and the benchmark index rose as much as 1.4% Wednesday.
Here’s a chart of the SPX (ticker for the S&P 500 index) that shows the beginning of the Trump sell-off. That turned on a dime when Icahn put in his $1 billion buy order: