David Brady: Metals are Close to a Bottom, Just Waiting on the Fed
Tom welcomes back David Brady, CEO, and Co-Founder of Global Pro Traders.
David explains why sentiment is a fantastic contrarian indicator for the metals sector. Currently, people are giving up on the sector. It’s good to use multiple tools when evaluating any market. He watches the dollar and real yields closely along with classical technicals. When all your tools indicate the same thing, you can have high confidence in market direction. Banks are long silver and the technicals are lining up. He is just waiting for confirmation. The one key thing that remains is when will the Fed pivot.
Investing is about finding a methodology that works for you; particularly one that is focused on data. Having multiple signals reduces the emotion in trading and gives you caution until the time is right. In simple terms, markets take advantage of human psychology. Investors often fail to take profits, if you have massive gains take half out. He says, “Emotion is the death of wealth.” History will help you to eliminate emotion, but develop a process.
A sharp decline in inflation prints may provide the Fed with an excuse to pause or pivot. That seems to be coming due to the build up in supply chain inventories. The warehouses are full and demand is dropping. Many people are tapped out on their savings. The strength of the dollar also lowers import costs of everything. Commodities are all dropping over the past year, most notably lumber and the housing markets. Any sign of dovishness by the Fed will result in the dollar coming down and everything else taking off.
The other way this could end is that something critical breaks. Take your pick, right now, everything is unstable and stressed. The Fed either pivots or there will be a systemic collapse. Who is going to buy the debt? The only game left is the Fed. We could see a domino effect around the world as banks or pensions fail. There is 2.3 trillion in derivatives and all the banks are interconnected. We’re starting to see a repeat of credit default swap risk like we had back in 2008. The Fed cares about what happens elsewhere to the extent that it impacts the United States.
The stock market is now the economy. They are extremely connected. Should we get a flash crash in markets, the Fed will have to intervene.
We’re going to have major global events play out soon as something or perhaps many things break.
Time Stamp References:
0:00 – Introduction
0:38 – Sentiment & Metals
8:34 – Managing Emotions
17:58 – Fundamentals & Inflation
18:44 – Fed Pivot & Global Risk
32:10 – A Repeat of 2008?
34:57 – Fed & Foreign Problems
38:53 – Equity Markets
43:20 – Other Risks
49:36 – Smart Money?
53:45 – Dedollarization
57:48 – Metal Inventories
1:00:37 – Wrap Up
Talking Points From This Episode
- The importance of a trading strategy in reducing emotion in trades.
- Several possible reasons or sudden events that could cause the Fed to pivot.
- Why a large drop in equities could also cause Fed intervention.
David Brady has managed money for banks and businesses for 25 years. Mr. Brady is a CFA charter holder and holds a bachelor’s degree in Business Studies and Financial Markets from Dublin City University. He started as a foreign currency trader in USD/DEM and managed multi-billion dollar bond and foreign exchange portfolios for multinationals such as eBay and Salesforce.
He has always been interested in financial markets, winning investment competitions at the age of 15. Scoring the highest grade for his graduate thesis, “Is the ERM (Exchange Rate Mechanism) Fatally Flawed,” in 1993, and won foreign currency spot, forward, and bond trading competitions at 23. Suffice to say that financial markets have been his passion for much of his life.
David is a native of Dublin, Ireland. He moved to the United States in 1998 and now lives in Ontario, Canada, since 2015, with his wife and four kids.