Plan, Prepare, Profit: The Upside of Market Surprises

The unofficial start to summer here in the U.S. is marked by Memorial Day. But June 1 kicks off the official Atlantic hurricane season.

I live in Florida, and hurricanes can cause a lot of damage. If you’re caught unprepared, you’ll suffer the consequences.

So May 7 through May 13 is Hurricane Preparedness Week. It’s a great reminder to get ready if you haven’t already done so. Stock up on water, food, and fuel. Review evacuation routes. Make sure family members know where to go if a major storm is headed your way.

The National Weather Service is getting pretty good at predicting storm tracks, but, like any forecaster, it’s far from perfect.

Planning and preparing are the only sure ways to put you in position to get through hurricane season.

Now, planning for surprises is the foundation on which I developed Treasury Profits Accelerator. My decades of experience in the financial markets showed me that Treasury bonds react sharply to surprise economic reports. A 2008 study by the Federal Reserve Bank of New York backed me up.

That study, How Economic News Moves Markets, explored how the release of new economic data affects asset prices, including equities, fixed-income securities, and foreign exchange markets. The study included analysis of a dozen economic releases and the price effects of those releases on stocks, bonds, and exchange rates.

I’ll cut to the chase: The NY Fed study concluded that certain releases had the biggest price effect on bonds, and those price changes lasted the longest over other asset classes. Also, specific economic releases had a greater impact on prices than others.

When I write my weekly edition of Treasury Profits Accelerator, my goal is to help my readers prepare for the coming week’s market-moving economic releases.

  • For example, in October 2014, a poor retail sales report helped subscribers gain 9% in about a week!
  • In March 2015, surprisingly poor wage growth in the jobs report fueled a 6% gain!
  • A terrible Institute for Supply Management (ISM) Manufacturing report in December 2015 led to a 76% gain in a single day!
  • An upside surprise in jobs created from the February 2016 jobs report steered subscribers to a 69% gain in one day!

There are plenty more examples of Fed speeches, Fed policy action, and even geopolitical events leading to massive profits.

My system helps my readers profit from overreactions in the long-term Treasury bond market. When there’s any kind of big surprise and an ensuing price overreaction, we ride the market back to where it should be – for big profits.

This is what’s commonly referred to as a “reversion to the mean” trade.

It doesn’t really matter what successes I’ve had in the past. I’m always looking for new opportunities. I look at what the market is expecting and what might trigger a big move.

So far this year, markets have been pretty quiet. After the Fed hiked rates last December and promised three more rate hikes this year, bond yields actually fell! Go figure…

It doesn’t really matter why they fell. Too much of a good thing will inevitably become a not-so–good thing. As investors piled into Treasury bonds early this year, my system signaled that the price had moved too high and that yields were too low.

After seven days, we closed out an 89.42% winner based on the overreaction!

Reactions to recent economic reports have been relatively subdued lately, but there are plenty of potential pitfalls and surprises ahead.

The data’s been mixed lately; the “advanced” (first estimate) report of first-quarter GDP was pathetic, a growth rate of just 0.7%.

Last week’s Personal Income and Outlays report was disappointing, light on income and spending. The Fed’s key inflation indicator (the Personal Expenditures Price Index, often referred to as the PCE deflator), was negative. Overall, the entire report was subpar.

The April ISM Manufacturing Index also fell short of expectations, for the first time in seven months. It wasn’t a horrible surprise, but it was disappointing nonetheless.

Last Friday’s employment report was above expectations in terms of jobs created and the unemployment rate. Wages even grew…but the head-scratcher, based on these numbers, was that overall labor participation fell when it should have risen.

The Fed announced no change in policy last week but offered its usual explanation of the weaker-than-expected data as “transitory,” or a seasonal phenomenon. The central bank thinks jobs are strong, and it noted that business investment picked up.

The bottom line is that two more promised rate hikes are still in the cards for this year.

The markets seem prepped for another hike in June, but I’m not so sure. If hard data (like prices, jobs, and manufacturing) gets softer, the Fed will surely back off talk of hiking.

Between now and the Fed announcement in June, there will be plenty of data to digest and plenty of opportunity for surprise.

And we like surprises!

Treasury Profit Accelerator subscribers profit when there’s an overreaction in Treasury bond prices – to a surprise in either direction.

You can prepare for hurricane season by reviewing evacuation plans, stocking up on food and water, and, most importantly, being aware of approaching storms.

That’s how we approach surprises in the Treasury bond market and financial markets in general: planning and preparing.

And with Treasury Profit Accelerator, we do exactly what the name suggests.

There’s a lot more to it than what I’ve just told you obviously. And I get several emails a week asking me to explain my system in greater details.

I can understand that. After all, I wouldn’t put my money into a strategy that I didn’t understand from top to bottom.

That’s why next Tuesday at 4 PM EST, I’ll be hosting a LIVE Q&A session entitled Raid the Reserve: How to Turn Boring Fed Reports into $1,300 in 4 Days, where I’ll be answering many of those questions about my Treasury Profits Accelerator systemhow it’s able to deliver such big gains in such short time periods… and what you should be doing now in advance of what promises to be a very volatile time on Wall Street in the months and years ahead.

And be sure to submit your own question to me at economyandmarkets@dentresearch.com.

I hope you can join me. It’ll take place, right here, so please bookmark the page and check back Tuesday at 4 PM EST.

Good investing,

Lance Gaitan
Editor, Treasury Profits Accelerator

 

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About Author

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating and working as an auditor for an insurance administrator as a number of years, he attained his securities license. He then went to work as a broker for a small firm and during the mid-1990’s Lance managed the futures trading desk for Piper Jaffray, a large regional brokerage firm based in Minneapolis. After migrating to Florida in early 2000, Lance founded a futures trading firm, GSV Futures, specializing in retail commodity trading strategies. Lance sold that business in 2006 and joined Harry Dent, Jr. and Rodney Johnson at Dent Research shortly thereafter.