$8.69M UGL/GDXU YOLO in Advance of Strengthening Asian Currencies

I had wanted to post this play on Friday evening but preparations for the looming snowstorms delayed things a bit. This past week, we witnessed a precipitous decline in the U.S. dollar against a basket of currencies like the euro, Swiss franc, and British pound. Movement that might normally be attributed to recent geopolitical concerns was driven, in part, by another factor. That is, on Friday, the Bank of Japan reached out to the U.S. Treasury Department to ask the U.S. Federal Reserve for a rate check. Murmurs about this rate check trickled out from various currency dealers just before lunchtime on the East Coast in the U.S. It was a widely known secret about an hour afterwards, which led to further downward pressure on the yen that also carried over to the U.S. dollar. I believe that most of the dealers were authorized to publicly comment on the request after the closing bell in New York. For those of you who do not dabble in currencies, rate checks are one way for central banks to strengthen their own currencies. Doing so avoids the hassle of directly raising rates and the negative effects those rate changes can have on domestic growth. Despite the Japanese Ministry of Finance's unprecedented rate increases this year, the yen has been somewhat sluggish to gain favor against other currencies. Japan has fiscal and political concerns that are depressing the yen. Both the Korean won and Taiwanese dollar are similarly weak. U.S. Treasury Secretary Bessent commented on this currency weakness about a few days ago and presumably again at sidebars at the World Economic Forum meeting. He has probably already started coordinating a strengthening of those currencies against the dollar. Due to these factors, we will see one of two outcomes that play out very soon. If the Japanese Ministry of Finance does not respond promptly, then there will likely be a short squeeze of the yen-dollar currency pair and a further debasement of the yen. If the Japanese Ministry of Finance acts, then it will do so by either raising rates further or offloading U.S. dollars for yen. Swapping currencies was the preferred approach by the two previous Japanese administrations and may be adopted by the current one. Either of these outcomes will undoubtedly lead to further declines of the dollar relative to the yen and other currencies. Rate increases would likely have the longest-lasting impact on depressing the dollar. Yen-denominated bonds would start to look even more attractive compared to dollar-based treasuries while coming with significantly fewer political concerns. This could lead to an outflow of dollars in favor of the yen. Alternatively, a sharp yen rally absent a rate hike would likely cause another violent drop of the U.S. dollar. This would be coupled with the potential for a slow dollar recovery rally against the yen a few weeks later, though. This knowledge leads to a few YOLO plays especially if no actions are taken by Japan during overnight hours on Sunday and pre-market hours on Monday. My preferred play is to continue to trade a market with which I am familiar, which is commodities. In particular, I am banking on the fact that a continuously declining dollar, caused in the short term by the forced strengthening of certain Asian currencies, will act as a short-term and medium-term backstop against any large pullbacks in precious metals like gold. If anything, it may allow for continued upwards movement in spot gold prices going into earnings season for gold and silver miners. That, in turn, could raise forward guidance for miners and lead to a few surprise gains for the biggest entities. My plan is to continue to hold approximately $6.61M in UGL (90000 shares) and $2.08M in GDXU (4500 shares) for a bit longer than I had planned. I have entered into and exited from these positions a few times over an extended period and typically held them for about two to three months each stretch. I was able to ride the rallies from near their beginnings and skip the dips at the expense of a huge tax bill. I most recently re-entered into these positions at the beginning of the new year and accelerated purchasing two weeks ago. I will be paring those positions and rotating most of the principal back into their non-leveraged versions and various, non-leveraged equities once I hit certain targets. Also, since I will likely get asked about this, I prefer to hold leveraged ETF/ETN shares versus LEAPS contracts for large positions like these that are highly speculative. Holding shares allows me to buy and sell during pre-market hours and thus start trimming to lock in gains when there is a wave of negative sentiment forming. This has been useful several times. In December, I was able to dodge a 10% overall decline in UGL and a 25% decline on GDXU, which was spurred by CME's margin capital increase, by selling right at pre-market open. My draw down was only in the 2-4% range for both positions. Similarly, in October, I was able to walk away with only a 3-6% decline in both positions versus an approximately 10-15% total decrease had I been forced to wait until market open.