October 29, 2024

 Regardless of the election outcome…

I think the next 6-9 months

will be negative for Stocks, the Economy, and Gold.

And Interest Rates Will Be Going Sharply Lower.

BUY SOFR. BUY TREASURY NOTES & BONDS.

Anytime you start predicting recessions or calling for a downturn in the Stock Market, you’re just begging to be proven wrong…

One of my decades-long, steadfast beliefs has been that the USA and World Economies more or less “always” keep chugging higher…with the exceptions obviously being brief INFREQUENT recessions, often lasting less than a year, which usually results in equity markets going south along with those economic contractions. BUT, predicting when this will happen…or when you’re essentially saying, “I know everything feels great right now, but I think it’s going to end here,” is about the toughest call there is in this business, as, simply stated, you’re betting against a VERY long term upward swinging trend…And of course, the masses, from the Fed down to the smallest individual investor, NEVER see it coming…For sure, in retrospect, the “cause” for the downturn always makes sense, but let’s get real: With the last BIG, BIG one, the Great Recession, as one example, NOBODY, from the US Treasury, to the Fed, to the Banks, to the Brokerage Houses on down saw it coming. AT ALL…and my 44 years in this stuff argues that NOT seeing them coming IS the norm.

MY OPINION CONTINUES TO BE THAT EVERYBODY IS MORE OR LESS LONG EVERYTHING…STOCKS (AI = easy money!), GOLD, CRYPTO, AND COMMODITIES…AND THAT SOME SORT OF MAJOR “DISAPPOINTMENT” IS COMING ON ALL THOSE FRONTS.

Yeah…The coin flip election supposedly has people worried about which way everything will be going after next Tuesday…but my guess is that virtually no one is actually worried enough to be getting out of their Nvidia’s, Chip/Tech stocks, or really any stocks, or their Crypto, or their Gold, Silver and WHATEVER else they own ON PAPER…simply because confidence is up that the economy is growing, inflation is waning, the Fed (however slow they’re moving) is easing…AND they all think that their party is going to win…And life will be good! Especially when their favorite stocks as still hanging around their…So my unscientific impression is that EVERYBODY IS FULLY INVESTED…and waiting for the profits to come rolling in, and when you get down to it, NOT worried.

So I’ll repeat: INVESTING IS A MOB PSYCHOLOGY GAME…NO VALUE, OF ANY ALL THESE PIECES OF PAPER, (INCLUDING GOLD & SILVER, WHICH MOST PEOPLE “OWN” ONLY ON PAPER) IS REAL, OR PERMANENT, OR CERTAIN TO KEEP GOING UP…AND A RECURRING PART OF THE GAME IS A WHOLE NATION OF PEOPLE GETTING CAUGHT UP IN WALL STREET’S HYPE…AND THEN LOSING THEIR MONEY.

Recession Ahead…
 

I hate hearing about indicators that “predict” recessions…and know that none of them are infallible, but this first chart HAS “predicted” every recession for the past 75 years…And if you take the few minutes to examine it, I think it speaks for itself.

Undoubtedly, businesses and factories here in the USA are humming right now, and I’m not going to say I know the unemployment rate will keep climbing…but the fact is, it has been…for some reason…and beyond that, I’m pretty sure that the same “Economy is good” vibe was there all 12 times when Unemployment turned up…and KEPT GOING…again, AT LEAST, for another 2%  on the upside or so.

HOW MUCH DOES THE FED “NORMALLY” EASE? And HOW FAST DO THEY DO SO?

Here’s the answer going back those same 75 years…with the total drop in their Fed Funds Rate noted at the end of each Rate Decreasing Cycle…And for sure, the numbers are going to be bigger when you’re talking about rates coming down from much higher levels than we have now…but one thing is quite clear…HOWEVER SLOWLY THE FED STARTS TO EASE, ONCE THEY DO GET GOING, THEIR POLICY OFTEN BECOMES MORE AGGRESSIVE (PLAYING CATCH UP), RESULTING IN WHAT CAN ONLY BE DESCRIBED AS RELATIVELY STRAIGHT DOWN MOVES IN INTEREST RATES.

My bottom line is that I believe Interest Rates, whatever the outcome of the election, are about to begin moving sharply lower…and I AM THEREFORE RECOMMENDING BUYING CALLS IN BOTH THE SHORT END…WHICH IS NOW THE SOFR FUTURES CONTRACT (replacing the old Eurodollar contract we used back in 2021) AND THE LONG END, WHERE I WANT TO BE LONG THE 10 YEAR TREASURY NOTEs AND/OR TREASURY BONDS.

 Buy SOFR Calls

(Secured Overnight Financing Rate Futures)

REGARDING SHORT TERM RATES, HERE IS THE OPTION I AM BUYING…The values here are identical to the Eurodollar contract we were in 4 years ago.

Buy Treasury Notes and Bonds

There is a ton of talk of late about too much Gov’t Debt, and what if the world stops buying our Bonds, etc.…all of which, I swear, has repeatedly been out there as a reason why “Bonds can’t possibly be going up” during what was almost a 40 year bull market in Treasuries.

I THINK THAT AS THE FED AGGRESSIVELY EASES…AND AS MONEY LEAVES STOCKS AND OTHER ASSETS…THE TREASURY MARKET HAS NOWHERE TO GO BUT UP…

This  next chart is ESPECIALLY INTERESTING…and does, I believe, firmly indicate that there is a massive, massive bearish Treasuries opinion out there…which suggests to me that Notes and Bonds are primed to take off on the upside. Truth is, I THINK US TREASURIES ARE THE BEST PAPER ASSET BUY ON THE PLANET TODAY.

DO GET A GOOD LOOK AT THIS CHART DATA…

This is THE most heavily traded Long Term Rates futures contract…The 10 Year is what the talking heads all yap about…

I MAINTAIN THAT ALL THOSE SPEC SHORTS WILL GET IT HANDED TO THEM…AND QUITE SOON…

Here is two call options I like right here…right now…Ahead of the employment number Friday…and yes, ahead of the election.

March 2024 Ten Year Notes

March 2024 Treasury Bonds

It does NOT mean I will be right, and if I am wrong, you will almost certainly lose money, but there are a whole bunch of you guys out there that know I UNDERSTAND THIS MARKET BETTER THAN JUST ABOUT ANYBODY…And no, I’m not getting up on a high horse about it…Believe me, I have been severely “humbled” by the interest markets a number of times…But I DO regard this as THE contrarian market and DO know what a bottom in Bonds looks and feels like…AND RIGHT NOW, IN MY OPINION, IT COULD NOT BE MORE PERFECT.  I DON’T KNOW HOW MANY BOTTOMS I HAVE SEEN IN BONDS WHERE I WAS SAYING, “FIND ME ANYBODY WHO IS SAYING BUY THE SHIT OUT THIS…HERE, 70 POINTS IN THE HOLE THIS TIME…AND GOT VIRTUALLY NO TAKERS.

I do have reasons why I think some degree of a tumble is coming…in Stocks and the Economy. Call me if you want to talk about it.

And I do think this “slow go” Fed is going to end up in the same boat they were in several years ago, when they preached that “transitory inflation” line and then had to play bigtime catch up…Only this time, it’s going to be in the other direction…where all of a sudden that find themselves needing to move MUCH faster in bringing down the cost of money.

Call me if you think anything here makes sense…or doesn’t.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Bonds, SOFR