February 12, 2019
I think a few of the biggest trades of 2019 are right here…and right now.
As stated a few days ago, I think 2018 was a year replete with all sorts of “bad” news and negativity…which essentially resulted in fairly yearlong sideways action and volatility in a number of markets (especially stocks)…And without getting into lengthy details, I will just say that I firmly believe that ALL OF THE BAD NEWS…Trade War, China slowing, Brexit, Europe slowing, Gov’t shutdowns, etc., IS IN THE MARKETS…AND THE WORST IS DEFINITIVELY BEHIND US…I would also add that all of the pessimism currently being expressed by economists, analysts and internet yakheads stems from one thing…and one thing only…The recent CLASSIC STOCK MARKET MOB PSYCHOLOGY SHAKEOUT…But even so, in spite of all the bad news and volatility...and with the brokerage house geniuses now telling you to “lower your expectations” and that a “recession is now on the horizon”, THE DOW IS NOW CLOSING IN ON NEW HIGHS…and is once again, for the umpteenth time, going to verify the lunacy of EVER following what Wall Street recommends.
And concurrent with their negative outlook for stocks and the economy, one their loudest opinions has lately become: Interest Rates just can’t be going any higher…or that they may even need to go lower…which I think is just unbelievably, absurdly…but typically for them…TOTALLY BACKWARDS.
Stocks will make decidedly new highs in 2019.
Interest Rates are STILL moving higher.
TREASURY BONDS AND EURODOLLARS
ARE BOTH A GIGANTIC SHORT…
No market moves in a straight line. No market gets to where it is going overnight. All markets have pauses in their trends…and that is all we have seen in the downtrends in Treasury Bonds and Eurodollars…PAUSES…that, as can be seen on the next two charts, were specifically due to the recent stock market “scare.”
Remember that Eurodollars go down as Interest Rates (LIBOR) go up...And basically, as can be seen below, for the past 2-3 years, as Stocks have moved higher, Eurodollars have been moving lower...and…If Stocks NOW continue their bull market...As the economy heats up...I BELIEVE RATES CAN ONLY BE MOVING HIGHER...MEANING BOTH EURODOLLARS AND TREASURY BONDS WILL QUICKLY RESUME THEIR DOWNTRENDS.
Same here…Bonds were making new lows when Stocks started selling off…and TEMPORARILY rallied the Bonds…
I am buying these puts here…
I will repeat…We HAVE been through all sorts of negative headlines for months on end…and I firmly believe the Stock Market has accounted for all of it…And from here forward, at least for some number of months, I think we are going to be getting a steady diet of positive developments…including bipartisan INFRASTRUCTURE BUILDING…and Stocks and the economy will CONTINUE to surge higher…while Eurodollars and Treasury Bonds get hit hard in the opposite direction.
I cannot think of a worse time to be on the sidelines…Do NOT let the gyrations in stocks and all the supposed “experts”, “analysts” and “strategists” throw you off track.
DO give me a call and do something with this…
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars, Treasury Bonds