I THINK RATES WILL BE UP AT LEAST ANOTHER FULL PERCENT BY YEAR END.
The economy is rapidly expanding…Stocks AREN'T stopping…Inflation is coming.
Quick notes and numbers…
The markets are STILL only anticipating ONE 1/4% INCREASE BETWEEN NOW AND SEPTEMBER…which I still think is just nuts…I think the economy AND the Trump/Congress combo would have to mutually STOP DEAD in their tracks to see this even begin to suppose nothing more than one bump in rates during the next 7 months…And as I have written for months on end, I think all you have to do is walk out your door to see that the economy is humping all over the place…The roads, malls, restaurants and airports are full of consumers…Vehicles are selling…Houses are selling…Construction is everywhere…and WE ARE NOT IN AN ENVIRONMENT THAT EVEN REMOTELY CALLS FOR LOW INTEREST RATES…And as has repeatedly been the case for virtually all of my 37 years in this business, THE FED WILL BE MOVING MUCH FASTER AND BIGGER THAN ANYBODY IS ANTICIPATING…and that includes the Fed governors themselves.
I CONTINUE TO RECOMMEND BUYING PUTS IN THE EURODOLLAR MARKET.
As a general rule, markets do two things…They consolidate, and they MOVE…Neither lasts forever…and most recently, Eurodollars have been consolidating…for 2 ½ months…and with today’s close representing a NEW ONE YEAR LOW, my very strong opinion is that NOW they are immediately ready to MOVE…and move big.
I am still amazed on a daily basis at how few people seem to agree with me…at how many times I have heard, “I want to see what stocks do” (and I say they are NOT even close to stopping), or “I want to see what Trump does” (He is NOT shy. The news WILL soon be full of proposed building and spending that will make his 10% increase in the defense budget look like peanuts), etc…The truth is, I think rates stayed very low for so long that most people have totally forgotten what “normal” is for the rate markets…and as can be seen on the longer term chart below, “normal” is EASILY 3 or 4 percent away from here.
The long term picture in short term rates…
And here is the longer term perspective in Eurodollars…which reflect short term interest rates and have NOTHING to do with Europe, the Eurocurrency or the US Dollar.
The intent with the next chart is to give you an idea of HOW Eurodollars do move…to point out that 50 points is nothing in this market…
HERE ARE THE PUT OPTIONS THAT I AM CURRENTLY RECOMMENDING…
Take your pick…I may be dead, dead wrong…which means you could lose every dollar your spend…but I think both of these options have enormous potential…And I will emphasize, I THINK SEPTEMBER IS A LONG WAY OFF…that between now and then the markets will be subjected to countless statistics or events or political stimuli that will repeatedly “accentuate” the fact (in my opinion) that the US economy (and the rest of the world) are running full steam ahead…And one more time, IT’S GOING TO TAKE A LOT MORE THAN A FEW SLOW GO 1/4% INCREASES TO EVEN BEGIN TO MAKE ANY DIFFERENCE AT ALL.
In your court…Call me if you want to get something started…or GET MORE. I think this IS now happening…And PLEASE, if you think this is a good idea, DON’T wait to hear it confirmed by the Fed next week before you decide to do something with it.
Still think we will never see a trade like this again…
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