March 22, 2021

What will the world be like a year from now?

Even though COVID will NOT be disappearing, my firm belief is that Science and Political Policies, here and abroad, have begun to exert a higher and higher degree of “control” over the spread of the virus, and its impact will therefore STEADILY become less and less of an economic deterrent…It is also my equally firm belief that the planet’s major economies, as “predicted” by Soaring International Stock Markets for the past 9 months, are now DEFINITIVELY on the upswing…and going forward, will only be getting stronger and stronger…and stronger.

The Bottom Line:

 A year from now…I think the World Economy will be ROARING.

And as a very direct result, I can only imagine that Short Term Interest Rates, currently at about 1/4%,

will almost certainly have risen, AT A MINIMUM, 1/2% from these historically aberrant record low levels…

Plain and simple, this may be a stupid statement to make, but if the next year IS one of worldwide economic growth and expansion, I think it is fairly impossible for short term rates to stay where they are today…And the truth is, in my mind, to see them go up 1/2% would be nothing, especially when you consider that just 14 months ago, before COVID appeared out of nowhere, short term rates were almost 1 3/4% higher than they are today.

 ALL OF THE ABOVE LEADS ME TO BELIEVE

THAT THERE IS A MAJOR OPPORTUNITY IN BEING SHORT THE EURODOLLAR MARKET.

The London Interbank Offered Rate, or LIBOR, is the THE international benchmark for short term interest rates…And Eurodollar Futures are where LIBOR changes are reflected and traded…

First up, here is what LIBOR has done for the past 30 years…with an observation on where it was PRIOR to the pandemic…

 I AM THEREFORE BUYING MARCH 2022 EURODOLLAR PUTS

The next thing I need to point out that this is NOT the Eurocurrency…Eurodollars are Dollars on deposit anywhere outside the United States…and the Eurodollar Rate, which is almost identical to LIBOR, is the interest rate pertaining to those dollars…with the bottom line being, the Eurodollar contract (the most heavily traded futures contract in the world), reflects International Short Term Interest Rates. And when short term interest rates are going higher, this is reflected by the Eurodollar Futures contract going lower (this is pretty much the same trade we made back in 2016).

Here’s a look at how Eurodollar Futures have moved since the pandemic began…wherein you can clearly see where rates were a year ago…and where we are today…With my question being, “Where will they be a year from now?”

I am not going to write pages and pages detailing my opinion, except to say that no matter WHAT the Fed says regarding keeping rates down until 2023, for the past 40 years I have watched the interest rate markets move AHEAD of the Fed…that over and over and over the markets have LED the Fed…and NOT the other way around…As noted above, the Eurodollar Futures contract is the biggest on the planet, having more participation than ALL of the other futures markets combined…and you’d better believe that those Trillions upon Trillions of Dollars DO move ahead of what those seven Fed Reserve Board Governors get together and parley about every six weeks or so…Putting it another way, the world’s demand for borrowing (which generally pushes rates higher) does NOT sit there day by day and wait to see how the Fed is interpreting the world.

I AM BUYING PUTS ON THIS CONTRACT…AND THIS TRADE WILL BE SUCCESSFUL IF SHORT TERM INTEREST RATES DO GO UP…

This has a ton of time to work…and while I might be dead, dead wrong, I can’t imagine that the world’s economies, and especially our own, are going to be doing anything but getting stronger and stronger during the next year…and therefore I DO think there is the possibility of a bigger move than I have drawn here…I mean, really, 1.5% rates are NOT even beginning to be anything close to what I’d call “high.”

Give me a call if you think this makes sense…I’d love to hear YOUR views of the world “a year from now.”

Thanks,

Bill

866-578-1001

770-425-7241

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: Eurodollars