April 12, 2016
THESE ARE MY OPINIONS
Bonds HATE Inflation…
And INFLATION is coming back BIG & FAST during the remainder of 2016…
AND TREASURY BONDS HAVE NO WHERE TO GO BUT SERIOUSLY LOWER
Consumption of Crude Oil and generally all forms of fossil fuel energy will set new records for World Demand this year…With the production shutdowns that have been incurred due to low prices, it is foolish to assume that prices for this NUMBER ONE COMMODITY ON THE PLANET are going to be laying around here in the $30’s and $40’s for any length of time at all…And as I’ve said before, you’d better believe that everybody in the oil production biz (no matter what their difference in politics, religion, or whatever) wants to see prices going back up…and they WILL band together to do so. OIL PRICES HAVE BOTTOMED AND THEY HAVE NOTHING BUT UPSIDE FROM HERE. This will contribute to higher inflation.
Pretty much every major crop we plant here in the USA is now BELOW THE COST OF PRODUCTION. This will NOT be the case 6-12 months from now. I THINK CORN, COTTON, SOYBEANS AND WHEAT ALSO HAVE NOTHING BUT UPSIDE FROM HERE. This will contribute to higher inflation.
For the past 30 years, my impression is that everything about health care gets more expensive every year. This will contribute to higher inflation.
The Residential Real Estate market basically DIED from 2006 until just a few years ago…Nobody was buying. Nobody was selling. Nobody was moving…And while all this was happening, relatively nothing new got built…FOR YEARS…So what do we have now? YEARS OF PENT UP DEMAND FOR HOUSING IS JUST BEGINNING TO COME OUT OF THE WOODWORK AND IS BEING MET BY A SHORTAGE OF HOMES FOR SALE. This is NOT the recipe for lower or even stagnant home prices. Indeed it is VERY much the opposite and my guess is the next year or two will see some astonishing percentage increases in real estate prices (residential AND commercial), and yes…This will contribute to higher inflation.
Unemployment is at 5.0%. Help Wanted signs are everywhere. Contracting wages due to the recession are behind us. Businesses are now having to compete for employees…and I say labor market tightness will be getting worse on a month by month basis (PLEASE, ignore the nitwits who keep talking about the economy slowing)…Low unemployment almost inevitably leads to Wages Going Up. This, too, will contribute to higher inflation.
I COULD GO INTO MORE DETAIL BUT I THINK THAT’S ENOUGH “EVIDENCE” TO SUPPORT MY BELIEF THAT WE WILL BE SEEING SOME “DISTURBING” INFLATION NUMBERS…AND THAT THOSE NUMBERS ARE GOING TO BLOW THE BOND MARKET OUT 0F THE WATER…I TRULY BELIEVE A BOND MARKET DEBACLE IS DEAD IN FRONT OF US…AND DITTO THAT FOR THE EURODOLLAR MARKET (representing short term interest rates).
With Household Debt Payments as a Percent of Disposable Income down to the best levels in 35 years, and energy prices having put extra money in everybody’s pockets, and years of cheap-as-dirt interest rates, you’d have to be blind to not see that the American consumer is out driving and spending EVERYWHERE…that the economy IS beginning to surge…and I think anybody who buys into the economic media’s story of a “possible slowing economy” needs their head examined.
Stocks have recovered COMPLETELY from their 3 week sell off in January that scared everybody into absurdly believing the world-is-in-trouble nonsense…and took a LOT of people out of the market…only to watch it then go STRAIGHT back up (and you’d better believe they have NOT gotten back in)…And, in my opinion, THE STOCK MARKET NOW LOOKS POISED FOR A TRUE UPSIDE EXPLOSION, THE LIKES OF WHICH WE HAVE NOT SEEN IN YEARS…And yeah, if you want to continue to believe the “expert” brainless yakheads whose latest theme is, “Bad earnings coming” (that idea is everywhere), go ahead…But I SAY THIS IS WHERE YOU WANT TO BE BUYING, AND OWNING, STOCKS…AND SELLING BONDS WITH BOTH HANDS.
In other words, Stocks and Bonds do tend to move opposite each other…and the recovery in Stocks “should” have taken the bond market back to where it was (153) when the Dow began to fall in January…So something has got to give, and I definitely think it’s going to be the Bond market.
And there is an age old correlation between Crude Oil and Bonds…
And these few headlines from yesterday and this morning reflect the latest “reasons” all the nitwit columnists and painted faces are giving for NOT buying the stock market…And if you remember, about a month ago I showed you almost 40 headlines from early March ALL arguing that the Stock Market and Economy were on the rocks…I’ve seen it forever…When Stocks are on their highs, and you can read, “Don’t Buy It!”, EVERYWHERE, that is exactly what you are supposed to be doing: BUYING.
Now take a look at the market on the chart following…For one, you KNOW the January dip was just one big BS scare that shook a LOT of people off the market…and NOW? I’ve easily scanned a million charts in my career, and while no chart is by any means presents an absolute read on what is coming, this one just looks ALL OUT BULLISH to me…
TO BE CLEAR…
BUY STOCKS AND SELL TREASURY BONDS
ESPECIALLY…SHORT THE BOND MARKET
I keep saying it: You should expect interest rates to go up (and Bonds go down) LONG before the Fed actually makes a move…that THE MARKETS LEAD THE FED…NOT THE OTHER AWAY AROUND…Expressed from another standpoint, I would also remind you that these are the FUTURES markets, not the PRESENT, and they DO, therefore, move AHEAD of what is happening in the real world…In other words, if the Fed IS going to raise rates (they ARE, and much faster and bigger than economic “analysts” are expecting), you’d better bet that the markets will move BEFORE the Fed does.
Here is one option I like right now…
MY POINT IS…Open your eyes…Ignore the know-NOTHING media…The economy is on solid footing…beginning to boom actually…AND RATES HAVE NO BUSINESS BEING AT THE LOWEST LEVELS IN MODERN HISTORY.
We get two measure of inflation early tomorrow (Producer Price Index) and then Thursday (Consumer Price Index)…and I will be very interested to see what those numbers are…AND the bond market’s reaction.
I DO think this is about to start happening…and happening fast. The truth is, WE MADE THE HIGHS IN BONDS TWO MONTHS AGO AND HAVE JUST BEEN ROLLING SIDEWAYS TO LOWER EVER SINCE…I THINK THE “MEANDERING” IS ABOUT TO END AND THE VIRTUALLY STRAIGHT DOWN MOVE I KEEP REFERENCING IS DEAD AHEAD…AND IF YOU WANT TO BE ON THIS, I WILL SAY IT AGAIN: I THINK IT IS IMPORTANT TO BE THERE BEFORE IT STARTS GETTING CRAZY.
Pick up the phone.
And if you already have some of this...Swallow hard and get some more…
The author of this piece currently trades for his own
account and has financial interest in the following derivative products
mentioned within: Treasury Bonds