May 1, 2018
Buy the Stock Market
Okay. They are at it again...The majority of those forever wrong Wall Street geniuses/yakheads have lately come up with their latest reasons NOT to buy stocks. In the same way they were 100% WRONGLY spewing FEAR throughout 2016-2017 with their predictions that China’s stock market selloff…AND Brexit…AND the Election…AND what they thought was a “weak economy”, were imminently going to crush the world’s economies and stock markets, those same nitwits are at it AGAIN…expressing their “caution” regarding stocks, with their most recent primary boogeyman reasons being, “the trade WAR!”, “rising interest rates”, and, oh yeah, “forward guidance about future earnings from here.”
I don’t think they could be more wrong…but as noted, and documented for years in this newsletter…This is nothing new. The investment industry is jam packed FULL of people who look good, and sound good, but are perpetually wrong.
I believe that right here, right now, is when you should be buying the stock market. Period…That what we may be looking at, again, RIGHT NOW, is the best stock buying opportunity since either early 2016, or for that matter, since March, 2009.
For sure, the nonstop tweeting from the White House is creating international turmoil, but it will NOT, I believe, result in anything more than a lot of media noise. Yes, there will be some forms of retaliation by China, Europe, etc., but it does NOT mean the USA and World Economies are suddenly going to enter some sort of catatonic phase. Nobody, anywhere, is going to stop producing houses, cars, technology, whisky, crops, movies, toothpaste or anything that you want to name as a result of whatever industry specific tariffs are going to arise from DT’s latest twitter rants…IBM is going to keep doing what they do. As will Home Depot. As will Chevron. As will Pfizer. As will McDonald’s. As will Microsoft. As will Proctor & Gamble…As will just about ANY company you want to name, whether it be American, European, Asian, South American, African, Australian or wherever…Aside from the fact that that many of the world’s major companies are NOT just situated on one continent…and may therefore experience both benefits and detriments from the latest SUPPOSED “crisis", which it is NOT)…every industry that is affected by the new playing field WILL make adjustments…and WILL go forward with their business of EXPANDING and of making money…In other words, while there may be companies or industries that may be more directly impacted than others, the vastly overwhelming majority of businesses WON’T be…and furthermore, whether they are here, or in China, or anywhere, what none of them are going to do is just say, “We’re done. Let’s close the doors and give up.”
The point is, THE WORLD ECONOMY IS STILL IN A DECADES LONG BOOM, DRIVEN BY THE DEATH OF COMMUNISM AS AN ECONOMIC POLICY…AND THE ONGOING MASSIVELY STIMULATING GLOBAL-WIDE TECHNOLOGY REVOLUTION. The planet is swarming with newly minted capitalists, and with them, more than a few billion new global consumers, as well as an onslaught of never-before-even-dreamed-of products being created by TOTALLY NEW ENTIRE INDUSTRIES unlike anything the world has ever seen….Throw in the fact that we STILL have pretty much the lowest interest rates in modern history…and I CONTINUE TO BELIEVE THERE IS A LONG WAY TO GO ON THE UPSIDE, BOTH ECONOMICALLY AND IN THE STOCK MARKET.
Here is the Dow for the past decade, noting a few periods that demonstrate that RETRACEMENTS ARE NORMAL…And my idea as to how the rest of 2018 could easily unfold…
I will repeat: I THINK THE USA AND WORLD ECONOMIES ARE IN AN OUTRIGHT BOOM PHASE…and anyone who wants to suppose that the economic world is about to stop spinning is blind to the fact that we are probably in the midst of the greatest capitalistic and technological expansion this planet has ever seen…My opinion anyway.
And with this GLOBAL EXPANSION, the demand for borrowed money WILL keep expanding as well…and both short term and long term rates WILL keep moving higher…meaning Treasury Bonds and Eurodollars will keep moving lower.
I continue to recommend:
SHORT TREASURY BONDS
For at least the past 18 months, I have recommended being short both of these markets but my heaviest emphasis has been in Eurodollars. While I do still recommend being short ED’s, I currently believe the BIGGEST move between the two is about to be in the Bonds…And immediately so. Aside from my simple belief that the global demand for borrowed money can ONLY be vigorously climbing from here (again, more loan demand means higher interest rates), I also think that Congress’ recent actions to cut taxes AND MONSTROUSLY INCREASE SPENDING has created an almost can’t-miss recipe for higher long term interest rates…and perhaps SHARPLY so. Fewer revenues and increased spending in any “business” generally results in lenders to that entity requiring a higher interest rate…And the US Treasury is no different. International investors who buy our bonds (which is how the USA borrows) WILL want more of a return on their investment than a paltry 3%...especially in an environment in which inflation itself could soon be EASILY eating up that 3%.
Here is the long term chart…And no, I don’t see Bonds going back to where we were at the turn of the century (100), but 125-130 DOES look, to me, like an easy target from here…and I absolutely think it can/will happen within the next 2-4 months.
Here’s a shorter term perspective…
Here is an option I like right here, right now…THIS week, ahead of the Fed tomorrow and ahead of the Unemployment numbers due out on Friday.
And I am also definitely using the 2 & 1 in Bonds as well…Putting them together for around 5K with what I believe is an excellent chance to either recoup what we have invested…or make a truly BIG hit…Obviously, however, if the market goes dead sideways, you could lose everything you have spent.
And here are the Eurodollars, which I am pretty much just sitting on what puts I already…believing that additional funds should go elsewhere…THERE IS A LOT GOING ON…ACROSS THE BOARD…RIGHT NOW.
STILL SHORT GOLD
(VERY MUCH SO)
As noted here for quite some time, I firmly believe that anybody who ever would buy the bullish Gold “story” has already had 1000’s of chances…and supposed “reasons” to do so…And that I just as firmly believe this “safe haven” market now has nowhere to go but SHARPLY lower from here. I see this market as monstrously OVERLOADED with investors who are most likely already in losing positions on everything they have bought for the past 6-8 years…and the next thing they all will be doing is SELLING…As just one example, if the Dow dropping 3000 points in a matter of days didn’t move Gold up (it went down in fact), WHAT WILL? Nor did it move up when some months ago we were supposedly on the brink of nukes flying in North Korea?
I think a massive investor LIQUIDATION is coming in Gold…
I continue to imminently look for a $250-$300 sell off…
And I expect to see it
happen THIS YEAR…beginning, literally, any day now.
And I would also point out that RISING INTEREST RATES was one factor in "breaking" Gold from $875 down to $300 back in the early 1980’s...again, I believe, same as it is now.
Here is one way to go…
And here is a better way to do it…I think the odds of Gold just laying here for the next 3 months are extremely low…and this IS therefore the perfect set up for the Both Sides Strategy…
A new recommendation:
Own it for the next year.
There’s a time to buy and a time to sell. Sugar is DEEP in the hole. Speculative Funds are more short than at any time in history, while Commercial interests are more long than at any time in history. After a long slide lower, in recent months they have crushed this market in what looks to me like the sort of capitulation I have seen at countless commodity bottoms during the past 4 decades…where everybody who HAS been trying to buy and own a market finally just GIVES IT UP…and THEN is when you want to be a buyer…
Buy it and forget it
To me, this is one of those trades that you simply put the money on the table…with a decent amount of time…and forget you own it…To also simply trust the fact that the heavy long position by Commercial interests (that are actually in the Sugar business) must have some reason to be positioned as they are…and also to trust that the Speculative traders WILL be wrong…Believe me, just because they are “professionals” does NOT mean they know what they are doing.
I am clueless as to world supply and demand
in this market
I say I am clueless as I haven’t looked at the specific global production and consumption numbers, but I do know that we have record world demand (AND record world production) in Sugar, which is really the case for just about any agricultural commodity you want to name...due to nothing more than the fact that population growth means more mouths to feed. Period. But you can also then throw into the equation that China’s massively expanding middle class is also impacting the supply demand equation for everything we grow (or use) on the planet…and Sugar is certainly no exception…So, to me, it’s just a question of WHEN will Sugar get it going on the upside…WHEN will it have the same sort of 7-10 cent rally (or more) that can be seen repeatedly having occurred for the past 50 years (chart below).
Here is one way to take this position…
I would say the odds are decent that, to begin with, this market could “V” up out of here and quickly be in the 13-14 cent range before evolving into more of a steady uptrend…which is one reason why I DO want to own it here and NOW.
A FEW FINAL NOTES…
I would also add that I think Corn, Wheat and Soybeans are NOW on the move towards potentially higher prices. I am long all three markets…using the both sides options approach…and will try to cover them in the next few days…If you do have an interest in those three markets, give me a call…
I think we are about to see a LOT of big action, and big moves, in a number of markets during the next 3-4 months and therefore think this is a GREAT time to be taking positions…
Give me a call if you want to talk about any of this…or anything at all for that matter. I always like to hear from you guys out in the real world.
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: Treasury Bonds, Eurodollars, Gold, Sugar, Corn, Wheat, Soybean Meal.