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May 3, 2021

 The Fed didn’t see the Mortgage Crisis

And the Great Recession coming…

And now…?

Last week Fed Chairman Powell stated that the Federal Reserve Board will be patient about raising interest rates…And while they note prices have been rising sharply for any number of goods and services, they think  the recently rising inflation numbers are “transitory,” and therefore nothing to worry about.

As I have stated forever, the Federal Reserve Governors are not market predicting geniuses…that they have a long history of NOT being able to  predict what would happen in the markets and the economy…And as a result they are often reacting AFTER the fact in their lowering or raising of interest rates…that is, they decide to raise or lower AFTER striking developments have happened in the economy…and AFTER the futures markets have ALREADY raised or lowered rates.…So I will repeat: The markets lead the Fed, not the other way around.

And I am not implying that the Fed is made up of a bunch of idiots…Not at all…But I am saying that they are still just a bunch of guys who are guessing about the future just like everybody else, and like everybody else, they can be dead, dead wrong…During the past 40 years, I have seen that phrase, “We have revised our forecast,” more times than I can count.

Just as ONE example, consider the Sub-Prime Mortgage Crisis that brought about The Great Recession…Think about it…The mortgage industry could easily be considered to be the “Interest Rate Industry”…and with the Fed’s primary focus/tool being Interest Rates, the fact that NOBODY at the Fed saw the Mortgage Crisis coming…AT ALL…is pretty conclusive evidence that, one more time: They DON’T know.

I THINK THE IDEA THAT RATES WON’T BE RISING UNTIL SOME TIME IN 2022 IS ABSURD. The stock market continues to roar.  The economy is ramping up. Speculation IS rampant. And the latest inflation numbers are just “transitory”? Check out a few quick commodity charts and decide for yourself. To me, some of this stuff just looks batshit CRAZY…



Here is my current recommendation…And remember, When Interest Rates are going up, Eurodollar Futures go DOWN.

You never know what it will be, but sometimes it just takes one report to trigger a move in this market…Like maybe the Jobs numbers coming out later this week? My two cents is to be in this now…Just a 6-7 tick move in Eurodollars on the downside would probably move the 99.75 put, now at 5, up to 7.5-8.00, which is not a big dollar difference but does represent a 50% change in the price…and leverage…And the truth is, and it is just my dumb old hack commodity broker opinion, but to see this market leave the gate moving 5 ticks a day would not surprise me at all…

Give me a call if you think this is worth the risk…





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

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