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July 26, 2006
Eurodollar futures are basically the international equivalent of 90
Day Treasury Bills---or short term interest rates (and have nothing
to do with Europe, or the Eurocurrency). Like the Bond market,
Eurodollar futures go down when rates are rising...and go up when
rates are falling.
While everyone is still debating if the Fed is done
raising rates, I am of the opinion the next move in short term rates
will be to fall, and as they do, Eurodollar futures will be going up
(as will the Treasury Bond market).
I believe the Fed "squeeze" of the past few years has finally begun
to seriously kick in...which is exactly what the Fed intended. During
the past 3-6 months, industrial metals prices (zinc, tin, silver,
platinum, palladium, nickel, lead, gold, copper, aluminum) have
fallen close to 20% on average and virtually all of them appear to
have built potentially major tops. Lumber prices as well have fallen
roughly 20% in the last three months...These markets
would not be acting this way if demand was outstripping supply or if
inflation was not beginning to be under control...or if industrial
economic activity was not slowing.
The financial markets typically move AHEAD of public opinion and my
guess is somewhere during the next 6-8 months, the press will be be
FULL of economic hand-wringing, and calls for the Fed to lower rates
will be rampant...and Eurodollar futures will already have reflected
that need for the Fed to act...In other words, Eurodollar futures
will be significantly higher than they are now....I would also add,
in the event of further escalations in the Middle East, a so called
"flight to quality" would also probably benefit the Eurodollar
market as international investors look for safe places to park their
money.
At its current level, the March 2007 Eurodollar contract reflects
the idea that eight months from now rates will be exactly where they
are today...that nothing will have changed. I do not think this will
be the case and I am now buying futures and call options
with expectations of at least a 75-100 point move before March
expires.
Give me a call if you are interested...
Thanks,
Bill
866-578-1001
770-425-7241
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