August 2, 2016
I continue to aggressively Short Eurodollars.
The media and analysts keep wondering when, and by how much, and how quickly the Fed will make a move to raise rates…In general, their perception is that MAYBE the Fed will raise rates once this year…Or maybe not at all…On so many levels, I think this is just totally, totally laughable.
As stated here on numerous occasions, I will tell you that the financial markets will start moving rates up BEFORE the Fed does anything.
A VERY quick lesson…I know that most people have no idea what Eurodollars are…
The London Interbank Offered Rate (LIBOR) is the average of interest rates estimated by each of the leading banks in London that would be charged to borrow from other banks.
Just putting it simply: LIBOR is THE international benchmark for short term interest rates…and when this lending rate between banks changes, it affects interest rates everywhere...The next thing to understand is that LIBOR definitively LEADS the Eurodollar market which I am aggressively shorting now…looking for interest rates to move steadily…perhaps rapidly…higher over the next 12-18 months.
Again, the Eurodollar is not the Eurocurrency, not does it have anything to do with Europe. Eurodollars (the most heavily traded futures contract in the world) are Dollars on deposit in banks outside the United States, and the Eurodollar futures contract directly reflects the interest rate paid, or charged, for those Dollars.
Specifically stated…THE EURODOLLAR CONTRACT DIRECTLY CORRELATES WITH INTERNATIONAL SHORT TERM INTEREST RATES. WHEN 90 DAY INTEREST RATES ARE FALLING, EURODOLLARS FUTURES GO UP…AND WHEN THOSE RATES ARE RISING, EURODOLLAR FUTURES GO DOWN…
And I think this move down in Eurodollars (and up in rates) started on June 25th, the day after the Brexit vote.
Here is a long term look at LIBOR vs Eurodollars…
Here is a closer look at the recent move in LIBOR and the Eurodollar Rate…
The chart following I consider to be truly astounding…With the current September 2016 Eurodollar contract and the June 2017 contract basically being the same price, the market PERCEPTI0N is that rates will still be the same almost a year from now…I see this as a great example of classic mob psychology market “insanity, AND A TREMENDOUS OPPORTUNITY…AS I AM DEAD CERTAIN (MY OPINION) THAT RATES WILL BE DEFINITIVELY HIGHER BY NEXT JUNE…AND PROBABLY A LOT SOONER THAN THAT.
And here is the same long term Eurodollar Futures chart I’ve posted in recent newsletters…And I still encourage you to IGNORE the media and decide for yourself what YOU think comes next here…
And please do NOT just blithely accept, as economists and the media would have it, that last week’s “disappointing” 2nd Quarter GDP growth of “only 1.2%” signals that the economy is on shaky ground (and continuing to need low rates). For one thing, the second quarter was REPLETE with media fear mongering about (1) China’s failing stock market/economy, (2) the idea that Crude Oil was headed to $10 (taking the world economy with it), and (3) Oh yeah, the rabid NONSENSE about Brexit killing the world…my point being, one might easily assume that businesses were maybe placing themselves a bit on “hold” in April, May and June due to the presence of all those supposedly world damaging “crises”…BUT…I WOULD OFFER THAT THE STOCK MARKET HAVING SINCE MADE NEW HIGHS HAS CLEARLY DECLARED ALL OF THAT ANGST RIDDEN HYPE AS NOTHING BUT THAT…MEDIA HYPE AND JUST A BUNCH OF THE USUAL WRONG WAY DRIVEL THAT UNFORTUNATELY IS A MAJOR ASPECT OF HOW THE SYSTEM ACTUALLY WORKS…AND THAT BUSINESSES EVERYWHERE ARE NOW READY TO CONTINUE MOVING FIRMLY FORWARD.
I CONTINUE TO BELIEVE THAT WE ARE GOING TO SOON BE SEEING SOME “KNOCK YOUR SOCKS OFF” ECONOMIC NUMBERS, ON A VARIETY OF FRONTS, THAT WILL BLOW THE DOORS OF THE IDEA OF “RATES STAYING LOW”…ONE OF THOSE NUMBERS POTENTIALLY BEING FRIDAY’S UPCOMING EMPLOYMENT AND JOBS NUMBERS.
Maybe I have my head up my yinyang but I still will describe this as the best trade I have ever seen in this business…Almost a year of time, a ton of leverage…and…NOBODY who really thinks I am right…or I would have a bunch of people buying this idea.
Get on it guys. Pick up the phone and put SOMETHING on this.
And yes, I am also still strongly recommending Short the Treasury Bond market…And Long Wheat…and a few other new ones which I will try to address later this week. But right now, I WANT EURODOLLAR PUTS…ESPECIALLY AHEAD OF FRIDAY’S NUMBERS..
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