August 8, 2023

 Buy Treasury Bonds

We will not see rates this high again for the foreseeable future…

I know that the idea of the Fed still tightening (raising rates) is still just all over the media, but I firmly believe the whole higher rates cycle is totally over and that Treasury Bonds are a screaming buy here. I could fill up pages as to why but will limit it to a few general reasons…

Inflation has REVERSED.

And it is happening a the consumer level as well…

To put it mildly, in my experience, both of those charts are VERY bullish for Treasury Bonds.

The economy is GROWING (typically considered to be bearish for Bonds by the ever backwards analytic Wall St masses, but actually the opposite is true), as, among other reasons, a healthy US economy DOES attract buyers to our debt instruments, not to mention that a growing economy also means greater tax receipts (income) for the US Government…And in the same vein, never ever forget that US Treasury paper is still regarded as the  best, safest, highest quality piece of paper on the planet…

And as for this latest SUPPOSEDLY SO BEARISH news…

…that basically infers that you are an idiot if you want to BUY Treasuries?

Here’s what happened the last time USA paper was downgraded, by Standard & Poor’s on August 5, 2011…

I’ll say it again…And it’s the same today as it was back in 2011… Never ever forget that US Treasury paper is still regarded as the  best, safest, highest quality piece of paper on the planet…And at EVERY auction of US Treasuries, no matter how many billions are being offered, and no matter how often Wall Street’s geniuses want to suggest that “the auction won’t go well,” you can bet that fixed income buyers (banks, brokerage houses, pension funds, insurance companies, individual investors, and including COUNTRIES, etc.)…from EVERYWHERE on the planet…will be lined up to buy it ALL. Every time. At every auction…the point being, THE DOWNGRADE IS MEANINGLESS.

 As for how Treasury Bond futures trade, the bottom line is: In spite of further Fed raises throughout 2023, BONDS MADE THEIR LOW ALMOST A YEAR AGO (Oct 24, 2022) and have been consolidating down here ever since…And from an opportunistic standpoint, with them having come back off about 15 points during the past few months (still within their bottoming consolidation), my recommendation is to Buy them HERE…as, I firmly believe, this is the last time rates will be this high for the foreseeable future.

Here is the long term look…

A 20 point move in Treasury Bonds is $20,000 per futures contract…And I include this chart to show you how “small” a 20 point move would be relative to how typically do move…

And then there is this…where a LOT of money is betting…HEDGE FUNDS HAVE ALL TIME RECORD SHORT POSITIONS in Treasury Notes and Treasury Bonds…and believe me…these guys, as a group, are no smarter than the rest of Wall Street’s ever backwards analysts and “strategists.”

The fact that the Funds have record short Note and Treasury Bond  positions, when taken together with knowing that 98% of the talk out there right now is towards “Higher interest rates!”, just drives home the thought that the whole higher long term rates cycle DID end last October…And with Bonds having basically now been sideways for about as long as they ever are…before going somewhere…And the fact that Fed IS essentially “done,” I THINK TREASURIES ARE A MAJOR BUY, RIGHT HERE, RIGHT NOW.

Take another look at the chart above and note what happened at their last record short position…Never forget that heavy short positions represent heavy buying that has to be done to exit those positions.

Here are 3 different ways to do this…all using Calls based on the December contract…

This is a stupid statement to make…But I think this trade is pretty much a gift…With my first option trade of my career having been buying Treasury Bond calls in the spring of 1984, and through the ensuing almost 40 years of Bond Bull Markets, if you have followed me through these decades, you will know that I pretty much “proved” over and over that I know what a Treasury Bond bottom looks and feels like…AND THAT IS WHAT I AM 150% CERTAIN WE ARE LOOKING AT HERE…Obviously, this doesn’t mean I will be right, and if I am wrong, you will certainly lose money…but, this, to me…for a bundle of reasons, is about as “sure” as I ever get about anything in this business.

For what Bonds can/normally do, I think these options represent monster leverage…And there are a multitude of ways to go about this, including futures and/or EVEN further out-of-the-money options…I definitely may be dead, dead wrong but this is one of those situations in which I think just about any reasonable call option will make money between now and expiration.

Yeah. I do not get any more emphatic than this…and it does not mean I will be right…but I WILL NOT BE OUT OF THIS FROM HERE…(and thank God weather has nothing to do with it).

If you think this makes sense, call me and GET ON THIS…and get on NOW while all this garbage about ratings (and bank downgrades) is essentially saying, “DON’T buy here!”

Thanks,

Bill

770-425-7241

866-578-1001

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: Treasury Bonds