August 22, 2017
I keep saying it. When have you EVER seen all the Wall Street analysts, “strategists”, and talking head-painted faces actually get it right?
As I have been documenting in this newsletter for years now, as the Dow has rallied 1000’s of points, they have been essentially telling you…NON-STOP…“Don’t buy it here...Big correction or crash coming!”
So here we are, still making new highs, with any single down day or down week having them all fairly screaming, “Sell! THIS is the big one!”, each and every one of them hoping to be the next genius who “called the top.”
Aside from my continuing conviction that the USA and world economies are booming, I will also repeat here that if all of these New York know nothings are right, it would mean that for the first time I’ve ever seen, and probably in history, just about everybody on Wall Street has finally become a genius…
For sure, there ARE now more of that forever wrong crowd who have LATELY been bludgeoned into giving up on their bearish calls…and are now MILDLY bullish, but there are STILL herds upon herds of them who are STILL screaming, “Sell!”
In fact, when I assembled the following collection of bearish headlines I’d clipped just since the beginning of this month, I was stunned by the volume of bearish “logic” (nonsense) I had accumulated. See for yourself, and be reminded of my often repeated observation that I have never seen ANY bull market end when there are voices all over the place calling for exactly that. This GAME just doesn’t work that way…Bull markets keep going until virtually NOBODY thinks they are going to stop. There isn’t a stock on the board whose value is determined by some neat, perfectly accurate scientific formula. As much as stock jockey’s would have believe, PE’s, for one, can be at 5 or 55 (or 255) and it doesn’t mean a stock is a buy or a sell. Once again I’ll say it…Stock values are ALL more about mob psychology than anything else.
Really…? Are all those people (and there are MANY more) going to be right? Something they’ve never been before?
I continue to believe the Stock Market is going higher…a LOT higher…and at some point, if that’s not where we potentially are right now, it is going to go ballistic as an avalanche of supposedly “professional” money, that has long been on the sidelines, comes POURING into stocks…And with all the liquidity that is out there sloshing around the planet today, I’d add that there really is no telling how big or fast the move might be…to the extent that my guess is an 800-1000 point Dow day is not out of the question.
And while that is happening…I think we will be seeing the Bond market going very much in the opposite direction…and the currently popular idea that “rates will be going up very slowly” will be crushed as the realization sets in that we ARE in a roaring economy, with both unexpectedly strong PRICE & WAGE INFLATION being part of the equation, and the idea of rates remaining at the lowest levels in modern history, frankly, will just look stupid in retrospect…along the same lines as was the case 18 months ago when purportedly intelligent analysts were making a case for the necessity of “negative interest rates.” Remember that malarkey? With many of those guys making the argument that “zero rates” was the “new normal”? Well, that’s where I think we will be when it comes to Bonds 6-9 months from now…that this idea of rates just going up “only slightly” will be positively obliterated, just as it was with the concept of negative interest rates.
I THINK SHORT BONDS, FROM RIGHT HERE, WILL BE ONE OF THE BIGGEST TRADES ON THE BOARD BETWEEN NOW AND NEXT MAY OR JUNE.
I have probably observed the bond market more closely than any other market during my almost 4 decades in this nuthouse business…And I will say that I have never seen so much junk being unloaded on the public in the fixed income sector as has been the case for the past few years…The public, and herds of “professionals” as well, have been coerced, by low yields and repeated “warnings” from Wall Street to avoid stocks, into buying trillions of dollars of low grade/Junkish Bonds, with the dubious pitch referencing their supposed “safety” and attractive higher yields…but with little mention that many of those instruments could easily also have a 20-30% principal risk (or more)…AND…my sense is that a BIG story in the not too distant future will be the financial bloodbath being taken by all those naive investors as rates DO move substantially higher, and the principal values of those JUNK bonds fall through the floor…I would add that when people are willing to buy just about ANYTHING (again, JUNK) in a particular market, it often is a decent indicator that we are seeing a major top…and the truth is, I firmly believe that what we saw last May was the all time top in the bond market…for my lifetime at any rate.
I would also note that, with the Fed having maybe $2-3 Trillion of Bond and Mortgage paper to sell (bought to help us out of the recession)…on an ongoing basis for years to come…we are going to be in an environment in which there is simply more supply endlessly coming to market than investors can buy…which is NOT bullish for bond prices…no matter how much the Fed may try to downplay the idea.
Here’s the trade…Buying puts while we are right here under the recent highs…and puts, in my opinion, just being dirt, dirt cheap.
As always, I might be dead wrong…but this is the bond market…where I have been so many times before…and I think I KNOW what is coming. There are two basic pieces of paper that Wall Street SELLS to the public…Stocks…and Bonds…And I believe Bonds are the next place that the public is going to get it handed to them…AGAIN.
One good trade IS all it takes…I think this is a big…and this IS my market…
And yes, I am still just as bearish Eurodollars…
AKA Bond Dog
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