September 1, 2017
A few thoughts for this long weekend
Some of this will certainly be repetitious but here are some general common sense (I think) comments about the economy and the markets.
The Stock Market continues to make new highs…as investment geniuses everywhere keep calling for a correction or bear market.
Having watched the market plow ahead through month after month…and year after year… of investment “advisory” doubt from the brokerage houses…meaning they have essentially NOT been buyers, I cannot imagine any other end to this still thundering bull market than seeing an absolute rip-roaring lift off, an eruption that, once and for all, totally silences all the of those forever wrong “analysts”, “strategists”, financial “consultants” and whatever other misnomers Wall Street uses to supposedly qualify their “advisers” to provide sound advice and “expert” opinions.
Wall Street DOESN’T know. Their primary business is to gather as much money and market as much paper as they possibly can…and THAT is what they are good at.
I will provide a few reasons below, but right now I will just say…I CONTINUE TO THINK WE ARE ABOUT TO SEE A ROCKET IN EQUITIES.
The Houston Rebuild
There are definitely going to be shortages of just about anything material that is involved in the construction industry. Period. And I would add that it will also result in labor shortages…and WAGE INFLATION…But specifically here, I’ll first address the Lumber market and say that I think the Lumber Futures contract (your basic, trusty, 2 x 4) has nowhere to go but to the MOON. Plain and simple, this industry was already suffering from mills that went out of business with the Great Recession creating shortages of various lumber cuts, and NOW, OVERNIGHT, Harvey has created more demand for the lumber business than they probably would have seen in the next five years combined.
I think you would have to be brain dead to not believe this market will be MUCH higher 3-6 months from now…This flood, and this biggest natural disaster in our history, is no different than when a drought hits the Midwest and destroys all the crops, leading to prices going through the roof…the only difference here being that a drought takes weeks or months to develop…and this happened in a matter of days.
The supply-demand equation for Lumber HAS changed overnight. LUMBER IS A BUY. IN MY MIND, THERE IS NO TELLING WHERE IT IS GOING.
Copper…another industrial and construction commodity…is on the move as well…
And Crude Oil is NOT going down…With everything you hear from the media and yakheads, you’d think it was in bearish overdrive or something…But it’s NOT.
It’s Friday afternoon. I’m as ready for a holiday as anybody so here goes with a quick wrap up…
THE STOCK MARKET IS TELLING YOU THAT BETTER AND BETTER TIMES ARE COMING.
I cannot think of a single major industry that is doing anything but expanding.
Most commodity prices actually bottomed a year ago and have been moving higher…not without pullbacks of course.
The Houston disaster, as awful as it is for people, does represent more economic activity going forward that is almost imaginable…The rebuild there WILL push prices higher in just about EVERYTHING you can think of that goes into the reconstruction and refurbishing and replacing of just about every facet of an entire city…And the impact and effects will NOT just be in Texas…If, for example, every stick of lumber you can find ends up in Houston, it means that shortages are going to be occurring everywhere else…And for the sake of this example, if every contractor AND laborer heads to Texas, it’s going to mean difficulty finding people to do the same job everywhere else…and if you think the people who DO stay where they are will be cheaper to contract , or to hire, I firmly believe you are mistaken.
Here’s my point, and I am just banging this out, roughly, to be done here…We ALREADY had a tight labor market. We ALREADY were seeing the early signs of inflation on the horizon (however much the New York know nothings want to tell you we are still in a “deflationary environment)…and both of those situations are ONLY…and I will say DEFINITELY…going to get tighter…And dear friends, WAGE AND PRICE INFLATION ARE COMING (an aside, do you think housing construction and therefore housing prices are going to get anything but more expensive…EVERYWHERE?)…AND RIGHT TOGETHER WITH THEM, THE ECONOMY, WITH THIS TOTALLY NEW, TOTALLY MASSIVE, SHOT OF ACTIVITY (CONSTRUCTION, AND SPENDING, AND BORROWED MONEY) IS ONLY GOING TO ACCELERATE.
PARDON MY SAYING SO, AND THIS IS NOT THE BEST WAY TO MAKE AN ARGUMENT, OR TO CONVINCE ANYONE TO “BUY” WHAT I AM SELLING…BUT I THINK YOU NEED YOUR HEAD EXAMINED IF YOU BUY INTO THE WALL STREET, TALKING HEAD AND MEDIA OPINION GROUPTHINK THAT RATES ARE GOING TO JUST SIT HERE AND DO NOTHING…OR “GO UP VERY SLOWLY.”
More than ever, I think that rates ARE now on the move. I think the upside “retracement” since March in Bonds and Eurodollars is OVER…and BOTH of these markets will now start moving quickly lower…quite possibly straight out of this long holiday weekend (which I have seen be a turning point in various markets on countless occasions).
And for those of you of who are still on the fence, I encourage you to do something proactive with this idea. Don’t just sit there and NOW…NOT believe in this idea the way you did 6-9 months ago. Guys, rates ARE going up. Get back on with SOMETHING…now, BEFORE this thing gets cranking and options get expensive again. Right now, in my mind, they are practically giving them away.
Here are the charts you’ve seen over and over…and DON’T just think, “Same old sh*t.”
And Bonds…Today’s employment number should have been bullish for Bonds and Eurodollars. They both jumped up hard for about 1 minute then immediately reversed…which brings to mind an old adage from the first famous trader I ever studied: Bearish response to a bullish report is a often an important signal that a market is going lower.
Apologies for pounding the table so hard, but when NOBODY is willing to do this…previous losses being considered or not…I’m pretty sure I KNOW what it means…And I also cannot bear the thought…and I have been here before…of seeing guys who WERE there…NOT be there when the trade finally happens. This is NOT the time to “just watch it.” I HAVE been here before.
Until Tuesday…Happy Labor Day…
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