September 10, 2016

 Be Short now…

Treasury Bonds and Eurodollars are ALREADY moving down

I think it is ludicrous to think that a year from now there will still be people talking about “the economy just isn’t good enough”.

And I think it is even more ludicrous to expect that a year from now interest rates will be anything even close to their currently ABNORMALLY low levels.

If you understand anything about the FUTURES markets you should understand that NOW is when you make the bet on interest rates going higher…NOT at some point further down the road when you can feel “certain” you are right because you’ve read, “Analyst think rates are going higher” or “Fed is ready to raise rates”, etc…Rates have ALREADY started moving higher. NOW is when you short Treasury Bonds and Eurodollars.

So far in 2016, there has been a global net inflow of $138 Billion into Bond Funds…and a global net outflow of $128 Billion from Equities.

That statement says it all. With interest rates at their lowest levels in history, and Bond prices therefore at their highest, I find it absolutely stunning that the global public is buying bonds and dumping stocks…However, as stunning as it may be, this is understandable when considering the mob psychology dynamics of the markets…It is always the same…The masses are periodically lemming-like in where they invest (directly influenced by their only real source of “logic”, the financial industry itself) and as a result, they repeatedly get ravaged by the same people who essentially are selling them every piece of paper they buy…With this in mind, I firmly believe that ANYONE who is has recently been buying ANY type of Bonds (Treasury, Corporate, State, Municipal) is going to monstrously regret it 6 months or a year from now as they have bought a financial instrument that basically pays them nothing and realistically has ZERO upside potential…

In other words, all those buyers have been scared by financial industry “analysts” into owning Bonds with the misguided idea that Bonds are “safe”, when the truth is, I cannot imagine a more risky asset on the planet today…

 Just look at the numbers…

If rates go up just 1%, the principal value of every bond you own will almost certainly decline in value. More specifically, if rates do go up by just 1%, I would estimate that anyone buying (or owning) a Treasury at today’s levels will see their principal easily drop by 15%...In other words, if you bought $100,000 worth of US Treasuries, and rates went up 1% (within a year, or two or five…it doesn’t matter), your $100,000 might then only be worth $85,000…Of course, if you do hold that bond for 30 years, you should get back 100% of what you invested…But seriously, do you really think something that is paying 2.4 %, and therefore actually earning nothing…or less…after taxes and inflation, is an investment you would want to own for 20 or 30 years?

So…What are the odds we’ll see a 1% increase in rates? Check out the past 40 years...and decide for yourself if you really think rates are just going to lay around at the lowest levels in history for the next 30 years…Or even 5?

And I reiterate…I don’t care if it’s 2, 3 or 5 years from now…See rates rise just 1 % and you WILL take a big hit on your principal…in just about ANY type of Bond you own.

MY OPINION?...THIS CHART, IMMINENTLY, WILL BE GOING BACK UP AND TREASURY BOND PRICES WILL THEREFORE BE GOING DOWN…And as I stated earlier this year, Wall Street is making a fortune selling fixed income paper to the public, when I’d bet that not 1% of their sales force would want $10 worth of what they are selling.

How many times do you need to see the masses get the shaft to not understand that you really do NOT want what the brokerage houses help create, package and SELL to you?

The truth is, Treasury Bond prices hit a new high a few weeks after the bogus (promoted by bank and brokerage house “analysts”) Brexit hysteria…as did Eurodollars…and both of them have since backed off…and will, I believe, NEVER trade at those levels again in our lifetime...What I am saying is, I believe Treasury Bond and Eurodollar prices have ALREADY started to go down and that interest rates, both long term and short term, have ALREADY begun a move higher that will extend out for, AT LEAST, the next 2-3 years…

 
YOU WILL BE WRONG. YOU WILL BE RIGHT.

As I often point out, those two lines are on a big sign on the wall straight in front of me…And so…Yes, I have been on this idea since late January and it has been nothing but a loser for many of you (but I assure you, with one exception, MUCH more so for me)…but I have been around the markets long enough to know that just because I have been wrong does NOT mean I WILL be wrong…

I THINK THIS TRADE HAS BECOME BIGGER THAN IT WAS WHEN I STARTED RECOMMENDING IT IN JANUARY…

So I implore you...Do NOT sit there and think all the talking head yakkity yak about “when” and “how many times” the Fed will move is even remotely relevant to rates going up. For 36 years I have watched the INTEREST RATE MARKETS MAKE THEIR MOVE…AND THEN THE FED FOLLOWS…And it is no different this time…

The fact is, INTEREST RATES ACTUALLY MADE THEIR LOWS 2 MONTHS AGO AND ALREADY ARE ON THEIR WAY BACK UP…And I say they will be up, MINIMALLY,  a full 1% from here within the next 6-9 months.

 MORE SO THAN EVER…

SHORT TREASURY BONDS AND SHORT EURODOLLARS

DO THIS AGAIN…OR ADD TO WHAT YOU ALREADY HAVE.

Here is the long term look in both markets…

Long Term Interest Rates…I absolutely believe the first target is in the 145-150 area…

And Short Term Rates (90 day)…Again, Eurodollars have nothing to do with the Eurocurrency…

And here is the Eurodollar futures contract that inversely tracks the interest rate on 90 Day money…

And I will point out…again…Both Treasury Bonds and Eurodollars made their highs several months ago…

 Why Rates are going up…and NOW?

In recent years, the intentions of all the world’s central banks varying actions, including very low interest rates, have been aimed at STIMULATING growth…And they ARE succeeding…

The USA is on the UP…If you want to believe the nitwit talking heads who have been saying “this recovery isn’t real”, or “not good enough”, or “the wrong jobs”, etc., FOR THE PAST 7 YEARS, go right ahead…but I say you are then totally ignoring any number of major economic indicators that all signal nothing but GROWTH and PROSPERITY in this country…Is everything perfect? Is everybody benefitting equally? Of course not…but that is NORMAL…As I’ve written for YEARS, it’s the direction of the economy that is most important…NOT the velocity…And I say that anyone who seriously doesn’t understand that we ARE moving seriously forward needs to hit the streets and just open their eyes…ACTIVITY is picking up everywhere…

And furthermore, if you also want to believe all the same negative chatter that the rest of the world is in trouble, I assure you, China, Japan, India, Asia, Europe and even South America are just NOT just withering on the vine…that all of those countries and continents are not full of lazy, ignorant listless zombies who wake up every day, roll over and just go back to sleep. They are every bit as full of motivated citizens, consumers and capitalists as we are…and THEIR economies are no more going to “implode” than ours is here in the United States…For sure, same as here, there ARE issues everywhere, in every country and in every culture, but the world is not sliding backwards…Frankly, REALLY, the idea that the whole planet just kind of sucks, everywhere, is about as economically “dumb” as it gets…

I firmly believe that 2017 will be the year when all of the supposed economic "ills" of the past 6-7 years will be fully behind us...WORLDWIDE…and all of the major economies will be charging forward...which, as I said, is NORMAL...And right now, I would suggest that BORROWING will ONLY get stronger as time goes by…which is to say that THE DEMAND FOR MONEY WILL ONLY BE INCREASING...and rates will therefore ONLY be going higher…

And again, I will say that the move already has started…that NOW is the time to make this bet…NOT somewhere off in the future when the move up in rates has become “obvious”.

Here are my recommendations at current levels…

And yes, those are big numbers…but again, take a look at the long term charts and decide for yourself if my targets, in both markets, are realistic…or not.

And one more chart for perspective…

Realistically, think about the 1000's of financial industry headlines that have suggested, "Don't buy this here"…FOR YEARS...Today's world economy is all about Capitalism, Consumption, Technology and Expansion...with cheap energy, and the lowest interest rates in history...SO WHY SHOULD THE STOCK MARKET STOP GOING HIGHER NOW?

BUY STOCKS. SELL BONDS.

I will continue to state…and I don’t say this lightly…that I consider being short Bonds and Eurodollars to be the best trade I have seen in 36 years.

If you don’t see this…or if do see it, and do have the risk capital, but don’t want to do anything with it…I really do think you should contact me and ask to be removed from my newsletter list as you are wasting your time reading what I have to say.

I may be dead, dead wrong, but I don’t think you will EVER see a better risk-reward than I have outlined here…

Pick up the phone. If you are not on it, do SOMETHING with it…And if you do have it, I absolutely recommend getting more…That is what I am doing.

Straight talk…

Bill

866-578-1001

770-425-7241

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