September 28, 2016
In last night’s newsletter I suggested the Dow could be up 1500 points by year end…This morning, thinking a little further out, it occurred to me that, whatever the outcome of the election, I cannot imagine anything but a HIGHLY stimulative business climate going into 2017…which would presumably strengthen the argument for higher stock prices. Therefore, short of some negative out-of-left-field event, I think the recent new historical highs in stocks are significant (especially when I note they have been accompanied by a zero degree of “exuberance” in the media) and really cannot imagine that equities won’t be substantially higher by mid-year 2017…or earlier even…And if I then calculate what I think would be a moderate 15% advance in the next 10 months, that takes the Dow up to the 20,500-21,000 area…
I AM NOT WISHING AND HOPING…BASED ON NORMAL ACTIVITY IN THE DOW, HERE IS WHAT I BELIEVE THE NEXT YEAR EASILY MIGHT LOOK LIKE…
Start by observing the way the market HAS moved (green)…and how I think it could appear a year from now (blue)…
And if this does become reality, I would say there is a 99.9% probability that interest rates will be a LOT higher by next June than they are now.
I really do think this is a highly probable scenario…In fact, it may be stupid, but I find it hard to expect anything less…which again, WILL mean rates going higher…and most likely to the extent that the Fed will find themselves playing “catch up”, which, I will repeat, is usually the way it works….THE MARKET MOVES INTEREST RATES. THEN THE FED FOLLOWS.
A few reasons why you should expect stocks to be moving higher?
I think energy prices will only be moving higher.
I think Real Estate values, both residential and commercial, will only be moving higher…
I think (and can SEE everywhere) that the construction industry is beginning to BOOM.
I think the Health Care industry (a BIG business) will only continue to grow (unfortunately ).
I think automobile and truck sales will only be growing.
I think wages will only be moving higher.
I think Home Depot, IBM, Exxon, Disney, GE, Nike, Coca Cola, Visa, Google, Amazon and just about every other big concern you can name are ALL well run companies that will ALL only be getting bigger and bigger, and making more and more money in 2017…and beyond.
And per the following chart, I KNOW that the public has money to spend…and they are doing so….
I THINK ALL OF THOSE FACTORS ARE BULLISH FOR STOCKS AND THE ECONOMY…
The bottom line is: The Great Recession is fully behind us. It is not 2008-2009. THE DIRECTION OF THE ECONOMY IS UP…and though you will have analyst after analyst cite statistics suggesting “not good enough”, I will reiterate something I have seen and commented on for over three decades---The month to month, or quarter to quarter, “velocity” of the economy doesn’t matter. What counts more than anything is the direction.
I CONTINUE TO LOOK FOR SHARPLY HIGHER STOCK PRICES AND A STRENGTHENING ECONOMY…AND I MEAN IMMEDIATELY SO…AND TOGETHER WITH THAT, MY VERY STRONG CONVICTION IS THAT INTEREST RATES ARE GOING UP…MEANING EURODOLLARS WILL BE GOING DOWN.
Don’t just sit there and “wonder” if I am right…Don’t just sit there and wait for some magic bell to ring and tell you, “I am certain this idea of will make me some money.” There is no such guarantee…But if you think what I’m saying here makes sense, and you would EVER place a bet of any kind in the futures markets, this is a trade you should be doing something with…Doesn’t mean it will work. It might be a total loser…But I obviously sure as hell don’t think so. I don’t care how many you do…just do something.
Call me. I am pushing hard on this because I KNOW how important it is to be there…and how much better the leverage is…before the market starts moving and making headlines...I firmly believe that the best trades are made when you have the foresight (and common sense) to do what nobody else is doing.
And for sure, if you already do have some, I would advise you to do more. Options have become absurdly cheaper in the past few days.
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: Eurodollars