October 3, 2016
Still Short Eurodollars
Last Sunday I pulled into a major car and truck stop plaza near Emerson, Georgia on I-75…basically in the middle of nowhere, 35 miles northwest of Atlanta, on an exit with little else besides the truck stop and a few fast food stores…And it was so packed I could only find a parking space forty yards away… and my parking space search was followed inside by double cash register lines that were 10 deep in people…And OK, this is purely anecdotal, but this was totally in the boondocks and something I had never seen before…and is, I believe, just one more example of what I keep saying is in-your-face evidence that people are out in full blown consumption mode…and with consumer spending supposedly constituting 70% of the economy…I maintain that all those white collar business channel nitwits who are telling you “Don’t buy stocks”, or “the economy just is isn’t very good”, are just as backwards as they ALWAYS are.
In the interest of keeping this brief, here is just ONE graph that I believe contradicts the idea that the economy is on weak legs…
No survey represents an absolute, and just because public opinion is on the DECIDEDLY positive side does NOT mean things have to get better and better. I recognize that the economy can turn at any point, but TYPICALLY, big turns in the economy are preceded by wild business excesses, maybe skyrocketing real estate prices, mergers and acquisitions fever everywhere, wild lending practices, extraordinarily strong GDP projections AND forecasts for sharply higher stock prices…among many other potential flashing danger signals…And I say that NONE of that is present today...
What we do have is the cheapest money in history, low energy prices, the release of some 7-8 years of pent up consumer demand…in any number of areas…including housing, commercial development, major appliances, vehicles and maybe even to include vacationing, etc, etc, etc…Really…From what I can see and hear, with my own eyes and ears (and not some preening internet hack trying to attract attention), is that VIGOROUS commerce of all types is ramping up everywhere…Every business person I talk to basically says, “My business is very strong”, virtually without exception…
The point is, we ARE no longer in the Great Recession. This great ocean liner, the United States Economy, is gathering steam and moving forward…and WON’T be stopping anytime soon…and I emphatically believe that somewhere not too far down the road we WILL start hearing, “The economy is overheating! ”, and “The Fed has fallen behind the curve and should be doing more!”, etc…and by the time you DO starting hearing that, my experience tells me that the Interest Rate FUTURES markets will have already moved substantially towards higher rates…Eurodollars will have already gone down substantially…and still be ready to go down more.
I WILL REMIND YOU THAT SEVERAL WEEKS AGO, JANET YELLEN MADE THE STATEMENT, “THE ECONOMY RARELY EVOLVES AS PREDICTED”, in other words, she admitted (as have other Fed governors and chairmen) that the Fed DOES get it wrong…and in fact, her use of the term “rarely” infers that they FREQUENTLY get it wrong…and I therefore encourage you to DEFINITELY ignore all of the brokerage house and internet “experts” who are STILL clinging to the idea of a slowing economy…and meager to negative stock returns…AND “rates staying low.”
The markets ARE forever surprising the masses and I will continue to loudly tell you that the next two big “surprises” you should expect are sharply higher stocks and sharply higher interest rates…And I encourage you to act with those ideas in mind…NOW…not 2 or 3 or 4 months in the FUTURE when the markets have already moved…and are then making big headlines.
My opinion. Maybe I am wrong…But this is my VERY strong opinion…formed as a function of what I think is just plain common sense encompassing a multitude of factors (many not noted here but discussed in previous newsletters), AND, having seen this script…in this investing GAME…too many times before to not recognize what is happening. If you want to believe all the negative economic rhetoric…If you want to believe how “bad things are”…go right ahead…But I think you are at risk of totally “missing the boat.”
THERE IS NO, NO, NO REASON FOR RATES TO STILL BE THIS LOW…AND I THINK THE MARKETS ARE ABOUT TO QUICKLY CHANGE THAT…AS I KEEP SAYING…BEFORE THE FED MAKES IT OFFICIAL. I CONTINUE TO BUY EURODOLLAR PUTS IN EXPECTATION OF A SIZEABLE UPTICK IN INTEREST RATES AND A MAJOR DECLINE IN EURODOLLAR PRICES.
Here is the long term picture….
A bit of technical opinion…
And the put option I am currently buying…
Get something done guys…They were down 2 ticks today…and I think ANY down day can be a resumption of the trend to the downside…Jobs number coming Friday…I continue to believe that some economic number is going to blow the “slow economy” argument totally out of the water…And a 15-20 point down day would not surprise me in the least…
Get some done…If you already have a position, look at adding…
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