October 10, 2016
All of the major stock market indices are making new all time highs…or are an eyelash away from doing so. Unemployment is 5%. EVERY businessman I have talked to in the past month, WHATEVER their industry, says their business is rocking. As I keep noting, the roads are full, the malls and shopping centers are full, the airports are full, residential and commercial construction is going on everywhere, etc, etc, etc…If YOU want to argue that things are slow, would you please call me up and tell me what YOU see that I don’t see.
It is NOT 2008-2009 anymore. The Dow is NOT at 6,500 anymore. If fact it has almost TRIPLED since then…And Oh yeah, among other things, Grexit DIDN’T cripple Europe…China HASN’T collapsed…Oil DIDN’T go to 10 bucks (signaling a world economic crash), Brexit DIDN’T matter, and all of the other economic media hyped “crises” HAVEN’T resulted in life-as-we-know-it here in the USA just go totally to hell…To the contrary, our economy has been STEADILY getting stronger in just about any industry sector you want to name.
I don’t say this because I am trying to be some sort of cheerleader for the nation…but simply because that is what I see and hear all around me…and therefore, I will vigorously emphasize, again: THERE IS ABSOLUTELY NO REASON FOR RATES TO STAY AT THESE UNBELIEVABLY LOW LEVELS ANY LONGER…AND IN FACT, I I WILL REITERATE THAT INTEREST RATES ALREADY HAVE STARTED MOVING HIGHER…
For perspective, here is a long term look at how ABNORMALLY low rates actually are…
And if you think rates ARE going to be staying this low, I will once again remind you, IT IS NOW 2016…NOT 2009…No banks are folding. Real Estate isn’t crashing. And we are not LOSING 750,000 jobs a month…No, we certainly don’t need to be going back to 6 or 7 percent, but 2? Or 3? Or 4 percent? Without even thinking, I’d say 3 percent within a year or so would almost be a given…And to be clear, A RALLY TO 2.5% ON THIS CHART WOULD MEAN A 200 POINT DECLINE IN EURODOLLARS.
Treasury Bills (for which there is no futures contract), LIBOR and Eurodollars are directly interrelated and all three move in virtual lockstep with each other…the point being, if you can envision this Treasury Bill rates moving higher, there is no way you won’t see the same in LIBOR and Eurodollar rates as well.
As noted in previous newsletters, it is almost impossible to tell them apart, but what you see on the chart following are the Three Month LIBOR rate, with which many of you are familiar, as well as the Three Month Eurodollar Deposit Rate…which is precisely the interest rate reflected by the Eurodollar Futures contracts.
I'm showing you this chart (again) simply to demonstrate that LIBOR and Eurodollars are basically one and the same...and also to point out where these rates have been, just in the past 25 years…and to then give you some idea as to how they do move…
Do observe the fact that rates have ALREADY begun to start pushing higher...and in my opinion will only be accelerating in that direction on what I see as a week by week, month by month basis.
Here is a close up (shorter term) of the same chart….
Here is the EURODOLLAR FUTURES contract longer term…
Here is the June 98.87 put option we are still buying…
And finally, a quick word about the stock market, which I continue to believe is in the process of exploding (quietly) higher as we speak…and doing so dead in the face of hoards (herds) of brokerage house and internet nitwit “analysts” (sheep) who have been preaching bearishness, caution and correction for the entirety of 2016…and even right now, with the market dead on its highs, are yapping their usual drivel about “the market doesn’t like the uncertainty of the election, so don’t buy it here”…which I say is just more unmitigated horse manure…
This is not a political statement but I’m going to tell you that there IS no “uncertainty” about this election and the truly smart money knows it…Believe it or not, there IS a futures contract for the presidential election…and I have now watched it be incredibly accurate for 3 or 4 election cycles (since 2000)…and whether you like it or not, this is what it looks like today…
What does the chart indicate?
According to this futures contract, which is based on who the Electoral College Winner will be, the gap between the Democratic and Republican candidate just got as wide as it has ever been...In other words, this gauge says THERE IS NO "UNCERTAINTY" about the election outcome...that frankly, Clinton is headed for an OVERWHELMING victory…And whether it is true or not, there IS a market perception that a Clinton presidency would be good for stocks...which is one reason why I believe, among other factors, the STOCK MARKET WILL BE RALLYING. PERHAPS DYNAMICALLY, FROM NOW RIGHT UP INTO ELECTION WEEK…For sure, there is nothing absolute about what this market is predicting, but right now, that is what it indicates…UNQUESTIONABLY, REALLY.
The last chart here is an up to date look at the NASDAQ…that made new all times highs today while the supposed experts on Wall Street are still totally asleep at the wheel…I mean, really, DO you hear ANY of those “professionals” getting AT ALL excited…or telling you, “GET ON THIS HORSE NOW!”?...BUT…and you can probably book it, you WILL hear it from them…you WILL hear them go positive…BUT…they’ll be doing maybe a month from now AFTER the Dow has knocked off another 1000-1500 points on the upside…That’s my guess anyway.
Stocks are going north…So too is the economy…and Interest Rates are going HIGHER.
It’s happening. Get some of it. Scroll back up and look at the June 2017 Eurodollar contract again…IT’S NOT GOING TO STILL BE HERE COME NEXT SUMMER. Get some puts…or get more.
Thanks for reading,
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