October 23, 2023

BUY the Stock Market

BUY Treasury Bonds

BUY Cotton

SHORT Soybeans

The inflation of the 1970’s was caused by one thing…the fact being that the Arab world decided that having western oil companies pay them $2-$3 a barrel for their Crude Oil was OVER, and OPEC subsequently took prices from $3 a barrel in 1973 all the way up to $40 in 1979…And with Oil being THE most pervasive commercial commodity on the planet, this more than 1000%  increase in price led to the USA inflation rate hitting almost 15% in April, 1980, which the led to Paul Volcker and the Federal Reserve Board jacking their Discount Rate up to 20%, thus slamming the door on inflation…at the expense of sending the US economy into a sharp 1980-82 Recession.

Why the brief history reference? To make the point that this is NOT 1980 again…that the inflation we’ve experienced was a function of black swan global, pandemic-inspired, supply chain disruptions, and NOT due to the Fed’s too loose for too long monetary policies…

To further clarify that Covid supply chain disruptions were the root cause of the inflation we have had…As one example that can be extrapolated to just about any finished product you want, several years ago, do you remember when NEW CAR LOTS WERE EMPTY? EMPTY! Which had nothing to do with the Fed…or overwhelming demand, but rather was simply a function of global shipping and manufacturing slowdowns, for both parts and finished goods…and shutdowns everywhere…such that getting new vehicles built and shipped to dealers became almost impossible…meaning that there was ZERO supply on the car lots at the same time when vaccinations started and the whole world busted out of their pandemic isolation, and began living and spending again. The result then became that when product did show up, with 50 buyers in line for it, as might be imagined, prices could then obviously only leap higher…and sharply so, such that dealers were actually offering buyers 1000’s of dollars NOT to take delivery of vehicles they had pre-ordered, simply because those 49 other buyers were willing to pay just about anything the dealer wanted to ask…And I’ll repeat that you can apply that same scenario to just about anything that came out of a factory, or needed to be delivered somewhere, or required any handling whatsoever, etc., etc, etc…WHATEVER it was, two years ago, finding any number of just normal everyday items (remember all the empty shelves at the supermarket?) was sometimes impossible…which DID lead directly to price increases across the board…which again, had NOTHING to do with Fed policies…

The fact is, as might be expected, however dramatic the situation (and this was a once in our lifetimes thing), at some point supply chain kinks do get resolved, and demand doesn’t surge forever…and the inflation equation DOES come back into balance…and price increases DO begin to subside…which is precisely what quite normally did begin to happen by mid-2022…thus leading to the PEAK OF INFLATION IN JUNE, 2022…by which I mean, the INFLATION RATE HAS BEEN COMING DOWN FOR OVER A YEAR NOW.

So, one more time, this is NOT 1980 and crushing the economy Volcker style is NOT where we are today. Rates do not NEED to go any higher than they are now…The Fed, after missing the boat for almost a year, has already done enough…and in all likelihood, RIGHT NOW, I DO THINK WE ARE SEEING THE HIGHS IN RATES FOR THE FORESEEABLE FUTURE.

The Fed keeps inferring they may not be done…

Why the Fed talking tough is bullish for the bond market?

Treasuries are a LONG TERM INVESTMENT…decades long in general…So it is absurd to think that what happens during the next days, weeks, or even months endlessly impacts decisions to buy or sell an instrument that an institution or individual might own for 20-30 years…For sure, speculative traders and of course all the investment industry yakkity yaks will parse every word from the Fed each week, but in the big picture, it really doesn’t matter…Right here, right now, if you are a long term investor, unless you are foolish enough to think the United States is about to crumble into oblivion, US TREASURY BONDS ARE THE BEST BUY ON PLANET EARTH…

So as regards the Fed and their tough talk, I’ll put it this way: IF the Fed was out there saying, “We don’t give a damn about inflation,” you would see millions of fixed income buyers go into fiscal shock and not be willing to buy anything long term, and yeah, the Treasury market would absolutely collapse, and long term rates would go through the roof. But that is obviously NOT what the Fed has been doing…and the fact is, they have already raised rates enough to combat the inflation surge…as, one more time, per the two major gauges (PPI and CPI) THE INFLATION RATE DID TURN AROUND SHARPLY 15 MONTHS AGO…The fact is, inflation rates DO continue to slow…and I think, may even go negative in the months to come, and so again, in spite of Chairman Powell’s position being, “We’re not satisfied yet,” which Bond buyers love to hear, I’d offer that the Fed is essentially DONE…that another quarter raise is meaningless…and that rates are NOT going higher from here…meaning Treasuries are, I believe, a massive, massive buy.

As for how it works from here, after watching Bonds basically go up for almost 40 years (obviously with intermittent downturns), as Treasuries now get seriously into their NEXT BULL MARKET, I can assure you that what you will be hearing from pretty much every backwards thinking “strategist” on Wall Street is, “The economy is just too strong. Rates just can’t go lower. DON’T buy bonds here!”, which is one of the many dumbass market myths that have been erroneously spewed by the brokerage houses for as long as I can remember. This is an oversimplification and generalization but let’s put it this way: During the 40 year bull market in bonds, the US Economy was in a 40 year bull market as well. In other words, the economy was steadily getting better and better…while interest rates steadily were going lower and lower…and Treasury Bonds were going higher and higher. And just to state what I’d call a fact? Right now, I’d say that a growing US economy would only be perceived by the international fixed income community as a POSITIVE for owning US Treasuries. Period. Period. Period.

Look guys. We are, for the gazillionth time, in one of those market atmospheres where all the forever backwards Wall Street geniuses are spouting nothing but the usual fear, doubt and ANGST that are common to EVERY stock or bond market bottom I’ve (and you’ve) ever seen. And whether or not you want to characterize it as  full blown “blood on the tracks” or not, you must KNOW that the mood out there, inspired by all the NY and internet geniuses, is heavily slanted toward the NEGATIVE…which in this massive MOB PSYCHOLOGY INVESTMENT GAME, where ALL of the values of these wispy pieces of paper are based on nothing but PERCEPTION….IS WHEN YOU ARE SUPPOSED TO BE A BUYER.

And if you don’t think the current mood is negative, just take a look at the headlines below, grabbed in just the past few weeks…which clearly reveal that the overwhelming majority of “expert” opinion out there is telling investors to hunker down in a hole…and don’t buy anything…which I think is just dumb…and EXACTLY THE OPPOSITE OF WHAT YOU SHOULD BE DOING…AND NOW IS WHEN YOU BUY BOTH STOCKS AND BONDS.

Really…This sort of crap, which is coming from everywhere now, IS what you DO get at market bottoms.

And yes, there are some people and headlines out there who are seeing the other side of what is happening…but from my out-in-the-boonies unbiases listening post, MOST of what’s out there is what you see above, EVERY DAY, which is, “Just SELL! Don’t Buy!”

 The Middle East War and its impact?

For starters, as many of you know, I spent about a cumulative year in Israel on two occasions (1973 & 1977), and will tell you that I came away from having lived there with the very strong opinion that there would be no solution to the Arab-Israeli conflict in my lifetime…and probably not even for generations to come. And 50 years later, I still think that is accurate.

To wit and VERY briefly: Israel’s existence is predicated on the belief that God gave it to the Jewish people as “the Promised Land,” and since beginning to return to the area in the early 1900’s, and then emigrating in massive numbers following World War II, and thereafter officially establishing Israel as a country in 1948, they are NOT leaving…On the other hand, however, predominantly Arab/Muslim populations had occupied this same territory for centuries, but were pushed out of their homes and off their lands in 1948, and today, some 75 years later, still refer to the Israelis’ presence, in what was formerly Palestine, as, “the Occupation.” So no big secret. I don’t expect to see either side giving in.

But beyond that overly simplified summarization, what really represents the true crux of the problem?...JERUSALEM…which is enormously sacred to Jews, Muslims, and Christians…and due to the presence of innumerable historical and religious sites, I remain certain that none of the three will EVER give up their claims…or ever remotely consider leaving. I certainly don’t need to explain what Jerusalem means to Christians, and probably not what it means to Judaism either (the Temple Mount, Western Wall, etc.), but there is one specific mosque in the Old City of Jerusalem, known as The Dome of the Rock, that, for BOTH the Jews and the Muslims, is THE most sacred place on the planet… For Judaism, the actual rock, about 65 feet across and around which the mosque was built some 1300 years ago, is referred to as the Foundation Stone, and believed to be where God created the world (pretty important)…And for the Muslims, that same Rock is where the prophet Muhammad, Islam’s founder, is believed to have ascended into heaven to meet God (also pretty important). And with those two competing “facts” and the knowledge that there are many other significant religious sites in the City (and country), it is not difficult to understand that neither side in this battle, after 2000 years, is EVER going to give up.

My point is, this latest “war” has been going on for 75 years…and this is not the first time it has attracted international attention…and whether the current outbreak extends beyond Israel proper or not, this won’t be the last time it happens…The biggest risk, for sure, is that if today’s war was to “go nuclear,” it would easily be the most globally disastrous event in modern history, but since 1945, per the fear of “mutually assured destruction”, we’ve managed to avoid nuclear warfare, so I’m thinking (hoping) we’ll continue to do so…At any rate, however this latest episode turns out, however long it becomes the overwhelmingly LOUDEST and biggest story in the media, I don’t expect to see it negatively impact the USA and World Economies. I don’t think it’s going to slow down Microsoft, or Home Depot, or Tesla , or Walmart, or Amazon, or Ford, etc., or any other businesses here in the United States…And same as I’ve seen with countless other MAJOR crises (wars, natural disasters, geopolitical events, elections, whatever), the headlines will be big…but the world will just keep going.

I’m not being cynical. I’m not being “uncaring.” What has happened in Israel and Gaza, and is happening, is disgustingly awful…I love that part of the world, and in fact, this past spring was planning an October (now) trip back to Israel with Dorka and my sons, but thankfully cancelled the idea several months ago…And it is truly painful to watch the violence and bloodshed…and HATE…but it doesn’t change the fact, that, generally speaking, everywhere else life will go on as normal…Whether it’s here, or in the Far East, or South America, or anywhere on the globe, I am relatively certain businesses will keep pumping, and people will still be going to work, and still be consuming…And as regards the markets, they will still keep moving.

 When you get down to it…

RIGHT NOW ALL THE NEWS IS BAD

I mean, really? What’s good out there? TWO wars. Congress is basically closed and in turmoil. A government shutdown…again. Inflation is now described as “sticky” (supposedly). Worries about Oil prices exploding skyward. Housing in a bubble (again, supposedly). Interest rates just going higher and higher. Strikes all over the place. The Border problem. Mass shootings every week. Climate disasters. China in a major economic downturn (while buddying up with Russia!). Trump and all the trials. Low approval for Biden, etc., etc. etc…not to mention Wall Street’s endlessly bleating that  “Recession Ahead!” Really? WTF is good out there?

Having done this for over half of my lifetime, I have developed all sorts of opinions, approaches and indicators that I think are relevant to this giant GAME of guessing what the markets are going to do…And with my decades ago having understood that, “I WILL be wrong, I will be right,” I am therefore fully aware that every “signal” I get may or may not be correct…BUT…there is one “rule” that has seemed almost infallible for the past 43 years, and it is that when EVERYTHING IS JUST SHIT, SHIT, SHIT…or when the media is full of nothing but ”CRISIS!” after “CRISIS!” after “CRISIS!” HEADLINES…or when, as noted above, ALL THE NEWS IS BAD…IS WHEN YOU BUY THE STOCK MARKET…AND THE TREASURIES.

And that is where I absolutely think we are now…

I’LL OFFER THAT IT DOESN’T GET ANY “WORSE” THAN IT IS NOW…AND ONE MORE TIME, WHEN IT’S AT ITS “WORST,” IS WHEN YOU BUY.

Invest towards the future. NOT the past…BUY TREASURY BONDS AND BUY THE STOCK INDICES…NOW.

Here come more charts…starting with the all-important bigger picture…

THE PAST 100 YEARS IN THE DOW JONES…

And Treasury Bonds…since the 1980 peak in inflation

Recommendations…

Buy the S&P 500 (or Dow, or NASDAQ)

If you are a long time reader, you will know that since August 2010, in the midst of  "crisis" after "crisis," I have recommended buying the Stock Indices well over 100 times...but have never had a SINGLE person take that recommendation...So I'm not expecting anything this time...nor will I waste much time on this...At any rate, I think that what I have drawn here is entirely possible.

Buy Treasury Bonds (and/or the 10 Year Notes)

 BUY COTTON

All the same worries that have recently "scared" the Stock Market have pushed Cotton down as well during the past 3 weeks. I continue to see this as a great BUY proxy for stocks and an economy that is NOT SLOWING DOWN. The nature of this market is to move in 30-50 cent fairly rapid swings and see the past year as having built a solid base from which to do just that…from here. Right here & right now.

And yes…STILL SHORT SOYBEANS

Soybeans DO move…and they move BIG…So do not be fooled into thinking that just because they have been sideways does not mean they can be $3-$4 away from here in a matter of weeks or months.

Farmers are still sitting on large percentages of this year's crop, still waiting for a rally, and still listening to a herd of bullish analysts...now all "watching South American weather." All that product in farmers' hands represents massive SELLING that DOES come at some time in the future. They are all hoping it will be at higher prices...I think it will be quite the opposite...and that they will all be selling…TOGETHER, in classic panic mode…at MUCH lower prices.

I still see Soybeans trading under $10.00 (at a minimum)…and most definitely expect to see it no later than early next Spring.

When the inevitable (in my old hand opinion) collapse comes, it happens big…and fast…and it is usually straight, straight down…And far more often than not, out of nowhere.

Would love to hear feedback regarding any of the above…And obviously get some of you on all this.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

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, Mini S&P, Cotton, Soybeans