October 24, 2016
Here we go…
Stocks taking off…
Rates going higher…Eurodollars going lower
THE NASDAQ IS MAKING NEW HIGHS…THE DOW AND S&P 500 ARE NOT FAR BEHIND…
But this is the kind of CRAP you are STILL generally hearing (as has been the case ALL year) from the internet boobs and Wall Street “experts”...
So DO think about this: Stocks ARE on their highs, and all those people who have essentially been telling you to sell ALL year…are STILL saying the same thing: Don’t buy. Surely, you must see my point without me having to make it...but here it is:
Stocks are going higher. A lot higher. And they are doing it right now.
Here’s another way to look at it…Interestingly, whenever we have actually had a significant top in the markets (like 1987, 2000 or 2008), the masses later realized there were a FEW (very few) guys who DID make the correct bearish call…and they achieved financial arena stardom…as in, “He’s the ONE guy that said get short right at the top”….Which is another way of stating that what DOESN’T happen, at the top, is that you get some long, long list of individuals who unanimously made that great prediction…the point being, if we now ARE at the top in equities, or if this IS where you should be selling…and NOT buying…it means there is a whole STADIUM full of analysts, strategists and talking heads who will be classified as market predicting superstars…And guys, IT JUST DOESN’T HAPPEN LIKE THAT…
I CONTINUE TO RECOMMEND BUYING THE STOCK MARKET AND SHORTING TREASURY BONDS AND EURODOLLARS, BETTING THAT INTEREST RATES WILL BE (AND ALREADY ARE) GOING HIGHER FOR THE NEXT YEAR…AT LEAST.
As I keep hammering…I think 2017 is going to be an absolute blockbuster of an economic year…around the world.
The economy is strengthening, and will continue to do so…Do you really think that with EVERY major government and central bank on earth STIMULATING IN EVERY POSSIBLE WAY THEY CAN…that the world economy is just going to go nowhere…just roll over and die?
Stocks will be a LOT higher 3-6 or 9 months into the new year. Right now, the latest sheep herd analyst’s bleats are “The market’s strength is just due to a few stocks’ performance”, or “We project earnings growth to be below average”, or “Stock prices are rich at these levels”, etc., etc. etc…Same old sh*t…I think I must have heard that sort of nonsense 1000 times in the last 7 years while the market has been tripling in value…that marvelous Wall Street wisdom of, “Don’t buy it. It’s up just because of _______.”, WHILE THE MARKET JUST KEEPS CLIMBING AND CLIMBING AND CLIMBING.
The housing and real estate markets have seven years of pent up demand starting to roar out of the gates…Want to sell your house? Put up the sign. It will be gone in a few days…NOT because the market is “frothy”…but simply because nobody has been able to move for years…and for all those years, not a lot was being built…so we now have the beginnings of extraordinary demand chasing limited supply (and DON’T underestimate, now and in the years ahead, the consumptive influences of the Millennials…They FAR outnumber the Baby Boomers who drove the economy for decades). Money is still dirt cheap and I SEE NOWHERE FOR HOUSING PRICES TO GO BUT UP…PROBABLY STEEPLY SO…And with over 60% of American adults being homeowners, wouldn’t you think that seeing home values rise would be a BIG positive for the economy? If not, you seem to have forgotten the roaring 1990’s…when housing prices appreciated by approximately 50% (1990-2000)…and the Dow was up over 400%.
Everything from the Presidency and Congress will be about STIMULUS…especially during the coming year…BEFORE we get into talk about the next “midterm elections”. Like it or not, there WILL be spending next year and boosting the middle class and creating jobs… and whatever theme you want to name…but the bottom line will be…JUICE UP THE ECONOMY…NO HOLDS BARRED.
ALL OF THE ABOVE, AND OTHER FACTORS, LEAD ME TO BELIEVE: INTEREST RATES WILL BE HIGHER…AND HONESTLY, I THINK THEY COULD BE A LOT HIGHER THAN ANY NUMBER I HAVE PREVIOUSLY PREDICTED IN THIS NEWSLETTER.
I keep reiterating that market perceptions are still quite different from my own, that in fact, the Eurodollar market (short term rates) barely has a 1/8 percent increase built in to prices between now and next June...which I have described as the type of normal “market stupidity” that DOES occur in Futures…and to some extent, may be substantiated by recent comments from several Fed governors, one of which is reflected in the following excerpt:
“The Federal Reserve may have to be more aggressive in raising interest rates than the measured pace it currently projects, Boston Fed President Eric Rosengren said on Friday (Oct 14)….Rosengren noted in the interview that his outlook for the pace of interest rate hikes is also faster than the market has priced in.” (my highlights)
So, CLEARLY, this statement DOES directly correlate with what I am saying…The markets “think” rates will be up by 1/8 % by next June. I think it will go FAR beyond that…that we will see AT LEAST a 1/2 percent increase by then…which could, in my opinion, even be as much as a FULL 1 % (or more, really)…During over 3 decades of “Fed watching”, one thing I have seen more than a few times following Fed meetings was a statement something like the following: “The Board was initially considering a 1/4 % rise in rates, but decided that stronger than anticipated economic activity merited a 1/2 % increase.”
THERE IS NO REASON FOR RATES TO STILL BE THIS LOW…AND I THINK THE MARKETS ARE ABOUT TO START CHANGING THAT IN A BIG…FAST…WAY. IN FACT, I THINK 2017 WILL SEE THE YAKHEADS EVENTUALLY TOTALLY DISCARD (THEY LIKE TO CYA WITH “REVISE”) THEIR CURRENTLY BEARISH, “TOO SLOW!” ,TUNE TO ONE OF, “WE NOW THINK THE ECONOMY IS IN DANGER OF OVERHEATING!”, AND BY THE TIME THEY DO, YOU’D BETTER BELIEVE RATES WILL ALREADY HAVE JUMPED SUBSTANTIALLY.
One more time, here is a little more perspective of the NASDAQ (and all stocks) vs Eurodollars…As I pointed out in a previous newsletter, they have basically been moving opposite each other for the past year…that when NASDAQ rises, Eurodollars tend to go down (meaning higher rates). The following chart may be confusing, but it should give you a pretty clear picture of how close the correlation has been…
What I have done here is flip the Eurodollar contract upside down to see how closely the two markets have been tracking together…
NO, the two charts are not identical but they are pretty damn close to being so…
And here is the June Eurodollar as it truly appears….
And this is what I think we are really looking at…and the option I am continuing to buy here…
The big picture…
Without any doubt, I think the stage IS setting, more and more, to see exactly the sort of scenario I keep describing…in the economy, in stocks, and in interest rates…If you agree, and you have the risk capital, give me a call and let’s talk about it…and with my feeling that any given day/week could see Eurodollars knock off 15-20 points, I’ll say, “the sooner the better.” REALLY.
And if you already own some, I say get some more…WE ARE JUST FOUR TICKS AWAY FROM MAKING NEW 5 MONTHS LOWS (and this ISN’T supposed to be happening), WHICH I THINK COULD BE LIKE FALLING OFF A CLIFF…AND BASICALLY THEN TURNING THE 98.87 PUTS INTO AT-THE-MONEY OPTIONS…ON THEIR WAY TO BECOMING WHAT MY TRUE OBJECTIVE IS…TO SEE THEM BECOME SOMETHING CLOSE TO FUTURES CONTRACTS.
Nine months from now I may be dead wrong and look like an idiot but I still consider this to be the biggest trade I have ever seen in this business…A 100 point move IS no big deal in this market, which means big leverage…and 238 days is a TON of time to see this happen.
Pick up the phone if you think this is worth the risk…Most of my energy goes into putting my honest and independent thinking on this screen in front of you…
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