October 24, 2017
Jaws are dropping at the Fed?
The first chart here is what the Dow Jones is now looking like...which is, that it COULD be accelerating into a parabolic (straight up) sort of move that is sometimes what you get towards the end of dynamic bull markets…which COULD mean a target of 24,500-25,000…before we get to Thanksgiving.
Meanwhile, major stock markets all over the world (England, Germany, France, Japan, China, India, etc.) are also making either new multi-year highs or new all time highs…
These roaring stock markets, everywhere, ARE barometers of future economic activity…and they ARE indicating that the planet is now in a full blown growth mode…
And yes…Here’s more evidence of Wall Street’s bearish “wisdom” from just the past two days…
And to be clear…The Fed has been thinking the same way…
They also have NOT understood how fast everything is moving…
So I will repeat what I have been saying for some time now: NOBODY at the Fed saw this coming. And jaws ARE dropping among the Fed Governors as they watch stocks…here AND everywhere else…SOAR to what were, to them and everybody on Wall Street, previously unimaginable levels.
The point is, I am just about dead certain that those rate setters are now DEFINITELY changing their minds regarding how FAST, and how BIG, they need to be moving towards higher interest rates…I just don’t think any other conclusion makes sense…especially when you throw into the mix what Congress is about to push through in the way of tax reform (lowered) and spending (increased).
INTEREST RATES, STILL AT THE LOWEST LEVELS IN MODERN HISTORY, ARE GOING UP AND I CONTINUE TO VIGOROUSLY RECOMMEND BEING SHORT BOTH TREASURY BONDS AND EURODOLLARS.
Here is what I am doing in Eurodollars…right now…before we see what I think will be, any day now, a 10-15 point down week…just to get started.
Treasury Bonds are about to get crushed…
I think the Treasury Bond market HATES that the Fed has been so slow to tighten…AND…it HATES what is about to come out of Congress.
In my opinion, we are about to see a booming economy with price AND wage inflation…AND we are going to see runaway pork barrel spending like we have not seen in decades…Everybody in Congress will talk about trying to be fiscally responsible…but in the end, ALL of those guys will be taking as many projects and appropriations home to their constituents as they possibly can…while at the same time voting to lower taxes across the board…And ALL OF THIS WILL BE EXTREMELY BEARISH FOR THE BOND MARKET…And that doesn’t even begin to account for the fact that all of the infrastructure spending that is coming will be done with BORROWED MONEY…and when there is heavy borrowing, INTEREST RATES GO UP…Period.
This market has been sideways since last November…That, I believe, is about to change dramatically…And to see Treasuries down at 135 is actually my MINIMUM objective between now and next spring.
I’ll say it again…The Fed governors are human. History has shown that they OFTEN read the markets and the economy wrong…and THEN THEY PLAY CATCH UP…and I assure you, one more time, NONE of them anticipated what is happening in stocks and on other fronts, and they ARE about to start sounding, and acting, a LOT more “HAWKISHLY” about rates going forward from here..
I urge you to not just sit there and watch all this happen. I am still aggressively buying puts in both of these markets.
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, Treasury Bonds