November 10, 2017
In October, 1987, in the early part of a 15 month trip from Montana to Tierra del Fuego to Alaska and back to Atlanta, I sat in hotel room in Santiago, Chile and will never forget the TV screen headline I caught on a Monday evening: “Dow Baja 500 Puntos”, or, “Dow Down 500 Points”…Yes, this was the day of the 1987 crash and it forever reinforced what my own fledgling research had already taught me, that being, THE DOW TELLS THE STORY. THE DOW LEADS…In other words, the world didn’t note how much the S&P or NASDAQ had fallen that day. It was what those 30 GLOBALLY RECOGNIZED COMPANIES had done.
Decades ago, my research did lead me to conclude that the Dow really DOES lead, or confirm, the direction of the stock market as a whole…And I would therefore strongly disavow the sometimes seen argument that what the S&P or NASDAQ are doing is more important than that “stodgy, antiquated and too narrow, Old School Dow Jones.” I maintain that EVERYBODY (right down to maybe a Turkish shoeshine boy) knows almost all of those Dow companies by name, and on a more traditional note, would say that how well, or badly, they are doing DOES matter more than anything else in the marketplace…And so, specifically, going back years, when I am trying to determine the direction of the market as a whole, what I always want to see is, “Is the Dow leading…or lagging?”, and if it’s leading…if investors are pushing those 30 companies, first and foremost, it is a good sign…And that is precisely what is happening now…The Dow is, as I have been expecting, absolutely RIPPING higher…TOTALLY surprising 99% of the Wall Street forever backwards boobs..
Compare the three indices…
An Economic Black Swan…
Enormous Stimulus a positive for Stocks
But also Extremely Inflationary
Two days ago, NOBODY was thinking we would have Trump as the next president…much less Trump AND a Republican congress…NOBODY…The stock market is now lifting off because this totally unanticipated combination WILL result in enormous policy and fiscal stimuli with the intention of cranking up the economy to the highest gear imaginable…right out of the gate in January…And for the very same reasons, the Treasury Bond market is concurrently tanking, having dropped 7 points since yesterday, as the fixed income world is realizing the inflationary implications ahead as they juice the economy beyond anything probably seen since, really, anything that I can even remember. And I would then reiterate, these are implications that were totally NOT a part of ANYBODY’S inflationary equation (including the Fed), again, just TWO DAYS AGO…AND THIS IS A BLACK SWAN EVENT…SOMETHING THAT NOBODY IN THE INVESTMENT WORLD WAS ANTICIPATING…AT ALL…and I have zero doubt that Donald Trump’s intentions “to build bridges, roads, schools, buildings, infrastructure” GALORE, etc. can be nothing more than highly INFLATIONARY...to the extent that we well might see some inflation numbers not seen in DECADES in this country…which, if so, will likely lead to interest rate levels not seen in years (many).
The chart below will give you an idea of the freak out going on in Bonds…and this is not for some random reason…Inflation is the Bond market’s number one enemy…7 points in two days!
So the bond market is telling us “inflation ahead!”, but so far the Eurodollar market has reacted only mildly…but I don’t see how it can do anything but wake up, and fairly immediately (as in tomorrow morning), to the fact that the Fed WILL undoubtedly now end up behind the curve when it comes to raising rates…Simply stated, again, UNTIL TWO DAYS AGO, the Fed was NOT anticipating having to FIGHT inflation…They thought they would eventually just be “managing” it…But with what are entirely new, TOTALLY UNANTICIPATED, circumstances, I would bet my last dollar that any number of the Fed Governors are now leaning much harder, TODAY, in the direction of “be sure we don’t get behind the curve on raising rates” than they were just a few days ago.
IN OTHER WORDS, ALL THOSE GUYS AT THE FED…WHO HATE OUT-OF-CONTROL INFLATION…HAVE ALSO SEEN WHAT THE BOND MARKET IS DOING…AND THEY ARE ALL NOW, I AM CERTAIN, ON HIGH ALERT…THE BOND MARKET IS MOVING FAST…AND THE FED WILL MOST LIKELY BE DOING THE SAME.
In the same vein, I would remind you that several of those Fed governors had already in recent months stated that the markets seemed to be underestimating the speed at which rates might be going up…and I am equally certain those opinions have not changed at all.
SHORT TERM RATES WILL BE GOING UP…I think the bond market is telling us exactly that…And not to beat it to death, but I think it is incredibly pertinent: TWO DAYS AGO, NOBODY, AND NO ECONOMIC FORECASTING MODEL ANYWHERE, WAS EXPECTING THE REALITY WE NOW ARE DEALING WITH…Mainstream opinion is still doubting the stock market rally and still has not caught on to what the economy and inflation will be looking like next spring…But they WILL. I think we are there…where the meandering Eurodollar market finally falls of the cliff…
I CONTINUE TO SAY: GET SHORT EURODOLLARS NOW…BEFORE EVERYBODY ELSE STARTS WAKING UP TO THE FACT, MORE SO THAN EVER IN MY OPINION, THAT 2017 IS GOING TO BE A BOOM YEAR…AND THERE IS JUST NO WAY INTEREST RATES ARE JUST GOING TO LAY HERE AND WATCH IT ALL HAPPEN.
If you have read this far, I will repeat…What has happened in the past few days was NOT in the markets…And I do not flatter myself by saying: What I have realized and written here represents some very clear thinking from an old horse who has lived and breathed this stuff for 36 years…And one of my old hand lessons is to NEVER ignore the fact that TOTALLY UNEXPECTED EVENTS USUALLY LEAD TO BIG SHIFTS IN MARKET VALUES…and if this isn’t exactly that, I don’t know what ever would be.
I’ll also repeat, I STILL THINK THIS IS THE BIGGEST TRADE I HAVE EVER SEEN IN THIS BUSINESS,,,AND MORE SO THAN EVER SINCE TUESDAY NIGHT.
Pick up the phone and do something with this…or really, I can only say you are wasting your time reading what I write.
Get some…or get some more.
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The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Eurodollars