November 20, 2017
I have an excellent contact who for decades has headed one of the largest (if not THE largest) construction industry employee recruitment firms in the country…And he recently advised me that major contractors throughout the USA have lately been aggressively looking for people to begin innumerable infrastructure projects that will begin construction in 2018. He stated that while nothing officially has been nailed down in Congress, the back channels are already jammed full of communications and assurances of contracts as to who is going to get what…and how much…And furthermore, that the businesses who will be getting those contracts are NOT just twiddling their thumbs…They are gearing up to GO…and he says this is happening everywhere…Which makes sense? I’m not being cynical, but isn’t that how the system works? A lot goes on behind the financial and power scenes before any of it becomes public, or a reality…And the reality is, I think 2018 is to be gangbusters for construction and economically BOOM like activity.
Make no mistake…As I have been emphasizing since the election, sooner or later, Congress IS going to appropriate MOUNTAINS of money to build out everything in sight during the next few years…especially ahead of the 2018 midterm elections, when, however fiscally responsible they all might try to sound, virtually every senator and congressman is not going to miss out on the spending party and they ALL are going to be taking money back to their states and districts to make their constituents happy…It’s human political nature guys…If everybody else is grabbing the bucks, your guy in Washington is going to be doing the same.
I THINK THE SPRING OF 2018 (AND BEYOND) IS GOING TO SEE MORE CONSTRUCTION START UP ACTIVITY…AND BUSINESS EXPANSION…THAN MOST OF US HAVE SEEN IN OUR ADULT LIFETIMES…and plain and simple…I BELIEVE THAT ALL THOSE PROJECTS CAN ONLY MEAN BORROWING IS GOING TO BE GOING THROUGH THE ROOF, AND AS A RESULT, THE COST OF BORROWING ALL THAT MONEY WILL BE GOING UP AS WELL…REGARDLESS OF WHAT ANYONE THINKS THE FED IS OR ISN’T DOING…
IN PLAIN ENGLISH, WHEN BANKERS HAVE BORROWER AFTER BORROWER OUT THERE IN THE WAITING ROOM, THE PRICE OF THEIR PRODUCT GOES UP. PERIOD. AND YES, THAT IS A SIMPLIFICATION…BUT THAT IS HOW IT WORKS.
BY JUNE OF NEXT YEAR, I THINK LONG TERM INTEREST RATES WILL SHARPLY HIGHER…AND YOU WILL BE SEEING REFERENCES IN THE MEDIA TO “OVERWHELMING LOAN DEMAND”, …AND THE TREASURY BOND MARKET WILL BE FAR BELOW CURRENT LEVELS.
Here are some charts that should help you understand how ABNORMALLY LOW interest rates actually are…and also just how easily the analysts groupthink idea of “rates going up a little…or slowly” could be blown out of the water in the immediate months ahead…
The long forgotten, but quite important, Prime Rate…
Again, do you really think banks are not going to be raising rates with the very first chance they get? And as MUCH as they can? Let’s get real…Their business IS to loan money. And when they can get more for their product, they ARE going to do so.
Here is a long term chart of Short Term Interest Rates…
One more time, do you REALLY think we are going to just lay around here forever at the lowest short term rates in modern history? As noted above, the tendency of rates, for the past 50 years shown here, has been to increase somewhat sharply…So I would suggest that just because they have STARTED to move up slowly does NOT mean they will continue at the same snail’s pace…As I keep repeating, almost inevitably, at some point, the Fed realizes they have misread the economy and DO find themselves playing catch up…with the result being that rates REALLY start moving…and I would add, the chain of event is USUALLY that the markets start moving and then the Fed FOLLOWS (after the fact).
So ask yourself, do you REALLY think Mortgage Rates are going to just sit down here at the lowest levels since the 1930’s…?
And here is another long term interest rate…the one that Treasury Bond Futures are based on.
United States Treasury Bond Rates…
A move to 3.75% on the chart above would take Treasury Bond Futures down about 25 points ($25,000 per futures contract) from current levels.
In my opinion, after watching the rate markets go sideways for the better part of this year, I think they ARE now about to move…that they ARE now about to start VIGOROUSLY reflecting, that over the course of the next 6-9 months, we are going to be seeing nothing but EXTREMELY STRONG ECONOMIC NUMBERS.
And here are the trades I would currently…immediately…recommend.
Sometimes markets have a way of slipping and sliding…and then basically crashing…and that IS what I think we are literally beginning to start seeing now…Eurodollars have been steadily creeping lower for the past 2 ½ months but as I have noted over and over, 50-75 point moves in a matter of weeks or a few months have been the norm in this market for as long as Eurodollars have been trading.
And I DO think the “slipping and sliding” since early September is definitely about to ACCELERATE…
(long term interest rates)
As I have written for several years now, I firmly believe this 35 Year bull market is over…and I continue to believe that anyone who invests in Bonds at current levels will end up losing money. My guess is that we are eventually headed back into the high 120’s or low 130’s…but for the moment, my current objective is the 137-140 area...by next June or so.
And on another front…
I continue to recommend Short Gold and Silver
You really want to be in a market that is on the move…And I think that is precisely what we are about to see in the precious metals…No big speech here, except to say that ALL I see about Silver and Gold in the media are reasons to buy them…and where they might be going on the upside…with any truly bearish sentiment being almost undetectable…or that I can see anyway.
I THINK BOTH OF THESE MARKETS ARE STILL LOADED WITH “STALE” LONGS GOING BACK TO THE 2011 HIGHS…AND ALSO WITH HERDS OF MISINFORMED “SAFE HAVEN” INVESTORS WHO BOUGHT INTO THE FEAR-OF-ECONOMIC-COLLAPSE NONSENSE THAT WALL STREET WAS SPOUTING DURING THE ENTIRETY OF 2016 AND MOST OF 2017.
I SEE GOLD AND SILVER AS ABOUT TO EXPERIENCE MASSIVE SPECULATIVE LIQUIDATION (SELLING) AND IMMINENTLY EXPECT TO SEE THEM DROP SHARPLY LOWER.
I THINK THERE IS TREMENDOUS LEVERAGE TO BE HAD IN PUTS IN BOTH MARKETS.
Give me a call if you want to know more. Big things happening here I think…As I noted, Eurodollars HAVE BEEN moving STEADILY lower…and ARE, I believe, about to accelerate (this stuff DOESN’T just crawl along forever)…AND IT IS ABSOLUTELY NOT TOO LATE TO BUY JUNE 2018 PUTS.
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, Gold, Silver.