December 7, 2016
Fact: The Dow was up 298 points today…off no particular news whatsoever.
I continue to think it is looking like a rocket…and that NOT THAT MUCH HAS REALLY HAPPENED YET.
Fact: NONE of the Fed Reserve Governors had ANY idea that Trump would be our next president…nor did they know that the new Washington attitude would be “Stimulate…and Build Everything in Sight.”…and nor did they have ANY idea that the Stock Market ( one barometer of future economic activity) would be doing what it is now doing.
Fact: The following quotes (which I have cited previously) are from Boston Fed President Eric Rosengren…SIGNIFICANTLY, these statements were made right BEFORE the election, and therefore BEFORE the world became aware of the aggressive “Build BIG now. Pay later” policies Trump and both parties in Congress would be advocating…and BEFORE the Dow had rallied 1650 points in the past month.
“It is possible that we’ll have to raise rates faster than the summary of economic projections.”…Rosengren noted in the interview that his “outlook for the pace of interest rate hikes is also faster than the market has priced in.”
So let me point out…again…that the September, 2017 Eurodollar contract currently has nothing more than a 1/4 percent increase in rates built in between now and next September. I think this borders on market insanity…and is, I believe, EXACTLY what Mr. Rosengren is referring to…
I THINK THE ECONOMY IS ALREADY HEATING UP...AND WILL ONLY BE GETTING HOTTER IN 2017…AND MY OWN PERSPECTIVE IS THAT, BY SEPTEMBER, WE WILL HAVE SEEN RATES RISE BY AT LEAST 3/4 TO A FULL PERCENT FROM TODAY’S LEVELS…WHICH WOULD PUT THE CONTRACT SHOWN BELOW SOMEWHERE IN THE 9825-9800 AREA.
I CONTINUE TO STRONGLY RECOMMEND BUYING PUTS IN EURODOLLARS AND PERSONALLY DID SO AGAIN TODAY.
Do understand that no economist, or analyst, or Fed Governor, ANYWHERE, saw this rally in stocks coming ...nor did they have it factored, to even the smallest degree, into their interest rate policy forecasts...BUT, they cannot, and will not, ignore what the market is telling them...THE ECONOMY IS SPEEDING UP...AND 1% INTEREST RATES ARE TOTALLY OUT OF STEP WITH THE CURRENT REALITY.
Here is the option I like right now…
I reiterate that I have never seen a trade like this before…nor do I ever expect to again…The overwhelming majority of people I talk to seem to think that 1%, or even 2%, rates are now normal….and I firmly would argue that they are NOT…It has little to do with the immediate outcome of this trade, but I think we could EASILY see 3.5 to 4.0 percent rates within the next few years…and THAT, dear friends, is what would be NORMAL.
If you have the risk capital, and the temperament for this sort of investment (where you can lose every dime you put on the table)…and think that this idea makes sense…Pick up the phone and call me..This market IS at 10 month lows…and I DON’T think it is going to be just laying here much longer…As I’ve written over and over, I think we are in “any day now” territory.
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