June 12, 2017

 Short Term Rates are making New Multi-Year Highs

This is going to be pretty much nothing but charts that present both the near term and longer term perspective on where interest rates actually are…I CONTINUE TO MAINTAIN THAT THE MARKETS ARE NOT EVEN CLOSE TO REFLECTING WHAT RATES ARE IN THE PROCESS OF DOING…AND CONTINUE TO RECOMMEND BUYING MORE PUTS IN EURODOLLAR FUTURES.

US Treasury Bills and LIBOR are the benchmarks for what short term interest rates are doing globally.

Going back over a half century, the economic system functioned with substantially higher interest rates than we have today…And will do so again…the point being, THERE IS NO REASON FOR RATES TO STAY ANYWHERE NEAR THEIR CURRENT LEVELS.

Eurodollars directly track both 3 Month Treasury Bills and 3 Month Libor…and in the chart above below, do note that BOTH of these markets are making new multi-year highs TODAY.

Let’s be clear…All of the supposed “crises” cited by Wall Street for the past few years (Europe collapsing, China going south, Brexit, the elections, etc.) have all been hogwash…and the truth is, ALL OVER THIS PLANET, ECONOMICS ARE ON A STEADY TO VIGOROUS UPSWING. Period. If you want to imagine that it’s lousy in Europe, or in Asia, or HERE, go right ahead…But I think this is a stuck-in-the-past attitude that is totally ignoring what is going on all around us…AND ABROAD…And as  a result, rates WILL be going back to levels more in line with what we have seen for the past 50 years.

So here are actual Eurodollar Interest Rate charts…

Just because Eurodollars have paused does NOT mean they are going to just sit here forever…and I believe this rate chart has only one way to go…HIGHER…it it will be doing so in “chunks” that will blow all the “slow go, low rates” people out of the water.

As I have written so many times, THE MARKETS LEAD THE FED…NOT the other way around, which is precisely why rates ARE now making new highs…AHEAD OF ANY FED DECISION. Along the same lines, I will also reiterate that, generally speaking, I have YET to see a Fed campaign towards easing or tightening that did not eventually see them realize they were moving too slowly... And I firmly believe this will  be the case again…to the extent that, sometime soon, you WILL see comments from the Fed suggesting, “Perhaps we need to start raising a little faster than we had been planning.” And believe me, when that sort of news hits the media, you need to ALREADY be short the Eurodollar market.

In a downtrending market (and no market ever “behaves” exactly the way you are expecting), YOU DO SELL RALIIES. YOU DO ADD PUTS WHEN THE MARKET HAS RETRACEMENTS…which is precisely  what I think we have lately seen…And hard as it may be, that IS what you are supposed to be doing here. Trading is, by no means, and exact science…It’s more about psychology than anything else, and amazingly, the best moves you ever make are often the ones you hate the most.

I like either one of these…

This put has 189 days  and is 6.5 ticks out-of-the-money…And one more time, this contract still has built in only 20 ticks, or less than a 1/4% increase in rates, between June and December…which I STILL think is absolutely nuts.

This one has 280 days and is 12.5 ticks out-of-the-money…

Do something with this. Yes…more. The Sept 9850’s still have 98 days to trade, and though it may feel like a lot, are only 14 ticks out-of-the-money…and with any resumption of the downtrend, or any “surprisingly” strong economic report, those puts can quickly be back in-the-money…But I am NOT just sitting on them…Hard as it may be, I am looking at these December’s and thinking, “Ton of time. Barely out-of-the-money. GREAT trade.” I MIGHT BE DEAD ASS WRONG BUT I DO THINK THIS THING IS READY TO UNFOLD AS I HAVE BEEN DESCRIBING IT…and I AM adding.

Bill

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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