This one is too long but hope you’ll take the time to read it…

October 18, 2022

I have been back from the Northwest “woods,” where I purposely knew zip about the markets, for several weeks now…and I think, am about as objective as ever get in this stuff. What follows are various notes and observations I’ve been making…and along with them, recommendations as to where I see the potential for big moves…and large percentage profits if I am right. Obviously, if I am wrong it can mean losing every dollar you put on the table.

 Stocks are a Buy

Unless you think the world as we know it is just stopping dead, I would suggest that virtually every major stock market in the western world is a buy.

Stocks and Bonds have NOT disappeared as THE two principal paper investments on the planet, and generally speaking, the financial world has bazillions of Dollars out there that WILL, sooner rather than later, find their way into one or both of these markets. And with a basic understanding of one of the primary rules in investing being, “Buy Weakness – Sell Strength,” my experience suggests that buying the stock market PULLBACK now, and ditto, in UNITED STATES TREASURIES, is about as classic as it gets…especially when the media is jampacked with so many “reasons” NOT to be optimistic right now…Inflation, earnings, the Fed, “recession coming,” China slowdown, the War, the elections, Taiwan, N. Korea, etc…I mean, really, in a sense there in NO good news anywhere? Right?

The Pandemic, while certainly not over, has statistically almost disappeared as an economic/consumption related deterrent…and the Pandemic HAS BEEN the primary catalyst for innumerable diverse disruptions to the world economy, impacting both the real world and the “value” of just about every paper investment on the planet.

At this moment, it seems that THE biggest, loudest news is “higher interest rates!”, and what the ever-backwards Fed will do…but my feeling is that all of the interest rate “angst” that is in the media has pretty much been accounted for in the markets.

And so I come back to my often repeated opinion (for decades) that in each and every one of the almost uncountable “crises” I have seen during my 42 years in this chair, the markets and the economy have ALWAYS recovered…no matter how catastrophic the situation was purported to be…And believe me, the current “rates going higher!” story is not even close to being as serious as any number of those “crises” we have gone through…Whether it be Middle East WARS, the Collapse of Europe, 9/11, the DotCom bust, the Great Recession, or the Pandemic…and MANY more, I see the Fed’s “saber rattling” as being relatively “nothing” when compared to any number of those noted events (and again…MANY more). The planet, more than ever, is all about business, and expansion, and consumption.

Although the increase in rates we’ve HAD certainly is having its intended effect of slowing the economy, NOTHING is stopping…Whether it’s home building, commercial construction, auto buying, businesses expanding, consumers CONUSUMING, and the Technology Revolution (THE major economic force on the planet, bringing with it an avalanche of TOTALLY NEW INDUSTRIES, services and products), the USA and World Economies have NOT gone into some sort of “deep sleep.” Same as it’s been since Communism died in 1990, and fully a third of the world’s population was introduced to capitalism…and consumption, pretty much every government in the industrialized world is focused on GROWTH, BUSINESS AND UPPING THEIR STANDARDS OF LIVING…And when the chips are down, whether it’s here, or in China, or Europe, or anywhere on the globe, the powers that be WILL do whatever it takes to crank things up again…For sure, when the day comes that they all say, “We don’t care,” you can then look for “the end of civilization,” but far as I know, that hasn’t been the case yet in my lifetime…and ain’t gonna be.

BUY THE STOCK MARKET…If I see one more guy talking about how, NOW, “Cash is king,” I think I will throw up. Maybe I’m the idiot here, but that idea just sounds STUPID to me here.

After making numerous Short Stock Index recommendations during the crash of 2008-2009…and then recommending Buying the Stock Indices 120+ times between August,2010 (as the market rallied enormously through all sorts of supposed “crises”) and several years ago, I HAVE NEVER HAD A SINGLE PERSON TAKE ONE OF THOSE RECOMMENDATIONS…the result being that I long ago realized it is ridiculous to expect anyone to start doing so now…At any rate, here’s a general approach as to how I would Buy the Stock Market here…Using the S&P Mini and Micro Futures…If you want the dollar numbers involved (nobody will), give me a call.

BUY TREASURY BONDS

Inflation has peaked and will surprise the experts

by how rapidly it totally disappears…

and even turns negative.

Whether or not it has shown up yet in the current Produce Price Index and Consumer Price Index numbers, to assume that the most aggressive Fed raises in history will not negatively impact the commodity markets, and inflation, would be the height of absurdity…And beyond that, as I am forever reminding myself, the FUTURES markets WILL anticipate what will be the impact of the Fed’s raises …and move AHEAD of the news. In other words, just as interest rates in the Eurodollar futures were rising fully 9 months before the Fed FINALLY acted this past summer, so too will the Bond market react to the coming DEFLATIONARY statistics that I firmly believe we’ll be seeing in the future LONG before those numbers actually show up. In other words, the Treasury Bond market will “realize” that inflation is GONE long before the Fed decides, again, that they need to reverse their course, and TREASURY BOND FUTURES, I BELIEVE, WILL MOVE SHARPLY HIGHER AS LONG TERM INTEREST RATES GET SLAMMED BACK DOWN.

THE TREASURY BOND MARKET IS A ROARING BUY…and yeah, RIGHT NOW, when seemingly 99% of the economists, strategists, analysts and internet squawking head on the planet are all but screaming, “Rates are going up!”, in the very same manner that one year ago when we were buying Eurodollar puts (betting on higher rates), those same people thought that rates would be staying almost at zero way out in the future.

Inflation?

To be clear, today’s inflation is a direct result of the supply chain disruptions that arose from the Pandemic…and pretty much nothing else. Of course there are die hard hyperinflation-heads who will attribute it to “too much easy, cheap money,” but the fact is, rates had been almost at zero for years preceding the pandemic…with absolutely benign inflation numbers…and in reality, virtually all of the price surges we’ve seen ONLY started cranking up in early 2021 as the pandemic waned, the world began to “re-open,” and the public blasted into the streets to live again…and consume like crazy…while at the same time, COVID had extensively “mangled” all sorts of supply chain links, meaning slow or “no” delivery of any number of items, resulting in scarcities everywhere while the public was willing to “pay up” for just about anything…BUT…I believe that is DONE…and it’s as simple as this: Using a Fridge as one item representing how inflation works, if that Fridge jumped from $1500 to $2400 during the pandemic, for the inflation rate to continue rising from here, so too does that $2400 price, that is, for inflation to keep rising, that $2400 has to become $2500, $2600, etc…HOWEVER, if all it does is stay at $2400 going forward, month over month, you are quickly going to see the inflation rate heading towards ZERO…And, more importantly, if it should be reduced in price (which IS already happening at many major sellers), then you are going to start seeing NEGATIVE INFLATION NUMBERS…And this IS exactly what I am looking for going forward from here…SEVERELY LOWER inflation stats…and coincident with that, I LOOK FOR A MASSIVE RALLY IN THE TREASURY BOND MARKET…

And if this is the case, we’re going to see the Fed do exactly what they finally did this past summer, which is REVERSE all of their hawkish rhetoric, and actions, which I believe will lead to an upward explosion in Bonds…again…LONG BEFORE THE FED WAKES UP.

On a related note, My guess is that there are VERY few products out there that have not reached a point where the public has begun to balk at its current price…Whether it be a refrigerator, a house, a vehicle, a steak, or service or whatever, I believe prices ARE affecting consumer behavior.
 

Crude Oil and Wheat are great examples

of what NOT to believe in the media

with respect to the markets

Just think back over the past 3-4 months and do REMEMBER how almost 100% of the “expert” opinions, and media headlines, were talking about Oil prices screaming out of sight…And then look at the reality…CRUDE OIL HAS DROPPED BY ALMOST 40% SINCE MID-JUNE…And the same with Wheat, where the war in Ukraine was supposed to mean sky high prices, but it too has dropped by over 40% since May. My point is, all of the hooting and hollering by economists, analysts, and so called Wall Street “strategists” about unstoppable inflation, or that prices are going to remain high, represent exactly that same sort of media inaccuracy right now. For as long as the markets have existed, the media and its hordes of talking heads, have been forever piling onto ideas AFTER THE FACT, with their perceptions ROUTINELY, and incorrectly, being that what has already happened represents the future. And this time, I believe, is no different…that the headlines are dead, dead wrong…Wrong about inflation…AND…Dead, dead wrong about interest rates.

Inflation? Take a look at these commodities, which are essentially prices at the producer level…ALL OF THEM ARE IN VARYING DEGREES OF BEAR MARKETS.

And a special note on this next chart…Cotton…I’m pretty sure that anyone involved in the Cotton business would agree that 4-5 months ago, the Cotton story was about as wildly bullish as anything I have ever seen in ANY commodity during my career. I mean, there was weather (and MORE weather!), and then that mills had contracted to buy 10 times more cotton than there was in existence (or something like that), and of course the old “when China buys!” stuff, and then the charts were “unquestionably bullish with counts up to $1.75”, and so on…Again, I don’t think I have ever seen a market with so much bullish press…And then what happened?

In the space of two months, COTTON DROPPED STRAIGHT DOWN 37%, rebounded part of the way back up…THEN CRASHED AGAIN.

And I don’t say this to make any of those Cotton bulls feel bad, but simply to remind them, and you, of how this futures GAME actually works…and that, one more time, when you DO hear, and DO KNOW, that the whole world is so OBVIOUSLY on one side of any idea, you’d better be looking in the opposite direction.

The Bottom Line?…Even though the overwhelming majority of squawking heads are still talking inflation, EVERY one of these major commodities topped out months ago…and every one of them is actually now in a bear market…The point is, 4-5 months ago, basically the whole of Wall Street was LOUDLY calling virtually ALL of these markets a BUY…And NONE of them were! Quite the opposite really…
 

And so…? Easily, THE NUMBER ONE, SEEMINGLY UNANIMOUS OPINION THOSE SAME PEOPLE HAVE TODAY…THAT THEY ARE FAIRLY SCREAMING…IS, “RATES ARE GOING UP! BE SHORT BONDS!” (when basically NONE of them were predicting higher rates a year ago). So if you want to follow that ever-wrong crowd, go ahead, but for my money…and not to just be contrary, I say, INFLATION IS DONE. BUY TREASURY BONDS.

 Take a look at the two principal gauges of inflation…

And you WILL see more and more…and more PRICE REDUCTION ads like this…in just about everything…

 And I look for this chart, of Consumer Prices, to SHARPLY REVERSE…and quite possibly go down just as fast as it went up…to the extent that I firmly believe the inflation rate could go NEGATIVE within a matter of months…

With a few blips along the way, the world has been in a non-stop technology influenced BOOM since the early 1980’s...and in spite of that, inflation has basically averaged 1.5-2.0%...and I see no reason why we shouldn’t quickly get back to those levels…

AND all of the above, in my opinion, argues that USA TREASURY BONDS, RIGHT NOW, ARE ABSOLUTELY THE BEST PAPER INSTRUMENT BUY ON EARTH…THAT NOT ONLY DO THEY OFFER SOLID YIELD, BUT ALSO THAT THEY COULD EASILY PRODUCE A 25% PRINCIPAL GAIN WITHIN THE NEXT 6-12 MONTHS.

 Here’s the trade…

Out of the woods…

And I STILL think the big dump is coming in

Corn, Wheat and Soybeans

So I’ve been short the row crops for a long time, and have had intermittent successes with Cotton and Soybean Oil, but have yet to see the extra large percentage crash I’ve been looking for in Corn and Soybeans…to the extent that the idea of staying with those ideas does give me pause…BUT I do know that “waiting,” longer than you think possible sometimes, IS part of trading, and so now, when I think I am in my most objective frame of mind, and I look at all of the grains, and can only conclude, THEY HAVE BIG DOWNSIDE, I have to go with it.

The following statement comes from the “Philosophy of Trading” section of my website. Select markets which have done nothing for a long time.   If a market has been trading sideways for quite some time, probabilities "should be" (anything is possible in the futures markets) better it is soon going to move somewhere. Long sideways moves are often followed by large directional moves.

So yeah, that references no particular trade but simply refers to the fact that I believe the biggest potential comes from markets that HAVE BEEN SIDEWAYS for a long time…And that IS precisely the case in Corn and Soybeans right now…AND…they have been doing so at EXTREMELY HIGH LEVELS.

And no, I don’t know if NOW is when this is going to finally happen, but I DO know that the odds (and circumstances) certainly are HIGH that these two markets (and Wheat) ARE ABOUT TO GET CLOCKED FOR THE SAME 30-40% SELL OFFS THAT HAVE ALREADY OCCURRED IN SO MANY OTHER MARKETS…THEREFORE, THE LAST THING I WANT TO BE NOW IS ON THE SIDELINES.

 
I CONTINUE TO RECOMMEND IMMEDIATELY OWNING PUTS IN CORN, WHEAT AND SOYBEANS.

 CORN

SOYBEANS

WHEAT

As always, I think you do all four of these, and understand that if just one works, and the other three are total busts, you still could come out ahead or even…My feeling, however, is that if any of these are working, they ALL will be working…and beyond that, I believe that if any of them are doing what I am looking for, they WILL be doing it in a big way…which could mean somewhat sizeable profits. Conversely, if I am dead wrong about all of this, you could lose every dollar you have invested.

Doing all three crops works out to about $6800…Adding the Bonds, for $2063 (where I am expecting no takers…as this opinion is just “too” opposite what 99% of the financial world is saying…and it’s ALWAYS been like this, for decades when I’ve made interest rate predictions) takes it up to about $8900 for the entire “unit.”

And finally…

As noted in my intro, I was “divorced” from the markets for almost 3 weeks…with Dorka and my two “boys” while camping in Yellowstone, flyfishing in Montana, sightseeing National Parks (Grand Teton & Glacier, and Banff Icefields in Canada) and finally roaming from border to border in Oregon (maybe to move there). So, after a truly fantastic family experience I came back to this screen with a rested/open mind and nothing but the intention of finding the trades that could be big between now and spring of next year. And I think that is what I have here. I see these as ALL high probability, major profit potential trades with ample time to make the moves I have envisioned. Here’s hoping that you’ll participate…and obviously, that I will be right.

Love to talk to any of you…whether you want to buy these ideas or not.

Treasuring life…after recently losing friends and being reminded that we are not immortal.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Bonds, Stocks, Corn, Soybeans, Wheat