Option Professor-Stocks-Yield Curve Explodes & Oil Tanks-What’s Going On? What’s Next? Read It

November 19 2022 Option Professor Opinions & Observations

If you have been reading our QUICK ALERTS; you should know we WARNED YOU that if Crude Oil could NOT break thru the 95-100 area that price would be vulnerable. We Encouraged investors to look into COVERED CALLS COLLARS and REPLACEMENT TRADES to protect your values and adjust them if resistance is broken. EVERYONE tells us that the supplies are low and China’s demand and next spring’s summer driving season reload will bring us to 120 bucks a barrel. OUR VIEW is that these kind of for GUESSES are best left for conversations with buddies with your favorite beverage in front of you at your favorite bar and foot rail:):). WE ARE AWARE that the SPR’s are supposed to stop next month and oil company shareholders DEMAND return of capital not investment AND interest rates are prohibitively high to encourage borrowing….all bullish longer term EXCEPT if we have a RECESSION & COVID turns ugly. We are more than willing to consider entry points into support as China reopen after the Q1 ends & Pacific Rim demand plus USA & Europe may help but RIGHT NOW markets have been bid up-sell off hurts more.

On the interest front….predicting where the “terminal rate” for Fed Funds is another subject that is best discussed at the bar & foot rail. The CPI is 7.7% and PPI is 8%. Bullard says that terminal rate could be 5%-7%. Where does he get that from? EASY ANSWER Should inflation drop only toward 4% and Fed Funds have to get ABOVE it before they stop you get 5%. Should inflation get to 6% and Fed Funds have to get ABOVE it you get 7%….Do you think prices reflect that….neither do we. Owner Equivqulent Rents are a big factor. Here’s some stats. It takes $107 grand of income to get a medium priced house UP 46% in a YEAR and only 1 of 8 current renters could buy DOWN from 1 in 3 a YEAR ago. REFIS are DOWN 88%! DO YOU REALYY THINK rents are going to tank/ The DALLAS FED said it expect HOUSING DROP of 20%!

The YIELD CURVE on 2-10’s are at VOLKER 1981 numbers & while we’re not going to 16% fed funds; 3/75% is a joke. Everyone who says “pivot-lows” are in are probably long stocks & bonds. Remember that!

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Talk Soon,

The Option Professor

REMEMBER All investing involves risk and it is not right for all investors. CONSULT YOUR BROKERAGE FIRM to determine your own risk tolerance and suitability. Past performance is not indicative of future results. Information and opinions are provided for informational purposes only. It is NOT advice.

Jim Kenney

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