Hey There Income Hunters,
These are the game changing moments that get the adrenaline going.
The Fed is getting more and more squeezed between a rock and a hard place.
Inflation continues to rise, which is a danger to the Fed because it puts pressure on them to raise rates.
Higher inflation can also cause demand destruction in the economy as higher consumer costs eat into savings.
This is an accident waiting to happen for the Fed for a few reasons and today I’ll lay them out for you so you can be ready to jump on trade opportunities after Powell speaks.
I’m giving my Power Income readers one final chance to join Mark Sebastian, Frank Gregory and I at 4 p.m. today to dissect Powell’s statement and the implications for the markets.
Also, Frank will review the shocking election results and what impact they may have on the spending bills.
The Fed’s Dilemma
All the Fed ever talks about is how they are trying to be more transparent,yet all they do is put on the gameface while their real agenda is hidden from the public.
I spend most of my time digging through the Fed’s public data, reading between the lines — because if you correctly anticipate the Fed’s policy, you can front-run the market and get a huge pay day.
Here is what I see…
One important signpost is the Treasury Government Account, which is held at the Fed.
This account called the TGA is upfront borrowing that gives the Treasury wiggle room in case they need an emergency injection of cash into the economy.
Here is the important takeaway …
To replenish the account back up to $800 billion, the Treasury would have to increase Treasury security issuance to get there.
This presents an interesting trading opportunity…
During the October – December 2021 quarter, Treasury expects to borrow $1,015 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $650 billion.
This borrowing estimate is $312 billion higher than announced in August 2021, primarily due to the lower beginning-of-quarter balance, somewhat offset by a lower end-of-quarter balance and higher receipts.
This supports my high-conviction trade idea of a bearish option strategy in iShares 20+ Maturity Treasury Bond ETF (Ticker: TLT) into the Nov. 12 expiry.
How to Play It
Yesterday, TLT rallied back above the 50-day moving average on very low volume and off the back of lower rates abroad.
The true story will be told as we head to the Friday employment report, which I expect to be strong.
Here is the chart pattern for TLT:
I am going in with a decent short in TLT, and if Powell comes across as hawkish, I will most likely suffer some pain but my gut tells me he will come out on the dovish side.
Bring it on!
Bring It Home
You have to love game changing moments.
Right or wrong, you will know pretty quickly and that makes it exciting.
Knowing the probabilities of Fed action based on their available data will give you a huge advantage since the Fed is the buyer and seller of last resort in the markets.
And speaking of lasts … it’s your last chance to join us at 4 p.m. today.
Live and Trade With passion my Friends,