Ordinarily, I wouldn't contemplate them... but these *are* extraordinary times. - G-Man
A bank just went broke, oops! It was certainly something we expected. With money literally burning, these kinds of events are expected. So what might be ahead of us?
The rate-hike schedule went relatively smooth sailing until now. But just last week something changed... When the first bank failed, the consensus shifted from calm to fearful.
Now the market is pricing-in the coming yield-peak. This goes hand-in-hand with the yield-curve correcting. At that time, the market expects only short-term yields to increase, while long-term ones will slowly and steadily drop.
Back in 2018, we were begging for the FED to lower the interest rates so as the economy to "grow". Little did we know, that by lowering rates we were pulling the rug from underneath our own feet. Equities growing when cutting rates is cheaty...
Now we have the same. We beg for the FED to stop burning money and calm the liquidity crisis that is building-up around us. This bankruptcy may prove an event that causes even a premature FED pivot. At any rate, both charts and simple logic call for a pause in the rate-hike schedule.
So what can we expect? What I talked about in the original cake. Unsurprisingly, I expect equities to grow next year. Their price will increase while their true "value" will drop. While a sell-off may occur in the weeks to come, this will give the signal that the bottom is in. I believe however that this capitulation will not be the main "event".
The 2018 "Recession" had some violent drops. A sudden 20% drop in 3 months in Q4-2018 was definitely something that conquered the headlines. Passing through that gave the signal that a bottom was already in. The same consensus may be brewing now. Surely the FED cannot tighten further. Surely they will step-in an cautiously calm the financial markets.
The calm will come, and it will stay for some months. Until the calm erodes. And if rates drop, the economy itself will silently erode. Until the building collapses, at a time nobody expects it to.
Tread lightly, for this is hallowed ground. -Father Grigori
PS.
There are two ways to become rich. Theft and Inheritance. -Aristotle Onassis, Billionaire
For the rich to get richer, they must rob. They are robbing the unknowing gamblers/investors. In the era of information, in order to rob you must fool the public by changing-up the picture. Present the eroding building (economy aka. SPX*yields) with a luxurious cover (SPX). And hide the treasure in the dirtiest place of all. Find the treasure. Don't fall for the trap.
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Besides the "lie" of SPX, there lies the "lie" of inflation control. The FED is actively pulling money out of the financial system. This is apparent from the substantial drop in the M2SL and M2REAL charts. The mechanism with which the FED is pulling that money out is RRPONTTLD.
To make sense of it, we compare it with the total money that goes into the economy. The FRED:A091RC1Q027SBEA index measures how much money the FED pays out in bonds.
Comparing the two might give us a perspective on the flow of money and it's pressure. In a sense, how much money and how fast it is flowing, either out of the economy (deflation) or into the economy (inflation).
On the left we have the invented formula of RRPONTTLD/yields, while on the right we have RRPONTTLD/(bond-payments).
The rate during which liquidity is pulled out of the system is bull-flagging against the rate liquidity is pulled into the system. The scale of what is occurring is incalculable.
One note on the index I used above:
Already, RRPONTTLD is 10% of the total money supply. The highest rate ever. And it is just the beginning of the financial black hole that is swallowing the entire money supply.
Milkshake Theory Confirmed.
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SPX Analysis: Simple as "abc". The Ribbon serves as RSI Support/Resistance. In 2022 it decisively penetrated it, now it is bearishly retesting it.
PS 1. I told you many times that yields are showing significant signs of stagnation. Here are the results: This is basically the target-FEDFUNDS rate, as Eurodollar futures expect it.
PS 2. Bitcoin is shaping a Broadening Top (Bearish)
The same is shaping now in SPX. Thank you @The_Unwind for the inspiration!
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I can only wish...
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DJI*yields suffered a trend-line breakdown. More downside expected for BOTH Equities and Yields.
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April Fools! Let the lies begin!
SPX may be lying, KST doesn't.
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The SPX*yields chart continues very well!
This takes us once again at the 2018-2019 Recession nobody remembers. Let the swan inside!
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The Eurodollar proves as a target for FEDFUNDS. Now we are witnessing the largest discrepancy between the two. The market fails to price-in high yield rates. The current US economy may not be able to support such rates, while the worldwide economy expects higher rates.
Taking into consideration the market conditions, your forecast should work quite well. Great work.
jdgpro
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Powell/Biden: "Its a softish landing, just with a sporadic bank runs."
NoaTrader
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Adding more details from the Milkshake Theory ( theinvestorspodcast.com/dollar-milkshake-theory ) : HOW CAN YOU DEBUNK THE DOLLAR MILKSHAKE THEORY? The Dollar Milkshake Theory could be debunked if, in the next financial crisis (think March 2020 and 2008 as past examples), U.S. Treasury bond prices decline dramatically, corresponding with a weaker relative value of the U.S. dollar to other currencies. This would indicate that global investors no longer see the U.S. financial system as a safe haven.
NoaTrader
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It's funny that exactly the day after a famous bank failed, bitcoin went up 10%. Are market makers trying to absorb the burning money to the crypto heaven? While everything like gold and stocks are going down as hell, bitcoin is going to have a new local high?! Just as I was searching about the Milkshake Theory ( theinvestorspodcast.com/dollar-milkshake-theory ) : Many investors, such as Ray Dalio, feel the U.S. is a waning world power, and the dollar’s days as the world’s reserve currency are numbered.
Snead
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I do like your idea a lot as I believe that the public is being mislead and rosy pics are being presented.(It is easier to sell stocks to investors and make a nice commision in a "bottom is in" environment). Where would "they" hide which treasure- what do you think?
SMINSEA
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I’m following, but what’s the treasure? Yields until they’re not? Cash? Assets?