This chart is frightening. It suggests that SPY can become a modern-day example of Galloping Gertie, the famous Tacoma Narrows Bridge which collapsed from nothing more than wind.
I have said it before, 2022 was the year when an Equity Crash didn't actually happen, while we were all talking about it.
It is but a scratch. But with a bleeding chopped-off arm, how long can you last in war?
Instead of an equities being killed, a Bond Crash came, and nobody has talked about its ramifications.
This is the European Bond, one of the most stable, until 2021. Imagine what has happened in corporate bonds. We can never know for sure the sheer extent of the destruction...
In stock market, higher is not necessarily better. Higher is riskier.
SPY is considered to be diamonds. JUNK Bonds are, well, junk.
Imagine the balance shift when this trend breaks. And it very much it will.
It is statistics after all. The more times you get heads repeatedly, the rarer the event.
Think, for how long has SPY been diamond, and JNK junk?
With yield rates peaking problems may arise. The bond market will suddenly revive again.
As a byproduct, dollar will get a massive hit. Some charts suggests that its days are numbered.
This chart calculates dollar strength based on the value of its total supply. If a currency manages to get printed a lot and sustain high strength, then it must be good. Especially if it pays out good yield rates. Rate cuts in US isn't good news for Dixie...
Tread lightly, for you are dead. You just don't know it yet.
-Father Grigori
Final thought:
Rate cuts can be a double-edged sword.
If FED announces rate cuts, this gives two messages.
-- Financial strength has weakened and rate cuts must come to keep the economy afloat. Bad news can trigger Black Swans. The 2008 crisis followed after rate cuts, not rate hikes.
-- Rate cuts will trigger a massive flow of money into bonds, emptying the equity market.
Careful what you wish for, and what you prepare for.
I have said it before, 2022 was the year when an Equity Crash didn't actually happen, while we were all talking about it.
Instead of an equities being killed, a Bond Crash came, and nobody has talked about its ramifications.
In stock market, higher is not necessarily better. Higher is riskier.
SPY is considered to be diamonds. JUNK Bonds are, well, junk.
Imagine the balance shift when this trend breaks. And it very much it will.
It is statistics after all. The more times you get heads repeatedly, the rarer the event.
Think, for how long has SPY been diamond, and JNK junk?
With yield rates peaking problems may arise. The bond market will suddenly revive again.
As a byproduct, dollar will get a massive hit. Some charts suggests that its days are numbered.
Tread lightly, for you are dead. You just don't know it yet.
-Father Grigori
Final thought:
Rate cuts can be a double-edged sword.
If FED announces rate cuts, this gives two messages.
-- Financial strength has weakened and rate cuts must come to keep the economy afloat. Bad news can trigger Black Swans. The 2008 crisis followed after rate cuts, not rate hikes.
-- Rate cuts will trigger a massive flow of money into bonds, emptying the equity market.
Careful what you wish for, and what you prepare for.
Comment:
SPY may in fact be growing right now. Volatility however confirms a topping, as the VVIX/VIX ratio shows us on the following chart:
We are witnessing a topping pattern in both VVIX/VIX, and in its MACD.
A massive outflow could occur from equities to bonds at any moment.
Yields down = Bonds up
Remember, 2008 happened after yield cuts i.e. during a bond bull market.
A massive outflow could occur from equities to bonds at any moment.
Remember, 2008 happened after yield cuts i.e. during a bond bull market.
Believe it or not, many charts suggest that there is actually nothing wrong with the equity market, and it may have just passed through an obstacle. Something like the cup-and-handle chart we have seen in SPX.