Since March 18, 2021 the Financials have diverged from the Equities Complex.
This can be observed in the NQ Bank Chart above.
It suggests a Financial Storm is brewing.
The Bond Complex is 10.2X the size of the Equities Complex by Value.
Bonds have been Bid since January along with the US DX, it is interesting to observe the JPY/DX Pair.
There is a Divergence between Nominal and Real Rates of Interest - one which in my humble is ominous.
It leads me back to the last time Real Rates diverged this significantly - The DX Broke par. In essence,
Depositors were momentarily required to pay Banks to hold Deposits. A clear negative ROI for CASH.
It is important to remember, Deposits are a Liability. This is the Salient point when Banks are calling
in Lines of Credit and reducing Lending (their primary source of Income) - The net effect is to divert
Cash to Money Market Funds which increases the "Potential" for CASH to fall below bar @ 100 Basis.
On September 16, 2008 - After Lehman's Bankruptcy - Money Market Managers at the Reserve Primary Fund
were unable to maintain PAR on the United States Dollar.
It was not solely the Reserve Primary Fund.
Nearly 80 additional Institution's "Money Market Funds" - which can be swept into Short Term T-Bills
(Short Supply then as now) - were at risk of contributing to a cascading event which required then
Secretary of the Treasury Steven Mnuchin to issue in excess of $2 Trillion in T-Bills to provide the
necessary BackStop for the Dollar.
Most often, Money Market Funds are used for short term obligations, this is the primary account
for businesses to access their deposits as needed for operations. After the Lehman collapse
(sacrifice by GSCO courtesy of Hank Paulson) confidence dropped dramatically, a panic ensued.
Worried investors quickly moved funds to US Treasuries. This forced Treasury yields to drop below zero.
Investors were so panicked that they no longer cared if they received a rate of return on their investment.
Instead, they opted for the return of their capital.
The rapid collapse in confidence created enormous Risk, much akin as to what we are observing now.
Banks were hoarding cash during this period. Lending, then as now had flattened and then began to
decline in the months that proceeded this event. Collateral was scrutinized, then as now as can be
witnessed via the REPO & Reverse Repurchase Pools.
Then, Banks wanted to have the cash on hand in case of mass redemptions, they were holding
nearly $200 Billion then.
Contrast this with now - Primary Broker Dealer / Money Center Banks - DO NOT DEPOSITS (CASH) -
to the contrary, they are behaving in exactly the opposite manner.
This event should be of concern, actually it should be of immense concern.
* it is important to note the Russel 2000 and S&P 500 have a large Financial Component.
Can NQ BANK perform a reversal, it can, this is not a recommendation to Short Financials. It is a
very clear warning sign - we are quickly approaching another Lehman Event.
I have posted my strategy for profiting from this Event earlier today.
This can be observed in the NQ Bank Chart above.
It suggests a Financial Storm is brewing.
The Bond Complex is 10.2X the size of the Equities Complex by Value.
Bonds have been Bid since January along with the US DX, it is interesting to observe the JPY/DX Pair.
There is a Divergence between Nominal and Real Rates of Interest - one which in my humble is ominous.
It leads me back to the last time Real Rates diverged this significantly - The DX Broke par. In essence,
Depositors were momentarily required to pay Banks to hold Deposits. A clear negative ROI for CASH.
It is important to remember, Deposits are a Liability. This is the Salient point when Banks are calling
in Lines of Credit and reducing Lending (their primary source of Income) - The net effect is to divert
Cash to Money Market Funds which increases the "Potential" for CASH to fall below bar @ 100 Basis.
On September 16, 2008 - After Lehman's Bankruptcy - Money Market Managers at the Reserve Primary Fund
were unable to maintain PAR on the United States Dollar.
It was not solely the Reserve Primary Fund.
Nearly 80 additional Institution's "Money Market Funds" - which can be swept into Short Term T-Bills
(Short Supply then as now) - were at risk of contributing to a cascading event which required then
Secretary of the Treasury Steven Mnuchin to issue in excess of $2 Trillion in T-Bills to provide the
necessary BackStop for the Dollar.
Most often, Money Market Funds are used for short term obligations, this is the primary account
for businesses to access their deposits as needed for operations. After the Lehman collapse
(sacrifice by GSCO courtesy of Hank Paulson) confidence dropped dramatically, a panic ensued.
Worried investors quickly moved funds to US Treasuries. This forced Treasury yields to drop below zero.
Investors were so panicked that they no longer cared if they received a rate of return on their investment.
Instead, they opted for the return of their capital.
The rapid collapse in confidence created enormous Risk, much akin as to what we are observing now.
Banks were hoarding cash during this period. Lending, then as now had flattened and then began to
decline in the months that proceeded this event. Collateral was scrutinized, then as now as can be
witnessed via the REPO & Reverse Repurchase Pools.
Then, Banks wanted to have the cash on hand in case of mass redemptions, they were holding
nearly $200 Billion then.
Contrast this with now - Primary Broker Dealer / Money Center Banks - DO NOT DEPOSITS (CASH) -
to the contrary, they are behaving in exactly the opposite manner.
This event should be of concern, actually it should be of immense concern.
* it is important to note the Russel 2000 and S&P 500 have a large Financial Component.
Can NQ BANK perform a reversal, it can, this is not a recommendation to Short Financials. It is a
very clear warning sign - we are quickly approaching another Lehman Event.
I have posted my strategy for profiting from this Event earlier today.