Stocks/Macro - SPX Blowoff Top of the Debt BubbleIdea for Stocks:
- I think we will decline to Q2 2022 at the least.
- IMO, Market participants have completely misjudged inflation expectations and currency devaluation and mispositioned. Market seems largely positioned for goldilocks/reflation, inflation and growth, but nothing could be further from the truth. Inflation fears will not be talked about in 2022.
- Therefore, the next reflexive move will be volatile. We are likely to have a significant drawdown by EOY.
Systemic Liquidity:
- Credit contraction has already begun. Monetary tightening began long ago, and QE tapering (which is undeniable tightening) is about to begin. It is credit inflation which drives both risk asset prices and inflation, while systemic liquidity flows are the transmission mechanism. These things are declining and have been for a while.
- TGA Balance is now at pre-covid levels (inverse of TGA is correlated with equities, as this is a source of liquidity of the Fed), as well as RRP over $1T, to mop up liquidity (no credit is created based on that).
- China's Credit Impulse peaked in Q3 2020, making a double top (surprise surprise), and turned negative in Q2 2021. CCI takes about 4Q for negative impact of outflows to impact the market + economy.
- Which lead to a quarter later, C5 Central Banks' balance sheet flows (growth rate) peaking. These liquidity outflows have a 3Q delay in affecting Core PCE (inflation) + equities.
- CCI + C5 Central Bank Balance Sheets liquidity flows (2nd derivative):
- QE Taper is expected to end by mid 2022, and interest rates are expected to be raise then, which coincides with Q4 delay of CCI turning negative. Interesting how everything is timed together, perhaps Fed want to appear in control, when this was pre-ordained more than 4Q ago.
Macro Drivers:
- FB misses revenue. Snap drops 30% after earnings. Growth to decline and tech misses to be a trend.
- FOMC and NFP upcoming, taper likely to be announced for November or December.
- Market is also continues to pull forward the pricing in of rate hikes, starting in 2022.
- Many, if not all market components are at their 100D 2 Std Deviations:
- Small Caps, have not broken out but rather likely to test the lows next:
- Oil will likely pullback, and experience a glut in 2022:
- Copper, early double top, and likely to lead down:
- Gold, Wyckoff Distribution. Sorry, but there will be no hyperinflation and USD will not devalue for the time being:
- Crypto, the futures ETFs likely marked the top. Negative roll yield will kill the price for a few years:
- Credit, never really confirmed any high but remained at lows:
- Yields, real rates will do a headfake and reverse, while sentiment seems to be that treasuries will collapse. On the contrary, I think treasuries will likely be the best performing asset class for the next few years:
A good top signal is when DXY, VIX, front month VX has positive correlation with equities, which is happening now.
- DXY refuses to decline and found a base for the next leg up:
- VIX + MOVE. Volume stopper on 100D -2 Std Dev, high degree of spread with front months and with UST vol. We're waiting on the yields reversal and bond options traders have already predicted it. Transmission mechanism to equities UST -> MOVE -> VIX -> ES. Likely to recapture this support and re-test the highs. We will soon get to the promised land of VIX compression unwind:
Market Pulse:
- Pension fund allocations are largely over, as well as tech earnings to end this week + the stock buybacks. Real earnings yield is negative.
- Bearish seasonality of Oil, which largely has been driving the market.
- In this last stage, the gamma squeezes in TSLA seems to be driving up the markets, but obviously this isn't to last.
GLHF
- DPT
