SPX | Did you win?
Updated
Ah the beauty of Fibonacci... when after a painful recession for equities, we reach the golden ratio alive and well. The satisfaction!!!
Now we can go all-in equities! Perhaps you are one of the lucky ones who bought the October bottom, then congrats to you!
How much was your profit really? After all, this was a peculiar year... Yields massively increasing, equities dropping. It is like a dead end, it feels like a maze...
The main chart does show a significant recession... But we have passed it!
Some charts suggest that we had no recession this year...
Other charts suggest the complete opposite!
Note that these are my charts. I was the contradictory being...
Look at what the last chart means:
LQD is the investment-grade ETF. On the second chart it is compared with SPX/(modified-yields) and on the third with SPX/(modified-yields*PPIACO). The correlation is as good as it can get...
This is a mess... what can we infer from all of these charts?
Something fundamental can help us clear the picture. We can differentiate between 4 distinct periods of the economic cycle.
A. Equities increase while yields decrease (bonds increase)
This is the QE model, which followed us for many years. During this period, the only winner is the one who had only stocks in the beginning. Investing everything in the stock market is your best bet.
B. Equities increase while yields increase
This is the scenario when the economy is at it's best. During this period, everyone wins. Both the one who has stocks and the one who is selling/lending cash (sitting on cash) win. Any kind of investment is good in this period!
C. Equities decrease while yields decrease
This is the nightmare of the wealthy ones, and this period that rarely comes. It happened during the 1929, the 2000 and the 2008 recessions. During this period, you win if you have nothing invested, and without any money. Borrowing money to buy stocks is the best plan.
D. Equities decrease while yields increase
Sound familiar? This is 2022 in a nutshell. During this period, I hate to disappoint you, the only one who wins is the one who has a lot of money. Sitting on cash and lending it is your only option. The immense amount of money that the US printed, is now sitting in the hands of few. If you traded for profit, then you are probably at (or near) net-zero.
In 2022, you won if you sat in cash. We have gone full circle, from advising into sitting in cash, to advising into selling, to buying, and back to the beginning. Finance is complex...
To conclude, my head is spinning... I have no idea what all of this will lead to. It is as if we are in a lose-lose scenario.
Invest in bonds? But is the US going to be able to pay them out, after decades of free money? And with so much money in circulation, how many bonds are being purchased at these "extortionate" rates? How in the world will the US be able to pay out so much? Invest in equities? They look like they will face years of stagnation.
The only thing that smells lately is the smell of war, the smell of "I have nothing to lose". The only thing to gain now is resources.
Commodities are bull flagging against everything. More specifically, the combination between the cost of commodities and the cost of their production added together. This makes me believe that a small increase in production cost will lead to multiplicative increase in the final product value. This is a recipe for hyperinflation. And the big profit is if you own the land the resources are produced. (Ukraine for wheat, Taiwan for silicone, etc...). Everyone is willing to fight for these lands...
I am adding this chart for the picture on the left. The CEO of Bank Of America is preparing for US bankruptcy.
Tread lightly, for this is hallowed ground.
-Father Grigori
Now we can go all-in equities! Perhaps you are one of the lucky ones who bought the October bottom, then congrats to you!
How much was your profit really? After all, this was a peculiar year... Yields massively increasing, equities dropping. It is like a dead end, it feels like a maze...
The main chart does show a significant recession... But we have passed it!
Some charts suggest that we had no recession this year...
Other charts suggest the complete opposite!
Note that these are my charts. I was the contradictory being...
Look at what the last chart means:
LQD is the investment-grade ETF. On the second chart it is compared with SPX/(modified-yields) and on the third with SPX/(modified-yields*PPIACO). The correlation is as good as it can get...
This is a mess... what can we infer from all of these charts?
Something fundamental can help us clear the picture. We can differentiate between 4 distinct periods of the economic cycle.
A. Equities increase while yields decrease (bonds increase)
This is the QE model, which followed us for many years. During this period, the only winner is the one who had only stocks in the beginning. Investing everything in the stock market is your best bet.
B. Equities increase while yields increase
This is the scenario when the economy is at it's best. During this period, everyone wins. Both the one who has stocks and the one who is selling/lending cash (sitting on cash) win. Any kind of investment is good in this period!
C. Equities decrease while yields decrease
This is the nightmare of the wealthy ones, and this period that rarely comes. It happened during the 1929, the 2000 and the 2008 recessions. During this period, you win if you have nothing invested, and without any money. Borrowing money to buy stocks is the best plan.
D. Equities decrease while yields increase
Sound familiar? This is 2022 in a nutshell. During this period, I hate to disappoint you, the only one who wins is the one who has a lot of money. Sitting on cash and lending it is your only option. The immense amount of money that the US printed, is now sitting in the hands of few. If you traded for profit, then you are probably at (or near) net-zero.
In 2022, you won if you sat in cash. We have gone full circle, from advising into sitting in cash, to advising into selling, to buying, and back to the beginning. Finance is complex...
To conclude, my head is spinning... I have no idea what all of this will lead to. It is as if we are in a lose-lose scenario.
Invest in bonds? But is the US going to be able to pay them out, after decades of free money? And with so much money in circulation, how many bonds are being purchased at these "extortionate" rates? How in the world will the US be able to pay out so much? Invest in equities? They look like they will face years of stagnation.
The only thing that smells lately is the smell of war, the smell of "I have nothing to lose". The only thing to gain now is resources.
Commodities are bull flagging against everything. More specifically, the combination between the cost of commodities and the cost of their production added together. This makes me believe that a small increase in production cost will lead to multiplicative increase in the final product value. This is a recipe for hyperinflation. And the big profit is if you own the land the resources are produced. (Ukraine for wheat, Taiwan for silicone, etc...). Everyone is willing to fight for these lands...
I am adding this chart for the picture on the left. The CEO of Bank Of America is preparing for US bankruptcy.
Tread lightly, for this is hallowed ground.
-Father Grigori
Note
The word "recession" is misleading. There are no periods of recession, there are cycles of the economy. Money is shifting hands from money to equities and back. You win if you are in the right place, at the right time, with the required provisions (money) and you handle them in the right way (sitting on them, buying more, investing etc).In short, capitalism, money brings money. Or in other words, Hubris, when money makes money.
Note
Yield inversion periods help create the following loop:In an instant, you can borrow short-term and lend long-term. You can essentially get free money.
And what would you do with that free money? Buy stocks of course!
This free money is what pushes the SPX vs Yield Curve to new highs, just before the real recession.
Note
We may be witnessing the very last weeks of this fun equity bubble. Ahead of us there may be an abrupt liquidity crisis, or the beginning of a long recession.The past of this retracement is deadly. We must think twice before trusting it.
Note
I am not affiliated with endtimeheadlines. It is your duty to research and validate such news reports. Don't trust me, be the judge for yourself.
Note
Beware of the traps!Note
Could it be that, maybe, just maybe that the inflation chart can be analyzed like everything else?Note
Sometimes you have to drop more, to climb further.Note
The Recession mentality never changes...After both instances, more downside followed...
Guess the move!!
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