SPX | Let The Roaring '20s Begin!
Updated
As the famous billionaire said in December 2021 (elon), the "prophet" who is apparently loved and trusted by everyone. I don't know why...
Disclaimer, SPX by itself will probably not follow this path, things are quite complex as you will soon find out.
First of all, Recession is not something simple. Everyone talks about it, but it is not always meaningful.
This year, equities weren't in a recession. While on the one hand the prices dropped, the denominator (dollar value) increased.
The 2022 "Recession" is not apparent, we have just hit the mean. Note that the channel is automatically drawn from 1950 using the Log-scaled Linear Regression indicator.
Taking note of the above, we can interpret that instead of SPX following the 1920's bubble, the pair SPX*yields will.
These charts above give us a valuable lesson. Until now, a .50 increase in yields had little effect on the direct equity value.
A monthly rate hike of 100 points had little meaning in the 80s. A change from 15% to 16% on yields for example, is just a 6% increase in the immediate price of money.
A change from 0.25% to 4.50% in 2022, is an 18x increase.
This means that the immediate effects of such an increase are dramatical. The 2022 "recession" occured just because price was so rapidly revalued. The change in dollar value is "effective immediately", when a rate-hike comes. Everything measured in dollars is immediately repriced accordingly. Even if price may take time to show it, cost does change.
The USOIL true price changed immediately. US investors enjoy a massive discount in oil price, while the rest of the world "enjoys" a bull-flag.
But this phenomenon will not last forever. Rates will eventually hit a ceiling and the FED will pivot. I will now try to "estimate" when the tightening schedule might end.
Had the 2020 crash not happened, this would be an average rate-hike schedule. It lasts 7 years.
This puts the end of the tightening schedule to the end of 2023.
So to add these together, we expect a QT environment until the end of 2023, and stable decrease of yield rates starting in 2024. Now I will try to make sense of them all, and try to find a probable behavior of SPX based on the yield hike-drop schedule. For simplicity, I pretend that the terminal rate is already here (or priced in). After all, the US10Y chart shows signs of peaking. We can conclude that even if this is not the terminal rate today, and based on the FED announcements, the market has already priced in the full extent of the tightening schedule.
I will return to the modified USOIL chart. We have seen that in reality, the price for oil (the main contributor to inflation) dropped a lot thanks to the tightening schedule. The USOIL/yields chart is like a time machine. It shows the final price equities/commodities will take when the dollar-repricing (rate hike) circles around the economy. We can conclude that the rate hike schedule was successful and will cool down inflation (inside the US)
With all of the above, it is safe to assume that:
By multiplying or dividing with yields, we can make conclusions for the reason why we were not in a recession this year. Since equities and yields are multiplied to calculate the true equity value, we don't have a clear indication on why the true value is increasing. Charting SPX/yields can help us understand "thanks to who is the true SPX chart increasing".
By analyzing them, we can get more indications on the future movement of SPX.
We assumed that yields have nearly peaked. They will remain constant or increase a little for the months to come.
Equities have no reason to continue a sell-off now that yields have almost peaked and the worst of inflation has passed. So we expect equities to increase compared to steady yields in the following months.
Taking all of that in account, we can end up with the following charts:
A probable scenario:
An improbable scenario:
More about the trends in the following idea:
Moral of the story, always have a plan B. Make sure not to waste it creating a bubble.
When inflation drops and equities bubble, there will be no reason for rates to increase. Just like in the 2018-2020 Recession, we will beg for the FED to drop rates to feed the bubble. When there is no more room for yields to drop, equities will. The equity market is infested with weapons of mass destruction (derivatives). It is bound that we see a burst of this long-term bubble.
Final question of the night: Why would anyone print an astronomical amount of money to make so little in the end?
Tread lightly, for this is hallowed ground.
-Father Grigori
PS. I've talked about how the 2018-2020 Recession no-one remembers is a micrography of the 2008-2009 Recession.
For reference, look at the rate-hike schedule, and notice the little "step" that appears in the end of the 2008 rate-drop schedule. The same appeared in the 2020 crash.
On the left, the modified-GFC is visually similar to the standard GFC chart (with and without yields transformation). On the right, the bubble SPX experienced in 2018-2020 now looks like an actual recession.
PS2. This crazy idea I posted may not be so crazy after all...
PS3. In 2025, Nostradamus (another pseudo-prophet) told that WW3 would come. The same I heard from many others.
endtimeheadlines.org/2023/01/rumors-of-war-air-force-general-predicts-america-will-be-at-war-with-china-by-2025/
PS4. The two sources of wealth are theft and inheritance. -Aristotle Onassis
PS5. I am not a trader, I am a father. Take what I say with a grain of salt.
Disclaimer, SPX by itself will probably not follow this path, things are quite complex as you will soon find out.
First of all, Recession is not something simple. Everyone talks about it, but it is not always meaningful.
This year, equities weren't in a recession. While on the one hand the prices dropped, the denominator (dollar value) increased.
The 2022 "Recession" is not apparent, we have just hit the mean. Note that the channel is automatically drawn from 1950 using the Log-scaled Linear Regression indicator.
Taking note of the above, we can interpret that instead of SPX following the 1920's bubble, the pair SPX*yields will.
These charts above give us a valuable lesson. Until now, a .50 increase in yields had little effect on the direct equity value.
A monthly rate hike of 100 points had little meaning in the 80s. A change from 15% to 16% on yields for example, is just a 6% increase in the immediate price of money.
A change from 0.25% to 4.50% in 2022, is an 18x increase.
This means that the immediate effects of such an increase are dramatical. The 2022 "recession" occured just because price was so rapidly revalued. The change in dollar value is "effective immediately", when a rate-hike comes. Everything measured in dollars is immediately repriced accordingly. Even if price may take time to show it, cost does change.
The USOIL true price changed immediately. US investors enjoy a massive discount in oil price, while the rest of the world "enjoys" a bull-flag.
But this phenomenon will not last forever. Rates will eventually hit a ceiling and the FED will pivot. I will now try to "estimate" when the tightening schedule might end.
Had the 2020 crash not happened, this would be an average rate-hike schedule. It lasts 7 years.
This puts the end of the tightening schedule to the end of 2023.
So to add these together, we expect a QT environment until the end of 2023, and stable decrease of yield rates starting in 2024. Now I will try to make sense of them all, and try to find a probable behavior of SPX based on the yield hike-drop schedule. For simplicity, I pretend that the terminal rate is already here (or priced in). After all, the US10Y chart shows signs of peaking. We can conclude that even if this is not the terminal rate today, and based on the FED announcements, the market has already priced in the full extent of the tightening schedule.
I will return to the modified USOIL chart. We have seen that in reality, the price for oil (the main contributor to inflation) dropped a lot thanks to the tightening schedule. The USOIL/yields chart is like a time machine. It shows the final price equities/commodities will take when the dollar-repricing (rate hike) circles around the economy. We can conclude that the rate hike schedule was successful and will cool down inflation (inside the US)
With all of the above, it is safe to assume that:
- Inflation has peaked (for now?).
- The rate-hike schedule / QT environment will persist until the end of 2023.
- From 2024 we can expect rates to drop.
By multiplying or dividing with yields, we can make conclusions for the reason why we were not in a recession this year. Since equities and yields are multiplied to calculate the true equity value, we don't have a clear indication on why the true value is increasing. Charting SPX/yields can help us understand "thanks to who is the true SPX chart increasing".
By analyzing them, we can get more indications on the future movement of SPX.
We assumed that yields have nearly peaked. They will remain constant or increase a little for the months to come.
Equities have no reason to continue a sell-off now that yields have almost peaked and the worst of inflation has passed. So we expect equities to increase compared to steady yields in the following months.
Taking all of that in account, we can end up with the following charts:
A probable scenario:
An improbable scenario:
More about the trends in the following idea:
Moral of the story, always have a plan B. Make sure not to waste it creating a bubble.
When inflation drops and equities bubble, there will be no reason for rates to increase. Just like in the 2018-2020 Recession, we will beg for the FED to drop rates to feed the bubble. When there is no more room for yields to drop, equities will. The equity market is infested with weapons of mass destruction (derivatives). It is bound that we see a burst of this long-term bubble.
Final question of the night: Why would anyone print an astronomical amount of money to make so little in the end?
Tread lightly, for this is hallowed ground.
-Father Grigori
PS. I've talked about how the 2018-2020 Recession no-one remembers is a micrography of the 2008-2009 Recession.
For reference, look at the rate-hike schedule, and notice the little "step" that appears in the end of the 2008 rate-drop schedule. The same appeared in the 2020 crash.
On the left, the modified-GFC is visually similar to the standard GFC chart (with and without yields transformation). On the right, the bubble SPX experienced in 2018-2020 now looks like an actual recession.
PS2. This crazy idea I posted may not be so crazy after all...
PS3. In 2025, Nostradamus (another pseudo-prophet) told that WW3 would come. The same I heard from many others.
endtimeheadlines.org/2023/01/rumors-of-war-air-force-general-predicts-america-will-be-at-war-with-china-by-2025/
PS4. The two sources of wealth are theft and inheritance. -Aristotle Onassis
PS5. I am not a trader, I am a father. Take what I say with a grain of salt.
Note
While a bull-flag in commodities is forming, there is much room for an equity bubble to form before the big boom.The middle of the automatically drawn channel proves a significant point of support/resistance.
Note
Funny thing is that when The Great Bubble bursts, banks will not be able to fix anything by reducing yields, they will already be at virtually zero. Money printing will be out of the question, with commodity production cost bull-flagging compared to money supply itself.Alarmingly, they bull-flag compared to dollar cost (yields) as well. Each increase in yields will push commodities even further. Things are spiraling out of control now.
Note
Oops I forgot this!Note
There is much time for a bubble to form.Do note that recessions happen 2+ years after yield inversions, not at the time of inversion.
I just noticed at what I drew...
Note
One final note regarding oil (in this chart I used Heating Oil HO2!)Note
Let the Roaring '20s begin?Note
Surprise party?Note
SPX be like: Hold my beer.
Note
Maybe Elon was right after all...Note
After all, a flag is a flag...The markets show us. We can see only if we let our minds see.
Disclaimer
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