Another week of retail mob fomo buying the stock market up together with corporate buybacks at full force. Friday option expiration put a dent at the end but no serious damage was done. On one hand we have huge geopolitical risk and at the brink of global economic collapse. On the other hand we have “investors” telling the world that the US Federal Reserve will “pivot” and restart QE any moment now.
Here is my secret formula to know the exact timing of Fed’s actions. It is not what freaking models they use or what economic data they are looking at. In aggregate, it is always the stock market level that determines the start and the end of their rate hike and rate cut moves. If you don’t believe me, go back to the chart of the S&P500 and map that to their actions. When they say they are looking for 3-4% economic growth, it is not about the CPI or the PPI. Everything they look at actually come down to the long term expected return of the stock market.
As a greatly simplified example, at the end of year 2019, S&P500 closed at 3400. Assuming Fed thinks that was a reasonable level for S&P500 to close at at the time, the expected normal target for end of year 2021 at 6% compound (double that 3% “acceptable” growth) is 3820. And then for the end of year 2022 is 4050. As long as S&P500 is trading above 4050 this year the Fed will continue to raise interest rate.
And if the Fed is thinking of engineering a recession, they don’t care about the economic data either. It is the stock market level having a “true” negative return for two quarters. First quarter of 2022 does not count because it closed above the target they are looking for. Second quarter did it with a figure slightly below the target for the quarter. If by the end of the third quarter, S&P500 is willing to stay below 4000, then the Fed may consider taking a pause before more rate hikes because a “recession” has been engineered.
As long as the “animal spirit” among the “investors” are high, and money is pouring into the various gambling dens, S&P500 will stay above the Fed’s targets and Fed will have no choice but to continue to teach them a lesson …
Very important video with Peter Zeihan for everyone to watch here. I talked about this issue of population composition for years in my monthly newsletters for premium members. I also wrote about the breakdown of the global logistics in the survival article. This is a great summary of how fucked up the world is currently. Yep, we are doomed.
One thing I don’t agree with Peter Zeihan is that China does not need Taiwan. So if China is going to attack, the goal is to destroy the West by destroying an important part of their tech industry. What it means is flatten Taiwan to ashes will be the “go to” strategy. Once there is not even one living person exists in Taiwan, other countries can’t claim that they are going to support Taiwan because there is no one to support.
In the video, the movie Margin Call was mentioned. If you have never watched that, do it. It can help you understand what to expect in coming months.
A reader sent me this link to a video about the Inflation Reduction Act. Even though I am not a devoted Christian, I like the fact that he called this spin done by the US politicians as it is. Let’s go Brandon!
Here is a rare video with Jeffery Sherman talking about his thoughts outside of DoubleLine’s own videos. Great educational materials for everyone to prepare for the coming extremely difficult economic environment. If you don’t want to watch the whole thing, my take from the video is that we probably haven’t seen shit hit the fan yet.
Back to working on my projects.
Have a great weekend all!