As stated in a previous post, international capital will flee from the bond crisis and war into equities. This was the biggest gain historically for a November in the stock markets. All while Rates going up… and bonds continue to crash.
Understanding The Bond Crisis
Fed has kept rates low for so long at 0.25%… then rising them to 3.75% to 4.25% in November caused the worse bond crash in history. This also took out Pensions and Institutions managing money as they are REQUIRED to invest in bonds in their portfolio.
What the fed (Janet Yellen) is doing is the following:
- Lockdown – Gov gives money to people (Increase Debt)
- War in Ukraine – Gov gives money to Ukraine (Increase Debt Faster)
- Govt Uses Banks to Sell Bonds (Banks Primary Dealers)
- Banks – Cannot Sell Debt Fast Enough (No Buyers, No Bid)
- Fed Steps In – Janey Yellen Does Debt Swap
- No One Wants Long Term Bonds (To Risky)
- Janey Yellen Does Swap (Long Term for Short Term Debt)
- Fed is Buying Long Term Debt — Selling Short Term Debt
- Creates Large Volatility in Interest Rates & Debt Markets
- This Causes Liquidity Issues — BIG MOVES (Hard to Trade)
SUMMARY OF BOND CRISIS:
The Government is increasing its debt so fast the primary dealers cannot sell it fast enough. So the fed steps in to buy long term debt and swaps it for short term debt to sell for the banks. This all causes a liquidity crisis!
Understanding Interest Rates
Keep in mind… rising rates up means people will still wish to borrow as they still see they can make money on the loan. When rates rise… historically the markets are bullish. While their twist and turns, rising interest will keep markets strong and bonds weak. This will capital to flow into equities.
Inflation Due To Shortages – Not Demand
While the Fed continues to raise Interest Rates to solve inflation. They are misunderstanding the core reason of inflation during this cycle. It is due to shortages… not demand. By having lockdowns in 2020 and preventing people to work without vaccines or to continue paying for not working… There is a huge labor shortage, material shortage, etc. This shortage CANNOT be fixed by rising interest rates.
What’s Next — A Summary
EQUITIES REACHING RESISTANCE
Taking a look at equities… we had the biggest historical bounce for a November since 1974 (November) from Bond Crisis. This is capital fleeing from public (govt) to private (equities)
Keep in mind, long term Equities will be bullish, but we are still eyeing on January 2023 Turning Point for many markets. This could be a correction occurring here to take a breather in indexes while Dollar begins to rally sometime after December.
Taking 1/4 profits here and waiting for another correction into January.
EQUITIES – SPY, UPRO, DIA, UDOW, (Waiting for Another Correction, Jan Q1 2023 Looks Good)
US DOLLAR LONG TILL 2028
While you will see a correction in the dollar, remember the Bond Crisis and Intl War. Capital will flee to equities and the US Dollar at the SAME TIME! This will be the flight from public to private.
December usually weak in Dollar, but 103 area (blue line) is Yearly Bull (what if). This can send dollar rising next year into 2028 — where we end the US Dollar.
COMMODITIES BULLISH
During Public to Private wave, tangible goods(things you can hold) do best. Equities, Properties, Commodities, Silver (wait till Jan), Gold (wait till Q1 2023).
With the War in Ukraine likely to get hotter in April 6, 2023. This will spike Wheat, Corn, and other commodities causing larger food shortages than what we know of today.
Things of Interest To Me:
- Natural Gas (UNG)
- WHEAT FUTURES — Testing Year Bull 800. (WEAT is ETF)
- CORN (CORN)
- SILVER – SLV (Q1 2023 January Is Point In Time To Watch)
- GOLD – GLD (Q1 2023 January is Point of Interest
- OIL (USO),
SUMMARY IN A NUT SHELL:
- Bond Crisis will send money into Equities
- Debt market will have Liquidity Crisis (Causing Havoc Elsewhere – Big Moves Down/Up)
- US Dollar Strong into 2028 — Then New Currency (Maybe Regional Currencies)
- Commodities Strong (Due to Shortages, Not Demand)
- Civil Unrest Globally
Time is MORE Important Then Price… While newsletters/news give you estimations to scare you… you need to understand the cycles of time then use price to match it. IGNORE THE NEWS!!! Long term investors play it different and caution should be primary concern — only adding when timing lines up for long yearly trends. There will always be buying opportunities, but right now is a higher risk location to add for the longs. Lets see how the rubber band bounces and contracts.