13 week T-bill rates are set in a freely traded market. They have now risen 93 basis points since the Fed last “raised” interest rates. Of course the Fed has never raised rates. It has merely tried, and failed, to keep up with the actual market. It has been persistently behind the market, and it is falling further behind.
Now admittedly, it’s only 2:30 in the morning in New York, so maybe this will be back down to a 75 BP increase by the time trading gets going in New York. But I doubt it. Just look at this chart. Do you see a trend? Do you see any point where the Fed actually raised rates, rather than merely rubber stamping what has already occurred in the market?
The bond market is just as horrifying. I first posted the true Hindenburg omen chart about a year ago.
These warnings were not new even then. What has transpired in the past year was entirely predictable 2 years ago. I know because I started warning that this was coming in August 2020 right after the top in bond prices/ low in yields. We already knew that the supply-demand conditions had worsened as soon as the Fed cut back on pandemic emergency QE. in June-July 2020.
The Fed subsequently announced that it would begin tapering QE, and then, finally, it began to actually disgorge Treasuries and MBS from its holdings back into the market as of last March. At that point it was clear that this trend would only get worse.
During the 12 years of QE the Fed directly absorbed or funded 85-90% of Treasury issuance. The Fed’s persistent, enormous buying kept bond prices on a “permanently” high plateau (credit Irving Fischer) and bond yields suppressed at an artificial insanely low level.
That gave bankers, speculators, and homebuyers a massive subsidy. It stimulated massive asset price inflation. And it massively distorted the financial markets and the public’s perception of them. Asset prices would go up forever.
Consumer price inflation finally called their 12 year long bluff. They did so because Congress and other legislative bodies around the world finally voted for helicopter money to the masses, instead of just showering free central bank money on bankers and speculators.
That surge in the inflation of consumption goods and services finally forced the Fed to end QE and to call in its chips. Punchbowl pulled after 12 years. Party over.
The Fed would not only stop buying or funding most Treasury issuance, it would actually add to supply. And it would simultaneously pull money out of the banking system and extinguish it, money that had been available to purchase Treasuries. The outcome was foreordained. Because Rule Number One, the First Commandment, has not been repealed. It is immutable. Thou shalt not fight the Fed.
As a result of this market collapse that the Fed and Treasury policy makers had to know was coming, the US Treasury is now panickin. Look at that, they panickin. They’ve announced that they’re looking into doing Treasury buybacks. When they talk about something, it’s as good as done. It will definitely impact the market. The questions are how much and how long. I have an in depth report coming up on this subject, and a strategy to deal with it, later today in Liquidity Trader.
As for what we usually talk about every day here at the Stool, the daily intraday squiggles of the US stock market, that bastion of free and unfettered market capitalism, read on.
The ES 24 hour S&P futures hourly chart broke down out of a wedgie pattern yesterday and has now established a minimal downtrend. The market only needs to be above 3685 in the opening half hour of regular New York trading to break out of that.
On the other hand, an hourly close below 3666 would reconfirm that incipient downtrend. It would suggest that the measured move implication of the breakdown of that little top pattern that preceded this move was doable. That target is 3630. A little bit of weakness here would also result in a 5 day cycle projection of 3580.
That’s all for now. I’m on a train to Barcelona, where I will be until Monday, then on to Toulouse before returning home to Nice.
A plus tard!
- Swing Trade Screens – Overloaded on the Short Side October 17, 2022
- On the Edge of the Abyss, Can the Market Fly? October 17, 2022
- We Now Know When and Where Gold Will Bottom October 14, 2022
- We Can Now Project When Fed Will Pause, But Not Reverse October 13, 2022
- Look Out For the Real Fallout of Declining Withholding Tax Collections – Part 2 October 6, 2022
- Look Out For the Real Fallout of Declining Withholding Tax Collections October 5, 2022
- Markets Face Catastrophe as Dealers Mitigate Too Little Too Late September 26, 2022
- Fed Speeds Into Dead Man’s Curve, More Black Tuesdays Ahead September 15, 2022
- There Will Be More Black Tuesdays September 14, 2022
If you’re serious about the underlying forces of supply and demand that drive the markets, join me!
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