SEAKING1 READ14 Jan 2022 04:16
On March/April 2020 we hit irrational market conditions due to the abrupt halt in the economy. We can blame the pandemic as the trigger, however there were indicators that were already flashing a slow down in the economy. Then "Magically" the so called "V Recovery". Sharp , strong, "back to normal", unemployment spiked to unprecedented levels and went back to a fast recovery.
A while ago I published an article about the disconnection between the economy and the stock market. Several articles pointed out the inflation issue, at the time it looked like something that was neglected and even ignored. The Fed called it a "transitory" inflation . The Fed is responsible for watching over inflation and employment. This Fed has disregarded the inflation issue.
Magic doesn't simply occur. After the economy stalled due to the virus lock down, the oil tumbled, the stock market wiped off the gains and took it back to 2016 levels, the unemployment spiked, and there were two emergency calls, one to put interest rates to Zero, and the second to increase the debt ceiling to unprecedented levels. We have two main factors to eye, the near Zero interest rates, plus the M1 metric (Money supply) spiking like never before. This means TONS and TONS of bill notes were freshly printed and put out in the market. It is not new to know that the ships at the California ports and the supply chain disruption contributed to inflationary pressures, but they were not the root reason for the 7% inflation we're seeing now, those were more the excuses to divert the attention from the root problem, we have an excessive amount of free money in the market, a Pin~ata was broken and everybody have cheap mortgages, cheap credit, cheap margin, cheap everything. Supply/Demand in action, a lot of easy money plus a lot of buyers => increase of prices.
A lot of bills in the market dilute their value, so now we need more bills to buy the same stuff this equals to inflation , and after these levels shown in the M1 + Interest rates charts, it means a lot of it. Now the FED has changed the tone and it doesn't call it "transitory". They say they will increase the interest rates in 2022, but so far the things are just exactly the same, nothing has changed. The market doesn't understand intentions, it understands numbers.
SPX : The index has made fresh all time highs and it's in an uptrend, weakening momentum, but I wouldn't be too worried about it. The market needs a correction to buy cheaper, so this is normal to be expected at some point. As long as things are kept the same I would expect to see the 21st century version of the "Roaring 20's"
US30Y : It made a rally from July 2020 to April 2021, then it started to make LL-LH. Something that has to be paid attention to.
VIX : The fear indicator is around 17, which signals a bull market. A couple of spikes which showed up during the weeks when the market was testing the trend and the market continued to "buy the dip".
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