Negative Sentiment Rising
Bankruptcies, the TLT etf, FRB balance sheet and more
We know that the equities have turned and that the seasonals are reinforcing the weakness, but what’s really catching our eye is the social media platforms especially X. We have noticed a lot of bulls on there complaining about the last few weeks, as if they are zealot like in their belief that markets can never fall. It is amazing the complacency but this is what happens when you have highly manipulated markets and a whole generation of new algo fast paced traders conditioned to sell puts, buy out rights and call it a day. Well this type of market, the one we are currently in, will not be an easy one to navigate for those knife catchers, those willing to double and triple down on losing positions. It is in this very mentality that finally leads to a massive sell off and we will get that at some point.
Yes there will be times where we get bounces and oversold readings will give some relief here and there, but overall as we have pointed out time and time again now, both the fundamental and technical backdrops are pointing to the bear case hard landing scenario.
This next chart scares us a bit from WhaleWire :
If that chart doesn’t scare you then this one should do the trick:
The pace of the rate hikes, the level of the rate combined with the massive amount of low cost debt that will be refinanced over the next year and a half will destroy a lot of balance sheets, will destroy massive amounts of leverage and we suspect the Federal Reserve Assets to fall under $8 Trillion for the first time this week since June 9th 2021:
This is a stagflation nightmare and the two tiered society that dominates monetary flows is granted some immunity because of the massive wealth that the baby boomers enjoy coupled with a decade of ZIRP and QE that has allowed a massive asset price cushion and very low mortgage rates. However the flipside to this mirage of wealth is a debt pile so large that the interest payments themselves are enough to sterilize future growth prospects and put into question the viability of the US dollar reserve status at some point and all fiat central banking for that matter. As many readers know we believe the future of finance will be a decentralized based digital one whether the controlling governments like it or not.
Alright we have big data tomorrow and Friday so we don’t expect many fireworks today. We could see some consolidation and paring of positions of the recent selloffs in bonds and equities before tomorrows number and we also have a new 5 Year auction today after yesterday’s 2Y note, the US Treasury will continue this week issuing $312Bn worth of supply.
As far as yesterday’s settlements The Nasdaq was the biggest loser and November Crude punched over $90 a barrel:
As far as our Futures GFBP sentiment tracker no changes however one more day down for these FX positions and they will be pared down one by one:
As far as the MEGA8s, the options hedge once again proves its worth with Amazon sinking due to a little dare I say “antitrust” problem!
Finally I wanted to touch upon a chart Tavi Costa of Crescat put out last night, it is quite a head scratcher, either something is way mispriced with this ETF or something else is going on because it doesn’t make much sense. The TLT bond ETF is down 48% and the capital continues to pour into this thing, and this chart captures this divergence:
What is strange to me is this is supposed to be a long duration bond fund 20+ years yet its down 48%? I don’t get it, I can buy this TLT at 89.09 let’s just say I buy 1122 shares at 89.09 it costs me $100k. I can sell 1 CME Group bond future against this position as a full delta hedge and it seems this is what the TLT follows. My question is why bother with this TLT if you can go onto treasury direct and just bid on a US treasury bond? Then my next question is what happens to this TLT price if the massive amounts of influx of capital decide to abandon this position? Something just doesn’t look right here and playing this ETF vs buying actual bonds doesn’t make much sense to me.
Ok that’s it for now! Good luck today, and keep things positive in all aspects of life, we practice the Wim Hof breathing method as part of our relaxation meditation practice and it does provide a nice break to our crazy world we live in, if you don’t know who he is or what he is about, just search it up and see if it makes sense in your life. We truly believe that the material world is just one aspect of our larger understanding of life and that its up to each one of us to find out more, to discover to explore, to open our eyes to a greater overall understanding. This is why we write this letter, this is why we spend the time sharing our thoughts, in hopes that we inspire you to do the same, to seek that which you wish to find and hopefully discover a whole new meaning of life.