Liquidity Deflation

CLUB/EDGE client post Saturday, September 7th, 2024. Focus on My World View, and how #HFL & #SoftLanding mantras will be too late - as assets deflate.

» CLUB/EDGE client post SEPTEMBER 7th, 7:49 AM ET.

Sad Start To September!

Nasdaq 100 plunged 5.9% in worst week since Nov 2022 while the S&P 500 dropped 4.3% in worst week since March 2023.

I did a whole pre-market rant in my live trading room Friday for clients to be careful. Please have another read of my Friday morning market thoughts, and have a listen to my live trading room recording to hear more on my 'trader's gut' read on risk big picture.

So after my warnings, I gave several short price targets for indices + stocks live in my trading room.

From trend reversals in the making (semis, FANG) to ones just starting to roll-over (banks, insurance). Even a Friday Lotto!

Ex: QQQ opened at 460 + I gave 450P with these exact levels I fully expected to hit for the day: 454.37, then 450.45, 499.34 with overshoot to ... (wait for it) $447.30. I even said how I expected the $450 level to trigger profit taking - for puts to get monetized - but then to watch as we head lower into...447.30 as overshoot PT by end of day.

We closed at $448.69 but continued lower into 446 afterhours!!

Bulls better hope we gap down on Monday & dip gets bought!

My World View

I was on the other side of #Higher-For-Longer since early May & I am on the other side of #SoftLanding since early July.

I have expressed this sentiment repeatedly since June that:

"I expect a bear market into H2 2024 & 2025 caused by falling global credit demand, larger-than-expected rate cuts, a slowing U.S. economy with higher unemployment, not to mention lower oil prices and crashing lower yields.

I think election risk is underpriced and $NVDA, #Bitcoin and #AI are grossly overvalued."

My repeated mantra is that we have begun a #GlobalLeverageUnwind.

This above/new view is VERY different from my strongly-held bearish stance from since August 2020 when I said "Bonds are done going up."

Ironically, it took awhile, but now everyone is a bond bear and inflationista!
Exactly when I flipped 180 degrees this past Spring!!

Honestly, find me a macro head who is not in the #HFL crowd who sees RESURGENT INFLATION.

I know all the good reasons, but that doesn't make it a sure thing.

Bond market is pricing in 200bp of aggressive rate cuts in the next year.
Maybe they are right and macro #SoftLanding folks are just dead wrong?

I feel compelled to continuously lawyer that trade for clients - by assessing the bull & bear case for inflation AND deflation!

"Your ability to radically change your mind when the facts change, and to avoid a rigid and dogmatic PoV is one of your best qualities."
Observant CLUB Member

Remember my post July 26th:

Early still, but I see this as A TOPPING pattern of mean-reversion. Clients know my my growth/value ratio charts. In particular, my RSP:SPY at extremely oversold/overbought levels in the process of reverting higher from below 2003 lows.

We haven't even made it to 2009 lows let alone 2020 Covid lows.

Lots of room.

For now, yes, NDX + SPX can rally back up to trap complacent bulls (post FOMC/QRA), but it will be at risk as:

• Unemployment Rate moves > 4.2%

• 10Y yield < 4.2%

• 2Y yield falls < 4.2%

• Yen strengthens

• And derisking of MAG7 concentration risk continues.

"One More High" is high probability, but with Global Central Banks now cutting rates as demand for credit falls, we are on the cusp of pulling forward recession risk from 2025.

And with the US 10 year yield >100 basis points below the Fed Funds Rate, Fed is behind the curve.

I continue to expect the narrative to switch from inflation to deflation into year-end.

Fast forward six weeks, and my predictions are only getting stronger.
For example, the 10Y yield took out my line-in-sand 3.8% level on Aug 5th. Today, it hit an intraday low of 3.65 before closing at 3.71%.

Crude oil is also tempting fate with a close below $70, again.
I only await a trigger of jobless claims spiking above 267K!

THIS will be my deflation view confirmed: Deflation of ASSETS.

In the meantime, the #HFL crowd sees RESURGENT INFLATION, and I understand why they could see this: Rising Fiscal Deficits, Rising Fiscal Dominance, etc.

But I see the exact opposite now as EVERYTHING changed (for me) in March, confirmed in April, and I doubled down in May.

1. I am Uber-bearish oil & yields & equities big picture.

2. I am Uber-bullish bonds & defensive stocks & cash big picture.

I call it: LIQUIDITY DEFLATION

And it is likely a last chance to get PAID TO WAIT in high yielding bills, notes and bonds for a few years.