Don’t Overthink…with update
As we have been trying to point out in recent posts, the big issue is an overvalued stock market, the Bubble, and that market has topped out. The FED has gotten the message, albeit late, but they also know that market players and investors in general have become addicted to these overvalued prices. So how do they get them off the juice?
That is where we are and as I said yesterday, this is complicated. In this early stage of the bubble leak, we are seeing traders and investors moving a little money to bonds, thusly holding up bond prices as embedded inflation is making its face known. The following chart illustrates a bit of that part of the complexity. This chart goes back to the fracture point in January 2018 and lets you observe two of the more important interest rate charts that I follow. I view the 30-10 year yield curve as a good indication of the base inflation picture while the 10-02 year yield curve is a good indication of rates that reflect economic activity. We see that the 30-10 curve has been under the 10-02 curve since the 2020 election. I take that to mean that a combination of the increasing FED balance sheet coupled with Biden’s BBB plans pushed up the 10 year rate until around early April 2021.
Since then the market has gradually realized that the economy is not that good and BBB may not happen. It is interesting that the 30-10, which tends to measure inflation, during this time since the election, trended down until December 3, 2021 and has now pushed higher, recognizing inflation heating up. Stocks have felt pressure since that reckoning.
Update at 1:15 PM CST
COVID is a trigger not a propeller..
Mondays stock market action was based on the trigger effect, appropriate.
Today’s stock market action is based on Reverse Propeller, no Lockdown, inappropriate and unsustainable.