Scrambling on the Edge

This is a bit like late February 2020, before we knew about Covid, and stocks were overpriced, when the Longs were fighting each other on the edge of a cliff. Many markets are reflecting a deep confusion, and some rightly so, some not so much. This time will be different, the FED and the President have no capacity to come to a rescue.

Some things to ponder:

  1. First overvaluation of stocks is the centerpiece.
  2. Covid is both a trigger and an irritant…
  3. Secondly interest rates, especially the long 30 year rates are torn between extreme embedded inflation in the product chain as inventories are building, yet these bonds are attracting buyers who see them as a better choice than stocks as the meltdown starts.
  4. The key point will be when it becomes obvious that the supply chain inventories have no retail buyers, and corporations will have to scramble to unload.
  5. The recent decline in junk bond prices vs other debt instruments shows that the zombie companies are where the first signs of trouble are being exposed.
  6. The real Macro trouble will start when both stocks and bonds decline together and gold and the Dollar become the safe haven areas.

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