What is going to happen next?
The Resession Will Get Here Sooner Than Expected One of my Principles of Trading is that changes in pressure are more important than the pressure itself. For example inflation can be at 10% per year and people will adjust to that and will change their behavior to take into account the 10% inflation rate. The change in pressure from one percent to 10% is dramatic and causes a shock to the market. The current inflationary rocket ship is shocking the market and chain and cousin causing significant changes in people's behavior. There is no time to adjust behavior. T He change in inflationary expectations is causing a shock to the system. People are still flush with money from the government cheese that was handed out over the last two years but now reality is setting in. People can't afford to buy a new house. Rental prices are up over 16% from last year. The necessities of life, including food gasoline and rent are up over 25% year-over-year. This is a classic example of a shock to the system. The chart above shows expectations of the market for the next two Fed hikes. The first one shows that the market is looking for about a 75% basis point increase at the next meeting in July and 60 basis points in September. This is another huge shock to the system. We are basically going from 0 to 4% in less than a year. Markets have a hard time adjusting to such a shock. They weren't expecting such anaggressive policy. they are still trying to figure out how hard the Fed is going to squeeze the economy through interest rate hikes and quantitative tightening. It now appears as though the Fed is very very serious about combating inflation fed chairman Powell has stated that he understands that there is going to be pain in society. And that pain. of course, is going to be a recession and much higher unemployment. We are already seeing many of these effects kick in. So what do we do to make money? | |
We have to keep pressing on the bear gas pedal. The economy is not yet in recession but it is coming very soon. The Fed's aggressive posture is ensuring that and bringing the start date forward. I told you at the beginning of the year that many markets were in speculative bubbles: stocks, crypto, bonds, and real estate. The first three have popped and real estate is next. You can short all of these with impunity. Yes, there will be periodic rallies but all of these bear markets have much more to go. For example, the stock market is probably only half way through its bear cycle. Another thing to consider: The Fed is crushing the market right now. We should see negative GDP growth by the 4Q at the latest. We should also see the Republicans take over both the House and Senate. These two factors could actually cause the bear market to end by the 1Q2023! This will happen for four reasons: - Relief that Bidens statist policies won't get much support in Congress
- The Feds may start talking about economic relief and pass out more government cheese
- The Fed will stop tightening
- Many assets will be cheap by then
Naturally I will keep you posted when to stop selling and turn to the buy side. Why don't you help out your friends and have them subscribe to Trade Secrets. Here's the link to send them: https://courtneysmith-bcf205.pages.infusionsoft.net
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Words To Live By During an extended bull market, investors are prone to accept bullishness as a way of life. "What of the occasional reaction?" the amateur retorts. "Aren't the stocks that I purchased a year ago higher than ever now?" And so the groundwork is laid for ever-increasing confidence, bigger and bolder speculation, and more and more optimism.one are grabbing more and more of the Federal budget. Not good. How do we pay it back? Richard Russell Dow Theory today.
Courtney Comment: Same thing applies to bear markets! | |
 | COURTNEY SMITH
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