In late March 2020, when the entirety of the investment world determined that the next Great Depression was imminent as a result of a raging pandemic, I put out a note that in the strongest terms possible detailed why it was time for investor to go all in on equities based on investors, at the time, underestimating the powerful effects of QE going forward.
This isn't 2020.
In March of 2023, as the Fed embarks on another round of QE that is effectively equivalent to about $600 billion in this latest bank rescue, QE is a strong sell.
The reasons are simple:
- Now that the Fed has demonstrated that they are willing to embark on QE again, the market is naturally going to make demands of them that will scale further than at any point in the past.
- By embarking on another round of QE, the Fed will be forced to hike rates further and for longer than the market is currently giving it credit for. I expect the 2 year to reverse sharply this week following the CPI, which I expect to come in well ahead of estimates on Tuesday morning.
- The credibility of the Fed is now front and center, having ramifications that are especially crucial for the treasury market. I expect that as Fed credibility becomes a concern, the selling of treasury securities will accelerate further creating burden and stress as a result of higher rates.
We have all been waiting for something to break as a result of the speed at which the Fed hiked rates. Now that we have seen the first dominoes to fall, expectations should be for further dislocations to take place, with it becoming increasingly evident that with every bailout to come, the Fed further strains its credibility, further compromising QE, which in turn accelerates inflation.
A vicious cycle? Absolutely.
It's not that simple this time. A simple press of the QE button will only exacerbate the selling. By the time CPI hits on Tuesday, investors will realize the position the Fed and the markets find themselves in isn't easily solvable.
Expecting 3700-3750 this week, with new lows on the SPX likely by month end.
We added to our short positions on March 7th, before all hell broke loose in the markets. Plan on adding to shorts should the markets gives us the opportunity tomorrow morning.
Things are about to get wilder than most can imagine.
Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details.
Disclaimer
This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice.
This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website.
T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing.
Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future performance.
