As the Fed begins their perilous journey into Quantitative Tightening, markets are going awry. With the disconnection of the liquidity hose and the return of rising interest rates, Strange Things are going on in assets, currencies, and the largest market of all, bonds. We are quickly being led into a place few have ever visited, and fewer have returned from alive…
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https://preview.redd.it/7eumoto7khl91.png?width=1238&format=png&auto=webp&s=4fe46b8d019a22ec7084704935b5293195b90fc6
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In the world of economics, there are two general factors that affect prices broadly: supply and demand. Since the Fed cannot increase the supply of commodities in any meaningful way, the only way they can broadly effect prices downwards is demand-side, meaning to fight inflation they must “destroy” demand by making it prohibitively expensive to borrow, crushing equity markets, and eliminating the much vaunted “wealth effect” that they claim rescued the US economy from the depths of 2008.
The problem is, this will certainly cause a recession (actually it already has, Q1 GDP printed -1.6%, and Q2 came in at -0.9%). Normally, a recession is in many ways a good thing; leveraged businesses and unhealthy enterprises are cleaned out of the system, temporary pain is inflicted on the economy, but this lays the groundwork for new firms to rise out of the ashes.
However, in an economy as indebted as ours, a slight increase in interest rates can mean catastrophic increases in interest expenses in the financial system- especially for over indebted companies, right as their net margins are squeezed by inflation.
The Fed is currently intent on fighting record inflation by crushing bondholders, including holders of US Treasuries and Corporate Debt. This will have disastrous implications for the American economy at large.
Let’s take a look at the Bloomberg Aggregate Bond index (AGG):
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AGG Index
(The total return of AGG year-to-date is shown in the dark black line. The other lines show the total returns for the AGG for each of the prior 30 years.)
Prior to 2022, the worst year was 1999, when the AGG had a total return of -5%. Its best year was 1995, when it rose 19%. This year it is down 12%. April was the worst month ever for the bond market.
The Fed is on a single-minded mission to fight inflation, according to Jim Bianco (president and macro strategist at his own firm, Bianco Research, L.L.C.). To do that, it will crush stock prices and home values.
“We have seen nothing like this,” Bianco said. “The bond market has never been this bad in terms of total return.” He likened that decline to the S&P being down 50% to 60%.
There is “tremendous stress” in the bond market, he said. “There is going to be a problem,” but the bond market is too complex to say where it will eventually be.
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$15.5 Tn Drawdown in both Equities and Fixed Income
“The only way to get the inflation rate down that much is to keep markets under stress,” Bianco said. “The Fed will raise rates until inflation comes down or something breaks.”
This mirrors my predictions of the Fed taper backfiring, sending us into a deep recession or depression, and QE Infinity beginning (see Dollar Endgame Part 4.2).
The Fed, unknowingly or not, has led us into a hellish dimension of their own design- the Upside Down. They will try everything to escape, causing escalating volatility in markets and worsening inflation, in a futile attempt to get out of the debt trap they created. And if they do nothing, the downturn will only get worse.
Bond ETFs are being taken to the woodshed. iShares’ 20 Year ETF, TLT, the most popular long term Treasury ETF, is down a whopping 24% this year alone. Vanguard’s version, VGLT, is down more than 21% this year. All 6 core bond ETFs recommended by Morningstar are down more than 10%.
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iShares Long Bond ETF
This last Friday, August 26th, bond funds experienced their biggest outflows in 8 weeks. (Reuters) - “Investors dumped U.S. bond funds in the week to Aug 24 as they waited to hear a speech by Federal Reserve Chair Jerome Powell later on Friday which will be scrutinised for clues on the pace of forthcoming interest rate hikes. (more context)
According to Refinitiv Lipper data, U.S. bond funds witnessed outflows worth a net $8.81 billion, the most in a week since June 22.”
Furthermore, Emerging Markets were hit hard as well- according to the WSJ, investors pulled $108 million from EM bond funds last week, on resurging concerns that the strong dollar and the Fed aggressively tightening can put emerging markets under further pressure.
This matters because the bedrock of American financial planning is the 60/40 risk parity portfolio- 60% stocks, 40% bonds. This is the most common portfolio recommended to Baby Boomers (who hold the vast majority of US wealth), and is taught to financial advisors by firms such as Northwestern Mutual, Vanguard, Fidelity, Goldman, and many others. Most advisors will tell you this portfolio is bulletproof, it has rarely had down years, and it is a “set and forget” method to steadily build wealth passively.
The portfolio construction is predicated on the theory that stocks and bonds are inversely correlated- when one is up, the other is flat or even slightly down- so the portfolio automatically hedges itself. In theory.
However, what they fail to mention is that this portfolio is usually only back-tested with a 40year timeframe- when we run the calculations out further, we see that actually stocks and bonds move together more often, and less time inversely, than previously thought. For example, from 1883- 2015, stocks and bonds moved in tandem 30% of the time, and moved inversely only 11%. It is only the past few decades of quantitative easing, infinite liquidity, and zero bound interest rates that this portfolio has worked as intended. (Refer to this research paper by Artemis Capital- positive correlation is bad in this case, see below for the sections marked in red).
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Bonds and Stocks are more correlated than previously believed
Debt defaults spreading throughout an economy is par for the course during a recession. This can be clearly seen in a graph of non-financial corporates debt to GDP. (i.e. US businesses excluding banks and broker-dealers)
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Nonfinancial corporate debt to GDP
Corporate Debt as a percent of GDP rises during periods of economic growth, and falls as the economy contracts- businesses forced to pay off debt, cut expenses, and some even go bankrupt. Now, this figure is higher than ever before- and the recent drop in the chart since 2020 is purely semantics, as they are using gross GDP as the denominator.
This basically means they include inflation as economic growth- GDP is the dollar value of all goods and services produced in an economy, and if prices rise, nominal (gross) GDP will rise, even if the economy is not growing at all. The growth is only an illusion.
Thus, we are still likely only slightly below that 2020 level, which is well north of 50% of GDP- the height of the 2008 bubble didn’t even get here. This implies that the coming downturn, if taken in full stride without a restart of QE, will be worse than 2008.
On the housing front, real estate markets are cooling off rapidly. Rising Fed Funds rates mean that mortgage rates are rising in tandem (since almost every interest rate in our economy is calculated as some premium on top of the Fed Funds rate or a Treasury yield).
For reference, a $500k mortgage with a 50k down payment, excluding taxes, homeowners insurance, and other expenses, would cost approximately $2,037 a year ago. Now, that same mortgage costs $3,061, or 50% more. With real wages falling due to inflation rising faster than wage growth, this means that housing demand is falling rapidly.
Bloomberg reports: “US cities that saw some of the biggest jumps in home prices during the pandemic now have the largest shares of price cuts, according to data compiled by Zillow Group Inc.
Overall, the proportion of active real estate listings with lower prices has increased in all 50 of the largest US metropolitan markets tracked by Zillow. In these cities, 11.5% of homes saw a price cut in May, on average, up from 8.2% a year earlier.
Among the 50 metros in Zillow’s data, 32 had more than 10% of listings with a price decline. In eight cities, the share has jumped by at least 5 percentage points over the past year.”
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https://preview.redd.it/5t5ahvbalhl91.png?width=1232&format=png&auto=webp&s=c9c9f1f12f3a077a7147d05deaa2fd611cc84657
What is even more concerning is the skyrocketing cost of mortgages. With the recent hikes in interest rates, and negative real wages gains due to inflation, US mortgage payments as percentage of income are higher than at the top of the subprime bubble.
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https://preview.redd.it/t20iu57elhl91.png?width=1272&format=png&auto=webp&s=71fafed3d221a1679c416d67b81de78e784e059b
Housing, food and energy represent inelastic goods in an economy- these are not things we want, they are things we need. An increase in these prices means less disposable income to spend on other goods - portending a fall in business revenues for firms that aren’t in these vital industries.
Macro Alf on Twitter points out- “Housing market trends lead economic and labor market cycles by 6-12 months. Right now, the US housing market is signalling unemployment rate will likely be above 6% in 2023: another data point which is inconsistent with a soft landing.”
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https://preview.redd.it/5unodflilhl91.png?width=1204&format=png&auto=webp&s=d1bd89a37ec39db241962117bd56f1a2e2d2d1d9
The US Treasury Yield Curve, a graphical representation of the yields for the most common maturity treasuries and t-bills, is currently deeply inverted. The two- to 10-year segment of the yield curve inverted in late March 2022 for the first time since 2019.
(The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term interest rates exceed long-term rates.)
Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones.
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https://preview.redd.it/vbamzx8klhl91.png?width=1708&format=png&auto=webp&s=a010d8dbc093ab544db15ccf81472fb94a1b1160
As investors fear an economic downturn, however, they begin buying longer dated maturities en masse, driving up bond prices, and therefore driving down yields on the 7 year and 10 year bonds. (recall that bond prices and bond yields are inversely correlated). This causes the 10yr yield to dip below the 2 year yield, which in a healthy market would never happen.
The U.S. curve has inverted before each recession since 1955, with a recession following between six and 24 months, according to a 2018 report by researchers at the San Francisco Fed. It offered a false signal just once in that time.
This indicator is one of the most accurate forecasters of recession- and given the depth of the inversion, the bond market is foreshadowing a much worse downturn than even the 2008 Great Financial Crisis.
(The chart below portrays the difference between the 2 year and the 10 year (this pair is often called 2s10s.) When it is positive, the 10yr yield is higher, and we have an upward sloping curve. When it is 0, the curve is flat, and when it is negative, the curve is inverted. Currently it is negative)
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https://preview.redd.it/56kib3zolhl91.png?width=1302&format=png&auto=webp&s=8815ff7e4dbecae2ab7e798d78ce274b84ae9eb8
Bloomberg notes: “And it isn’t just the US bond market that’s signaling that a recession may be on the horizon. New Zealand’s two-year yields exceeded 10-year rates for the first time since 2015 on Wednesday. The difference between Australia’s 10- and three-year bond futures -- its favored measure -- is at the flattest in more than a decade, while the UK’s yield curve briefly inverted earlier this month.”
All these worrying recession indicators hit as the US consumer is at its weakest in at least the last 40 years- Credit card balances increased $46 billion in the second quarter, a 5.5 percent increase from the first quarter, and there was also an uptick in new credit card accounts. The 13 percent increase from the second quarter of 2021 to the second quarter of 2022 was the biggest such jump in more than 20 years!
People are going further into debt just to stay alive- this can’t possibly be sustainable. The debt monster continues to grow.
Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed, stated in a news release, “The second quarter of 2022 showed robust increases in mortgage, auto loan, and credit card balances, driven in part by rising prices. “While household balance sheets overall appear to be in a strong position, we are seeing rising delinquencies among subprime and low-income borrowers with rates approaching pre-pandemic levels.”
And to think, all this economic damage and the Fed hasn’t even BEGUN to tighten! They’ve raised rates, sure- but if you check this post I made a few weeks ago, you see that the Fed has run a pathetic excuse of a tightening program.
The Fed’s total assets (Balance sheet) is charted below, the beginning of the period set to early 2020. This tightening cycle is the slowest and weakest the Fed has ever undertaken.
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https://preview.redd.it/qqaz949rlhl91.png?width=2336&format=png&auto=webp&s=16de6ea72e656ff95b48df5414461cb794811f1a
They’re using a covert method of financial engineering to slow down the taper- they were slated to do $95B a month of tapering, i.e. allowing their Treasury or MBS debt securities to mature (or sell them), and not printing more to replace them. This program would have been smaller than the QE of 2021, which saw $120B a month of liquidity added to the system.
But they aren’t even following through with their own plan. The accounting gimmick results from them using a loophole to “reinvest” funds back into Treasuries or MBS.
Understandably, the Fed, with it’s massive holdings of bonds, receives interest payments monthly. These payments were usually written off in previous tightening cycles (literally the Fed can go into their central account and delete their own deposits from the system).
This time, they’re using the billions of interest each month to plow back into new Treasuries or MBS. This isn’t “printing money” technically they argue, since no new bank reserves are being created- rather they are just “recycled” from the existing system.
Either way, the Fed is not tightening at the proposed $95B a month pace, rather they have drawn their balance sheet down about $100B since April, four months ago- this is 25% of where we should be if the taper was being run correctly.
Even the incompetent administrators on the Open Market Desk at the Fed must know that if they truly taper, and destroy the trillions in easy money they pumped into the system, the entire edifice will fall. The economy is already headed toward severe recession, the Eurozone is collapsing from an energy crisis turning into a full blown inflationary crisis, and layoffs are beginning to spread through the American economy.
If they destroyed the excess liquidity that was pumped in the system, I believe a New Great Depression would begin within months. Stocks would collapse, the Federal Government would default on debts, and millions of businesses would fail. Their very credibility would be threatened, and the people might drive them out of power.
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https://preview.redd.it/da76e0axlhl91.png?width=1360&format=png&auto=webp&s=d3b8fe09b7c4ce7ce7667a650858f34cb7b97f9b
Our debt to GDP is higher now than even the peak of the 1930s and 1940s, during the last zenith of the debt super-cycle. Further, the consumer is at record loan to income, with credit card, mortgage, and auto loan balances surging in Q2. The American middle class simply cannot withstand more debt.
They are consigned to walk a tightrope, on one side the perilous deflationary spiral, and the other the burning inferno of inflation. They must hike rates, but they can’t taper- they must get stocks to come down, but not too much- they must induce recession, but not depression. It is a virtually impossible task.
Fed officials walk this rope because they themselves created it- with the years of zero bound interest rates, infinite liquidity, and permanent bailout facilities such as Standing Repo, they created a sick, distorted version of our original financial system.
The economic cognoscenti have opened the door into the Upside Down- a mirror dimension where nothing is quite as it seems. We’ve never traveled to this dimension at any other point in financial history - so we can’t even discern the difference between it and normalcy.
This is a strange place- where inflation bankrupts America while the Dollar soars on foreign exchange; markets rally as jobless claims rise; and the Almighty Fed is the only indicator to watch.
Markets should be down 35% here and trending lower, CDS spreads should break out, credit markets should be in absolute bloodbath, and yet, here we are- markets are down, but not too much, inflation is “under control”, and the definition of recession itself is changing! (see this)
The governing elites meander around, oblivious to the danger that lies ahead.
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The Upside Down
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Perhaps they are missing something- maybe there is Demogorgon lurking deep in the tunnels.
Mad with hunger, he is ready to rend flesh and bone asunder
Perhaps this debt monster already has his claws deep in the Treasury, the banking systems, and the boards of corporate America
His talons might reach across the nation, poisoning everything he touches, as he squats in the shadows
His tendrils spread, infecting new victims and sickening the rest
He feeds on rates, and lives on time
Every day and every hour the interest accrues; the debt accumulates,
and he grows stronger and stronger;
Perhaps he is just biding his time, patiently and silently-
Until his Power is too great for even the Almighty Fed to overcome.
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Perhaps.
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Epilogue—----------------------

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This talk of the Fed walking a tightrope of stagflation draws me back to the title sequence written almost a year ago for Part 4.0 of The Dollar Endgame-
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The Ships of State
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“Imagine the world economy as an armada of ships passing through a narrow and dangerous strait leading to the sea of prosperity. Navigating the channel is treacherous- err too far to one side and your ship plunges off the waterfall of deflation; but too close to the other and it burns in the hellfire of inflation. The global fleet is tethered by chains of trade and investment so if one ship veers perilously off course it pulls the others with it.
Our only salvation is to hoist our economic sails and harness the winds of innovation and productivity. It is said that de-leveraging is a perilous journey and beneath these dark waters are many a sunken economy of lore. Print too little money and we cascade off the waterfall like the Great Depression of the 1930s... print too much and we burn like the Weimar Republic Germany in the 1920s... fail to harness the trade winds and we sink like Japan in the 1990s.
On cold nights when the moon is full you can watch these ghost ships making their journey back to hell... they appear to warn us that our resolution to avoid one fate may damn us to the other.”
(Artemis)
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You can follow me on Twitter at peruvian_bull. All other accounts are impersonators/scam accounts. I will never ask for personal information, nor solicit or offer financial advice.
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Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that – an opinion or information. Please consult a financial professional if you seek advice.

Market Maker Signals Study on GME - Breaking Down Charts and Trades into Milliseconds.
Author: TimoV ( hatter11 ) in collaboration with mlebjerg
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**DISCLAIMER*\*
Nothing you read here is advice. I drink crayon smoothies and sniff paint 24/7.
Something about me: I like data. I have DRS’ed and have voted. Red/green mixed crayon smoothie with a whole yellow on top and a hollowed out blue one as straw is in my opinion the best crayon smoothie ever. I don’t really use reddit. It’s an information source for me. I’m mostly active on discord. Therefore I’m a complete reddit noob so please be gentle. There might be formatting issues.
This is a data analysis, not a technical analysis. (well technically it is, but not the usual kind, mods please change if wrong.)
These are observations done on 1 security: GME. The reason being it’s a low volume low trades stock right now, compared with others.
It’s not definitive proof. But I also wouldn’t call it all speculation.
I present this to you all to open a discussion and maybe even grow a wrinkle.
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Abstract (TL:DR - You should really read it though, grow a wrinkle.)
High Frequency Trading Algorithms run the show and communicate via signals disguised as orders sizes. A lot of these signal trades and responses happen in milliseconds, something you don’t see on a normal chart. With this post I’m going to show how this applies on a millisecond scale.
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This is a long one but I’ll try to keep it as ELIA as possible.
Inspired by mlebjerg ‘s post about Market Maker signals (https://www.reddit.com/Superstonk/comments/u7iox3/it_is_time_to_talk_about_market_maker_signals_i/) I decided to put more time and research into this.
If you’re on Discord in the market-talk channel then you’ve probably seen me throw out pictures of orders sizes and calling out what happened, or what might happen within the next or next few minutes with regard to these ‘signals’.
I’ve since contacted mlebjerg and we continue to do research on this.
If you follow his daily posts about the MM Signals you probably seen me get mentioned as I’ve provided my data to him for use in his daily updates.
https://www.reddit.com/Superstonk/comments/ucmmfd/market_maker_signals_today_20220426_chart_link_in/
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I spent most of the intraday watching the chart and orderbook. I use IBKRs TWS and wrote my own software to use their API. At the time of writing I am using L1 data. All the findings displayed here are with L1 data. As these things take time to gather, process and analyze the data I will do a follow up in the next few weeks with L2 data.
I’ve been watching these Market Maker Signals. It’s quite interesting to see it play out. I had discussions on Discord about whether this was only applicable to L2 data and I say it isn’t. It works fine with L1 data. I had discussions on Discord about whether this was only applicable to L2 data and I say it isn’t. It works fine with L1 data. It’s about Order size, which is available on L1 data. L2 or L3 just gives a more in-depth view of the order. What’s the easiest way to communicate with numbers seen by every exchange? Order size.
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Algo’s run the market
This is a known thing right? As we know by now most orders get internalized and routed through darkpools. High frequency trading has completely taken over for years now. Nothing will stop this. In the old days you had to make a call and tell somebody on the other end to do something with the order. With HFT algo’s running the show, a different form of communication was needed.
Well.. how do you make programs communicate with each other? Simply put by sending messages they can understand. What would be the easiest way to do so in terms of trading? Hide it in orders as sizes. Since it’s just an order, it’s just an order, right?
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Things to remember:
It’s very fast computers we’re dealing with. High frequency trading.
Price goes into decimals. We normally see 2-4 decimals on the price in the book or on the charts (128.54, 128.5498). Forex runs on 5.
Here is a closing statement from IBKR presenting .xxxxxxxx (8).
There used to be a picture here but I hit the max of 20
Official Close For 04/29/2022: 125.06999969
I’m aware this could just be a decimal floating point, but it wouldn’t be a surprise if it actually goes this far. If somebody can point me to some proper DD on HFT’s, please do drop a link. According to SEC rules .0001 is the max. Here’s an investopedia article about Decimal Trading with the SEC rules sources https://www.investopedia.com/terms/d/decimal-trading.asp#citation-1
Time goes in milliseconds, if not smaller like microseconds. Milliseconds: 21:48:55.3024, Nanoseconds: 21:48:55.302442).
High Frequency Trades happen in these periods. 1 second is an eternity for a HFT algorithm.
For anybody that can’t grasp this think of it like this: The more time you have and the bigger you can make the price in terms of decimals, the more money you can scrape off every trade. If you can do a trade every .0001 second, you can make 1000 trades a second ( 1000 ms = 1 sec ). If you can take $ 0.0001 every trade, you make money. Simple as that.
Sometimes an order is just an order. If you watch the order book you see a lot of trades go through. Lots of the same numbers fly by. It’s simply ignorant and obnoxious to think that every time a 100 or a 1000 comes by it’s a signal. These can just be 100 shares, or shares being bought to hedge options. I think a thing to keep in mind when looking at these signals is that although a signal comes through, it’s not always upheld. There are a lot of variables in play here: Organic Sell/Buy Pressure. SPY being pumped (yeh.. Just something I noticed lately), Is the price in a favorable position for hedgefunds/algo’s to keep it trading there?
About the signals:
There used to be a picture here but I hit the max of 20
Taken from https://otc.financial/list-of-market-maker-signals/
100 - I need shares 200 - I need shares Badly but do not take the stock down 300 - Take (or I am taking) the stock down at least 30% so I can load shares 400 - Keep it trading sideways 500 - Gap the stock. Gap can be up or down, depending on the direction of the 500 signal 505 - I am short on shares 600 - Apply resistance at the ASK to keep the price from increasing 700 - Move the price up 777 - Also recognized as a signal to move the price up 800 - Prepare for an increase in trading volume 900 - Allow the stock to float and trade freely 911 - Pending News/Press Release on the way 1000 - Don’t let it run 2100 - Let it run
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100 and 200 are very common. So common they’re excluded from this research. There were moments that on a low volume low trade stock like GME 100’s have an impact, but that’s only on price and only for a moment. Most 100’s up will get mitigated by a 100 down. So I could say that’s a signal, but it’s the most useless one of all of them.
If you watch another ticker with a lot of volume you also see these 100, 200s come by a lot.
To quote mlebjerg

"I need shares"
We all do, congratz

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mlebjerg had an interesting thought about the 600 signal: It does not only apply to resistance on the ASK, but also for support. I agree, and it shows on the chart. I believe it’s a signal to keep the price steady.
Signals like 400, 500, 700, 777 and 900 I think should be interpreted as follows: The smallest increment possible and within limitations. As in: We’re talking decimals in price here. .0005 up or down from the current .004 is an increase or decrease. I’ll show some of this further down this post.
800 is a warning signal. Nothing more.
1000 could be categorized as the 400-900 signals. But also fit 600. ‘Don’t let it run’ again doesn’t necessarily mean whole points. It’s just decimals. It looks like it’s mainly used to suppress movement. Just wanted to point that out separately. Some days a lot of 1000’s come by. I’m inclined to say this also goes for 2100, but I haven’t seen this yet in GME. I have in others while watching the orderbook for a bit.
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Observations:
When looking at the chart and order book you see all kinds of orders. And sometimes it seems like these orders don’t make sense: A ‘move price up’ comes in, but the candles closed lower. This bothered me in the beginning, since this completely disproves the theory.
But then it clicked. I was thinking too big. Sometimes you gotta look at the bigger picture, this wasn’t one of those times. I had to look at the smaller picture. To be precise, a bigger time frame. Confused yet? Good.
Allow me to explain:
As I mentioned before, we’re dealing with High Frequency Trading Algorithms, therefore thinking it works on seconds really does not apply.
So I broke down seconds into milliseconds. With mlebjerg’s help I made a chart out of it and suddenly it provided a much bigger, but clearer picture of what was going on and how these signal orders are utilized.
Below is a picture of the chart for 04/29, but in microseconds.
https://preview.redd.it/4uhljlokvqw81.png?width=1600&format=png&auto=webp&s=f6d6484ea1347f0ad9bb9d92ab991171308361f3
Now you’re like ‘but hatter011, what am I looking at? This looks the same as mlebjerg ‘s chart’
Yes. it does look quite the same, until you zoom in.
https://preview.redd.it/xrpe2pybwqw81.png?width=1864&format=png&auto=webp&s=ee5501463a5e005f1c78e83316edb1192573d105
Yes.. that’s all part of the same few seconds. And this is just a small part of the whole chart. At least 13 trades in about 5 seconds, if I counted right.
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Let's take a look at some time later:
https://preview.redd.it/0befi0mnwqw81.png?width=1600&format=png&auto=webp&s=48cf80cc635a9ed7042ccee2418eaab06686c607
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From left to right: 600 - Resistance/Support, and the price was contained for a whole second
https://preview.redd.it/g5y45iqswqw81.png?width=1600&format=png&auto=webp&s=1e912a42a662ae72fdb30ad62e0d7928239701b4
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300 - Down, it isn’t much, but as you can see, the price did go down.
https://preview.redd.it/lr5gnmpwwqw81.png?width=1600&format=png&auto=webp&s=b59ef497423374dd2851bf2365ba58ed89c03a07
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700 - Up!. If you zoom in on that part of the chart (sorry.. hit my picture limit) you can see it bounced down to 127.5 and then up to 127.68 and in a timespan of about 2 minutes the price when slightly up.
https://preview.redd.it/e6q68u3ywqw81.png?width=1600&format=png&auto=webp&s=4392cffc22e8724b7515418e5df4da00785b9e04
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Followed by:
400 - Keep it Sideways, 30 seconds of sideways trading.
https://preview.redd.it/d1k2xnmjxqw81.png?width=1600&format=png&auto=webp&s=8e52821dba1d18da4bae12cbc78180e9f0e1c74a
Next, 500 - Gap it
https://preview.redd.it/zy6ztw0lxqw81.png?width=1600&format=png&auto=webp&s=8b69aed6a149a09f132003077a6f8e95d3f665f5
This one is messy.
The signal comes in at 12:00:59:8707 , 127.10
https://preview.redd.it/av9oysuoxqw81.png?width=383&format=png&auto=webp&s=9bc4b668314483a8a86341bf34fdf03aa8f27d21
Price goes lower within 3ms
https://preview.redd.it/1gi4kgupxqw81.png?width=410&format=png&auto=webp&s=09e5cebc182b4e0a9f99ba9d5f7fdefdc7d88774
Another order for 127.07 almost 600ms later and the price goes down again
https://preview.redd.it/7oq905arxqw81.png?width=750&format=png&auto=webp&s=e5a604a6cc031ba389a2d783fc8d6ee9938e60f5
All the way to 127.02 in 100ms.
https://preview.redd.it/ofma94esxqw81.png?width=532&format=png&auto=webp&s=decf7d8815d4ef99a71b6aaa02ab8e549272ce11
​
After this the price goes back up, but that was a whole 5 cent gap.
And that happened multiple times per second before it went up again
https://preview.redd.it/1gc49sovxqw81.png?width=943&format=png&auto=webp&s=42e776f52ac3551da624525a35b5865944ecfa10
https://preview.redd.it/nm4vhbtwxqw81.png?width=268&format=png&auto=webp&s=34944c58fbd2d584d6d679a4e357dfabc5b85923
https://preview.redd.it/wa5iw2ixxqw81.png?width=171&format=png&auto=webp&s=7c26eb46ca4c361b5f35e9eb322ad88d123d9a14
The next 2 are also 500 - Gap it. Slightly less messy, but I think the chart says enough📷📷
https://preview.redd.it/8uliz9nyxqw81.png?width=1061&format=png&auto=webp&s=cbcb2e7a895512be07ed4187630bb3c4d444de62
https://preview.redd.it/avj528zzxqw81.png?width=325&format=png&auto=webp&s=c178929f242f23a8bcc70d8a0b19dc0c82725c25
And the last one was a 600 - sideways: Well.. just look.
https://preview.redd.it/lhwhcnf1yqw81.png?width=1600&format=png&auto=webp&s=a42d4ca12248b5042c3fbff188d55ec87db2753f
https://preview.redd.it/zxmhayr1yqw81.png?width=1600&format=png&auto=webp&s=6184fde2401da0821a57692a9fd6783e226fa1b3
Looks pretty sideways to me.
This was just a small part of the day.
​
Let’s take a look at another part: The last 10 minutes.
https://preview.redd.it/ppaa5nw2yqw81.png?width=1600&format=png&auto=webp&s=4aa51f87ae1dc6ab9a310773736adf8d0f5c0231
At around 15:50 all the ‘800 - Volume coming’ start coming in. The last 10 minutes is most of the time indeed filled with volume. Big trades. So these are pretty much warning signals firing off for the upcoming minutes.
This was just 1 day. As I said it takes a while to go through all the data and analyze it.
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Conclusion
With HFT Algo's running the show things happen you don't see on the chart which do have a big influence on how the stock behaves. If you account for the smallest time span possible these Market Maker Signals could very well be applied.
​
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Is that all?
Yeah.. for now at least.
I can fill pages with this by now but I’ll spare you. But if you want to take a look yourself, I’ve put the charts from last week on my Github page:
https://hatter011.github.io
I Hope to post an update within the upcoming weeks with more detailed data.
I Also hope this satisfies your curiosity and it opens a healthy discussion about this.
And if anybody has proof that this is all fake and these signals aren’t real, then please do share.
You can find me on the superstonk discord as TimoV
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Obligatory Buy, Hold, DRS & Vote 🚀🚀🚀

I am getting increasingly worried about the amount of warning signals that are flashing red for hyperinflation- I believe the process has already begun, as I will lay out in this paper. The first stages of hyperinflation begin slowly, and as this is an exponential process, most people will not grasp the true extent of it until it is too late. I know I’m going to gloss over a lot of stuff going over this, sorry about this but I need to fit it all into four posts without giving everyone a 400 page treatise on macro-economics to read. Counter-DDs and opinions welcome. This is going to be a lot longer than a normal DD, but I promise the pay-off is worth it, knowing the history is key to understanding where we are today.
SERIES TL/DR (PARTS 1-4): We are at the end of a MASSIVE debt supercycle. This 80-100 year pattern always ends in one of two scenarios- default/restructuring (deflation a la Great Depression) or inflation( hyperinflation in severe cases (a la Weimar Republic). The United States has been abusing it’s privilege as the World Reserve Currency holder to enforce its political and economic hegemony onto the Third World, specifically by creating massive artificial demand for treasuries/US Dollars, allowing the US to borrow extraordinary amounts of money at extremely low rates for decades, creating a Sword of Damocles that hangs over the global financial system.
The massive debt loads have been transferred worldwide, and sovereigns are starting to call our bluff. Systemic risk within the US financial system (from derivatives) has built up to the point that collapse is all but inevitable, and the Federal Reserve has demonstrated it will do whatever it takes to defend legacy finance (banks, brokedealers, etc) and government solvency, even at the expense of everything else (The US Dollar).

I’ll break this down into four parts. ALL of this is interconnected, so please read these in order:

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Updated Complete Table of Contents:

• Part 1.0: The Global Monetary System
• Part 1.5: Triffin’s Dilemma and the New Rome
• Part 2.0: Reflexivity and the Shadows of Black Monday
• Part 2.5: Derivatives and the Alchemy of Risk
• Part 3.0: Debt Cycles and Great Depression
• Part 3.5: The Money Illusion
• Part 4.0: The Weimar Republic
• Part 4.1: Nightmare of Hyperinflation
• Part 4.2: Financial Gravity & The Fed’s Dilemma
• Part 4.3: Economic Warfare & The End of Bretton Woods

​

Preface:

Some terms you need to know:

Inflation: Commonly refers to increase in prices (per Keynesian thinking). However, Inflation in the truest sense is inflation (growth) of the money supply- higher prices are just the RESULT of monetary inflation. (Think, in normal terms, prices really only rise/fall, same with temperatures. (ie Housing prices rose today). The word Inflation refers to a growth in multiple directions (quantity and velocity). Deflation means a contraction of the money supply, which results in falling prices.
Dollarization (Weaponization of the Dollar): The process by which the US government, IMF, World Bank, and other elite organizations force countries to adopt dollar systems and therefore create indirect demand for dollars, supporting its value. (Think Petrodollars).
Central Banks: Generally these are banks that control/monitor the monetary policy of the country they reside in. They are usually owned by private financial institutions (large banks/bank holding firms). They utilize open market operations%20refers,out%20to%20businesses%20and%20consumers.) to stabilize and set market rates. They are called the “Lender of Last Resort” as they are supposed to LEND (not bailout/buy assets) to other banks in a crisis and help defend their currency’s value in international forex markets. CBs are beholden to the “dual mandate” of maintaining price stability (low inflation) and a strong job market (low unemployment)
Monetary Policy: The set of tools that central bankers have to adjust how money moves through the financial system. The main tool they use is quantitative tightening/easing, which basically means selling treasuries or buying treasuries, respectively. *A quick note- bond prices and interest rates move inversely to one another, so when Central banks buy bonds (easing), they lower interest rates; and when they sell bonds (tightening), they increase interest rates.
Fiscal Policy: The actions taken by the government (mainly spending and taxing) to influence macroeconomic conditions. Fiscal policy and monetary policy are supposed to be enacted independently, so as not to allow massive mismanagement of the money supply to lead to extreme conditions (aka high inflation/hyperinflation or deflation)
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Part One: The Global Monetary System- A New Rome

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Allegory of the Prisoner's Dilemma

Prologue:

In their masterwork tapestry entitled “Allegory of the Prisoner’s Dilemma” (pictured in the title image of this post) the artists Diaz Hope and Roth visually depict a great tower of civilization that rests upon a bedrock of human cooperation and competition across history. The artists force us to confront the fact that after 10,000 years of human civilization we are now at a cross-roads. Today we have the highest living standards in human history that co-exists with an ability to destroy our planet ecologically and ourselves through nuclear war.
We are in the greatest period of stability with the largest probabilistic tail risk ever. The majority of Americans have lived their entire lives without ever experiencing a direct war and this is, by all accounts, rare in the history of humankind. Does this mean we are safe? Or does the risk exist in some other form, transmuted and changed by time and space, unseen by most political pundits who brazenly tout perpetual American dominance across our screens? (Pulled from Artemis Capital Research Paper)
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The Bretton Woods Agreement

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Money, in and of itself, might have actual value; it can be a shell, a metal coin, or a piece of paper. Its value depends on the importance that people place on it—traditionally, money functions as a medium of exchange, a unit of measurement, and a storehouse for wealth (what is called the three factor definition of money). Money allows people to trade goods and services indirectly, it helps communicate the price of goods (prices written in dollar and cents correspond to a numerical amount in your possession, i.e. in your pocket, purse, or wallet), and it provides individuals with a way to store their wealth in the long-term.
Since the inception of world trade, merchants have attempted to use a single form of money for international settlement. In the 1500s-1700s, the Spanish silver peso (where we derive the $ sign) was the standard- by the 1800s and early 1900s, the British rose to prominence and the Pound (under a gold standard) became the de facto world reserve currency, helping to boost the UK’s military and economic dominance over much of the world. After World War 1, geopolitical power started to shift to the US, and this was cemented in 1944 at Bretton Woods, where the US was designated as the WRC (World Reserve Currency) holder.
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Bretton Woods
In the early fall of 1939, the world had watched in horror as the German blitzkrieg raced through Poland, and combined with a simultaneous Russian invasion, had conquered the entire territory in 35 days. This was no easy task, as the Polish army numbered more than 1,500,000 men, and was thought by military tacticians to be a tough adversary, even for the industrious German war machine. As WWII continued to heat up and country after country fell to the German onslaught, European countries, fretting over possible invasions of their countries and annexation of their gold, started sending massive amounts of their Gold Reserves to the US. At one point, the Federal Reserve held over 50% of all above-ground reserves in the world.
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US Trade Balance
In a global monetary system restrained by a Gold Standard, countries HAVE to have gold reserves in their vaults in order to issue paper currency. The Western European powers all exited the Gold standard via executive acts in the during the dark days of the Great Depression (in Germany’s case, immediately after WW1) and build up to War by their respective finance ministers, but the understanding was they would return back to the Gold standard, or at least some form of it, after the chaos had subsided.
As the war wound down, and it became clear that the Allies would win, the Western Powers understood that they would need to come to a new consensus on the creation of a new global monetary and economic system.
Britain, the previous world superpower, was marred by the war, and had seen most of her industrial cities in ruin from the Blitz. France was basically in tatters, with most industrial infrastructure completely obliterated by German and American shelling during various points of the war. The leaders of the Western world looked ahead to a long road of rebuilding and recovery. The new threat of the USSR loomed heavy on the horizon, as the Iron Curtain was already taking shape within the territories re-conquered by the hordes of Red Army.
Realizing that it was unsafe to send the gold back from the US, they understood that a post-war economic system would need a new World Reserve Currency. The US was the de-facto choice as it had massive reserves and huge lending capacity due to its untouched infrastructure and incredibly productive economy.
At Bretton Woods, the consortium of nations assented to an agreement whereby the Dollar would become the WRC and the participating nations would synchronize monetary policy to avoid competitive devaluation. In summary, they could still redeem dollars for Gold at a fixed rate of $35 an oz, a hard redemption peg which the U.S would defend.
Thus they entered into a quasi- Gold standard, where citizens and private corporations could NOT redeem dollars for Gold (due to the Gold Reserve Act , c. 1934), but sovereign governments (Central banks) could still redeem dollars for gold. Since their currencies (like the Franc and Pound) were pegged to the Dollar, and the Dollar pegged to gold, all countries remained connected indirectly to a gold standard, stabilizing their currency conversion rate to each other and limiting local governments’ ability to print and spend recklessly.
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US Gold Reserves
For a few decades, this system worked well enough. US economic growth spurred European rebuilding, and world trade continued to increase. Cracks started to appear during the Guns and Butter era of the 1960’s, when Vietnam War spending and Johnson’s Great Society programs spurred a new era of fiscal profligacy. The US started borrowing massively, and dollars in the form of Treasuries started stacking up in foreign Central Banks reserve accounts.
Then-French President Charles De Gaulle did the calculus and realized in 1965 that the US had issued far too many dollars, even considering the massive gold reserves they had, to ever redeem all dollars for gold (remember naked shorting more shares than exist? -same idea here). He laid out this argument in his infamous Criterion Speech and began aggressively redeeming dollars for gold.
The global “run on the dollar” had already begun, but the process accelerated after his seminal address, as every large sovereign turned in their dollars for bullion, and the US Treasury was forced to start massively exporting gold. Backing the sovereign government's actions were fiscal and monetary strategists getting more and more worried that the US would not have enough gold to redeem their dollars, and they would be left holding a bag of worthless paper dollars, backed by nothing but promises. The outward flow of gold quickly became a deluge, and policymakers at all levels of Treasury and the State department started to worry.
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Nixon ends Bretton Woods
Nearing a coming dollar solvency crisis, Richard Nixon announced on August 15th, 1971 that he was closing the gold window, effectively barring all countries from current and future gold redemptions. Money ceased to be based on the gold in the Treasury vaults, and instead was now completely unbacked, based solely on government decree, or fiat. Fixed wage and price controls were created, inflation skyrocketed, and unemployment spiked.
Nixon’s speech was not received as well internationally as it was in the United States. Many in the international community interpreted Nixon’s plan as a unilateral act. In response, the Group of Ten (G-10) industrialized democracies decided on new exchange rates that centered on a devalued dollar in what became known as the Smithsonian Agreement. That plan went into effect in Dec. 1971, but it proved unsuccessful. Beginning in Feb. 1973, speculative market pressure caused the USD to devalue and led to a series of exchange parities.
Amid still-heavy pressure on the dollar in March of that year, the G–10 implemented a strategy that called for six European members to tie their currencies together and jointly float them against the dollar. That decision essentially brought an end to the fixed exchange rate system established by Bretton Woods. This crisis came to be known as the “Nixon Shock” and the DXY (US dollar index) began to fall in global markets.
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DXY
This crisis came out of the blue for most members of the administration. According to Keynesian economists, stagflation was literally impossible, as it was a violation of the Philips Curve principle, where Unemployment and Inflation were inversely correlated, thus inflation should theoretically be decreasing as the recession worsened and unemployment climbed through 1973-1975.
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Phillips Curve
MONKE-SPEK: Philips Curve Explained

• Low Unemployment>Lots of jobs/high demand for labor.
• Thus, more workers are employed, and wages rise>putting more money in more people’s pockets.
• These people go out and buy beanie babies, toasters, and bananas (what economist John Maynard Keynes called aggregate demand) and this higher demand leads to higher prices for goods and services. This shows up as inflation.
• Consider the opposite- high unemployment>fewer jobs>less money for people
• Less demand for goods and services> lower inflation

Keynesian economists treated this curve as a law of nature, rather than a general rule. We see exceptions to this rule everywhere- Argentina is a prime example, where they have persistently high unemployment AND high inflation. This phenomenon is called stagflation, and is evidence of inflationary pressures so strong that they overcome the deflationary force of high unemployment. These economists were utterly blindsided by the emergence of stagflation.
After the closing of the gold window in 1971, the crisis spread, inflation kept climbing, and other sovereigns began contemplating devaluing their currencies as their only peg, the US dollar, was now unmoored and looked to be heading to disaster.
US exports started climbing (cheaper dollar, foreigners could now import stuff to their countries), straining export economies and sparking talks of a currency war. Knowing they had to do something to stop the bleeding, the Nixon administration, at the direction of Henry Kissinger, made a secret deal with OPEC, creating what is now called the Petrodollar system. This article summarizes it best:
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PetroDollar system
Petrodollars had been around since the late 1940s, but only with a few suppliers. Petrodollars are U.S. dollars paid to an oil-exporting country for the sale of the commodity. Put simply, the petrodollar system is an exchange of oil for U.S. dollars between countries that buy oil and those that produce it.
By forcing the majority of the oil producers in the world to price contracts in dollars, it created artificial demand for dollars, helping to support US dollar value on foreign exchange markets. The petrodollar system creates surpluses for oil producers, which lead to large U.S. dollar reserves for oil exporters, which need to be recycled, meaning they can be channeled into loans or direct investment back in the United States.
It still wasn’t enough. Inflation, like many things, had inertia, and the oil shocks caused by the Yom Kippur War and other geo-political events continued to strain the economy through the 1970’s.
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PCE Index
Running out of road, monetary policymakers finally decided to employ the nuclear option. Paul Volcker, the new Federal Reserve Chairman selected in 1979, knew that it was imperative to break the back of inflation to preserve the global economic system. That year, inflation was spiking well above 10%, with no end in sight. He decided to do something about it.
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Volcker Doctrine
By hiking interest rates aggressively, consumer credit lending slowed, mortgages became more expensive to finance, and corporate debt became more expensive to borrow. Foreign companies that had been dumping US dollar holdings as inflation had risen now had good reason to keep their funds vested in US accounts. When the Petrodollar system, which had started taking shape in ‘73 was completed in March 1979 under the US-Saudi Joint Commission, the dollar finally began to stabilize. The worst of the crisis was over.
Volcker had to keep interest rates elevated well above 8% for most of the decade, to shore up support for the dollar and assure foreign creditors that the Fed would do whatever it takes to defend the value of the dollar in the future. These absurdly high interest rates put a brake to US government borrowing, at least for a few years. Foreign creditors breathed a sigh of relief as they saw that the Fed would go to extreme lengths to preserve the value of the dollar and ensure that Treasury bonds paid back their principal + interest in real terms.
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10yr US treasury yields
Over the next 40 years, the United States and most of the developed world saw a prolonged period of economic growth and global trade. Fiat money became the norm, and creditors accepted the new paradigm, with it’s new risk of inflation/devaluation (under the gold standard, current account deficits, and thus inflation risk, was self-stabilizing). The Global Monetary system now consisted of free-floating fiat currencies, liberated from the fetters of the gold system.

(I had to break this post up into two sections due to the character limit, here is second half of Pt 1): /

Disclaimer :
- This series is gonna be about some of the greatest minds in the current financial world talking about their opinion regarding Global Macroeconomics.
- This topic will be discussed in series of questions so you can easily skip the part you know the answers of. Reason : Highlighting, Re reading and paragraphing are not the best techniques of learning things in college or school education. Diagrams and question framing are.
- This post is about to be super lengthy and is probably gonna be boring too. I don't expect you to read this but I want you to know that this post is gonna be super helpful for you as a Wall Street tradeinvestor who have just started their journey into the financial world.
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FYI : No short term trade signals available down below, so without any further delay let's begin but first let's check out their works.
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Credits : Blockworks macro. Left : Joseph Wang Right : Michael J Howell
Now let's finally begin.
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Q1 What is the meaning of the word Liquidity? Explain the difference b/w Liquidity and M2 money supply?
There are two types of liquidity.
- Funding ( Accounting ) Liquidity : Company ability to pay off debt. ( short term liquidity and debt capacity are the two types )
https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/liquidity
- Market Liquidity : Spread b/w ask and bid.( More spread : Illiquid, Less spread : Liquid )
https://www.investopedia.com/terms/b/bid-askspread.asp#:~:text=The%20bid%2Dask%20spread%20is%20the%20difference%20between%20the%20highest,spread%20will%20have%20high%20demand.
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Liquidity in terms of balance sheet perspective is as follows
For Banks : Deposits at Fed checking account
Not Bank : Deposits at Banks, mmf or t-bills
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Liquidity is not a money supply. Money supply is a retail bank concept. It's effectively a deposit at a retail bank.
M2 (Less liquid than M1) = M1 (cash + demand deposits + traveler's check) + savings + time deposits + Certificates of Deposits (cd’s) + Money Market Fund (mmf)
Liquidity is just something different. It's a measure of the financing capacity of the financial sector and its ability to fund positions. Generally speaking, liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself.
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So Liquidity = Total amount of credit in system + access to savings
There are also other dimensions of Liquidity.
- Includes what the Central Bank does.
- Includes what the private sector does.
- Includes what shadow banks can create in credit terms.
- Includes cross border flow.
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Q2 Why do investors look at Liquidity ?
Too see where money was moving and hence you could predict where asset markets are likely to move. For ex : Currently money is parked in rrp.
Risk assets and Liquidity moves in lock step. Hence
Normal monetary correction : -15 to -20%
Recession as well : -30 to -40%
Banking crisis : -50 to -60%
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Q3 How does the Fed look at markets ?
The Fed oversees financial system stability & ultimately the health of the real economy. The Fed can only do QT until something breaks. And something will definitely break because the Fed is focused on fighting inflation.
Hence it's an assumption
Next 6m : Front load this interest rate.
In 12m : Reverse course and go back to QE. ( Suggested by Dr. Burry )
So keep buying for 1 or 2yrs in drips. Don’t rush all in at once.
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May reading : Mid 40's. (3yr low) Latest reading : 40 (-55% drop from 85-90)
Goldman Sachs report : Depth of S&P mini-futures is -67%
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IPO market is down
As the rates are rising it's not just that the cost of capital is rising. It's also about the capacity of capital being decreasing.
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Q4 Which is more important to fight inflation tsunami, QT or rate hike. Explain the difference between banking from the 18th century and this century?
Minor movements in rates can lead to huge movements in liquidity. The financial system is the financing system for new capital. It's a refinancing mechanism for debt.
The amount of debt outstanding is 300T worldwide.
Average 5 yr duration : Roll 60T/yr.
60T is 6x the new issue in the market in both fixed income + equity.
Global capEx is : $100T. GDP of the Usa is about : $20T
Half of capEx is raised through capital markets at about $10T.
But refinancing burden is 6x
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In refinancing positions interest rates are not a key thing.
Think of it as refinancing your mortgage or rolling your mortgage payments. What really matters is whether you're going to roll and whether a bank will take up a new mortgage and not what interest you pay. If you can't get a mortgage, then you're basically unhoused.
Bigger the debt burden the bigger the problem. That’s why you need liquidity.
All Central Banks kept interest rates low at y2k and 2008. They all wrongly read inflation dampening pressure as monetary deflation. But it was actually cost deflation caused by China entering the trade organization. They competed aggressively, which bid down prices in the goods market and on the high street worldwide. So Central Banks panicked because of this monetary deflation. So they all cut interest rates which encouraged more and more debt ( low interest rates are an incentive to debt )
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Let's go back to the British financial system. There was a credit crisis in the 19th century. In May 1866 Overend, Gurney and company (largest bill broker) collapsed owing about £11M equivalent to £1084M in 2021. It was a bankers bank kinda like today's shadow bank. Also, the Bank of England refused to lend them. So there was no lender of last resort.
This inspired Walter Bagehot, and he wrote a book called Lombard Street : A description of the money market, and published it in 1873. It was the dawn of the financial system. He came up with this idea called the Bagehot rule. A bank capable of lending freely to the system at a higher rate of interest against good collateral.
Right now, look at where we are. The Central Bank is doing the opposite. Lending at low interest rates against poor collateral.
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Q5 What does it mean when Fed lends and Fed raises rates through Fed funds. Is QE-QT like buying and selling and not lending.
Before the Fed founding in 1913 the banking system would get into panic time after time. People used to come to the bank and ask for money and eventually they used to run out of money and everyone used to panic and then the bank failed. Hence the idea of the Fed was to tackle this liquidity problem and lend to banks freely through discount window.
So what happened now was if you're a bank and there was a liquidity problem you used to call the Fed and go to the discount window and you'd have this folder of loan that you have on your balance sheet and you'd ask for loan against this collateral. This discount window used to accept a wide range of collateral.
But now the Fed has flooded the system with so much liquidity that banks don't have these problems.In the capital market it's often the refinancing mechanism. The new issue, net issuance doesn't grow that much. It's just the same company, the same people just rolling over the current debt.
The new money injected comes from the commercial bank or the government. Basically when you refinance you need someone's money to lend it to you. So like bank deposits. You can also have money come out of banks and banks can make that loan or if the money has already been created by Fed then someone else will reallocate those bank deposits through capital markets transactions like a hedge fund.
Taking your money and lending it to a corporation. That's another way liquidity can move.If you're doing QT then you're taking away the second part of the money supply. It creates tightening conditions where quantities come to play and it's not just about price.
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https://preview.redd.it/u0xg0tan26991.png?width=1447&format=png&auto=webp&s=d7d03b05a6616dbe4592c43f7997ed3543512162
They are all similar.
All marketplaces are driven by liquidity. The correlation has tightened over the last decade. Earlier 0.6 now 0.8.
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Net liquidity injection by Fed in US markets
Reported balance sheet nope think effective balance sheet ( How much liq Fed put into system ) Tracking b/w liq. and s&p 500 is closer than ever before.
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Q6 Is the Fed realistic in what it intends to do with the balance sheet?
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Fed Balance sheet
Nyc Fed came out into documents on Open market operations in 2021. In that projection you're looking at a sizable drop in something called Soma ( System open market account ) It's also called the amount of treasury Fed holds.
Sci Fi reference : Soma drug in "Brave new world". A feel good drug everyone has. So Soma = Fed monetary drug. Soma account will drop from 9T to 6T basically 3-4 yrs. The Fed intends to remove $1T/yr. If this goes through successfully you will have a huge drop in treasuries price. You've also got a reverse repo which could move up simply because rates are rising. Hence Money market fund rates might go up faster than bank deposit rates because of a lot of demand for reverse repo. So there is a risk of rising rrp to $3T by eoy.
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Reason :
- Not many investments yielding above rrp.
- People move out of their checking account because banks will give them 0% whereas the money market could give as high as 3% by eoy.
This will all suck a lot of liquidity into rrp and hence you could see M2 contract a lot in absolute terms because you're going to get disintermediation out of the banking system to mmf. So someone needs to be aware of these risks considering inflation is encouraging bank to make high demand for loans
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So at the end where is the bank gonna get funding from? This is all building upto bank reserves danger which are parked with Fed cashing accounts.
Refer S&P500 Fed liquidity chart above
If the Fed takes $2T out of the balance sheet the level s&p 500 will go is $3200. There is also a chance of another loss of $800B-$1T due to money sucked by rrp. Hence $2500 can easily come according to this logic. ( Michael burry came with $1800 S&P500 range )
This all hasn't even factored the real economy situation.
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Q7 Have you seen tightening this rapid or atleast the velocity at this level?
This QT is so rapid that $1T out of bank reserves are gone. Tga is also moving down. Soma hasn't moved yet because it's not plunging.
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https://preview.redd.it/7hb7euy406991.png?width=1443&format=png&auto=webp&s=67bf48d41d740779b9f0174522de610f491713a6
On paper this QT is 5x faster than before. But if you look at the chart it's similar to the y2k liquidity bubble. 1997-2003
So now where to take the position ? Go to the front end of the treasury curve and maybe start to dip a toe in the back end.
This judgment will all depend on where inflation settles, what underlying level of inflation is, global backdrop ex : Europe and Japan.
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Q8 Is the chances of pivot by the Fed so much lower now considering inflation is so much high.
The Fed is going with the approach whatever it takes and that includes crashing the stock market. Fed cares about mechanics of financial system so they want market to function
- orderly buying and selling.
- corporations able to refinance debt.
That's how the financial system impacts the real economy. Corporations need to borrow money on a short term or long term basis to make a payroll. As long as these functions are all fine. The drop in equity doesn't matter. It will rather help in tamping down the animal spirit of investors. People buying less will help demand inflation go down. So ans is yes its lower.
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Q9 Why is Vix still at 25-30 when you have a vicious sell off.
Right now we have vicious moves in 1-2month scale, not on a daily scale. We still haven't had a huge spike in daily realized volatility like netflix snowflake on indices. Hence as a result Vix hasn't spiked.
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Q10 Is an orderly selloff of -1% every week better than a dramatic selloff that could start panic.
Liquidity recedes correlation to Vix spike. Hence huge selloff over the course of year but Vix hasn't spiked.
Orderly demolition of risk assets is bad if you own puts. When you have these volatile moves there is a chance that something can break but you won't know where. Reaching s&p 3000 over the next few months is good compared to reaching in the next 2 days. Because then that would mean QE the next day.
Vix :
Volatility tends to begin in Fixed income or forex markets and then it gets created in equity.
You have started to see this sequencing. You have got high volatility in the Move index which is Vix for fixed income. And so now you're starting to get more volume in currency markets. Ultimately in the end it will all get triggered into the equity market when recession arrives.
So now the question is "Is recession coming" ?
Many of the investors are already convinced it's coming if not it's already here. Asia is already in a recession. Europe is just entering one and in the USA it will probably reach in 2-3 months time. Recent earnings reports out of Walmart and Target show whopping increases in inventories. (30%-40% jump)
All points to a slower economy in future.
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https://preview.redd.it/r60ungr706991.png?width=1432&format=png&auto=webp&s=db7d8fe307db97b4097993fff69e859531ad600b
There is also an important concept of spillover that we need to know about in month over month inflation numbers in Usa. The persistence levels of inflation are up if compared with 1970's rate.
Meaning for every 1% in monthly US inflation you get a spillover of about 0.8% in the next month and 0.6% in the month afterward. So that's a huge amount of persistence right there.
Last time we needed volcker to get us out of this persistence.
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Q11 Does QT moderate the amount of rate hike so that we don't need volcker?
Right now, the treasury fed fund rate that's implied by forward curve is about 3.6%. (now 2.9%) It's pretty hard to imagine if the Fed can get to these levels. Everyone views are around 3% because no one thinks the Us economy can handle much more than that.
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Q12 Fed and Ecb projection of balance sheet is showing QT and reduction in balance sheet by 2025. So will 95B/m rolloff inflation. ( $1T/yr )
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https://preview.redd.it/gnjdpqoe06991.png?width=1301&format=png&auto=webp&s=103dbb8a284f42f4f4fe017d041e7c60d73e51e3
First let's discuss Ecb. They will never be able to shrink their balance sheet. They are more worried about spread blow up ( Germany Italy 10yr bond spread )
As for Fed projection :
Nyc Fed projection 8 6 9 T by 2030. So if you're an investor the main question you should ask is, are these Central banks here for the long run. If yes then these balance sheets are only going to get increased as years pass on.
Hence start thinking about asset classes that you need to hold in an environment where CB's major aim is to continue to be the major player in the market.
So logic would say Gold and king of voldemort ( V king ) deserves a place in the long term portfolio.
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Q13 Why isn't Gold responding to CB's ballooning their balance sheet. Is the part of the reason that the market hasn't woken up to this fact or it's the case of a stronger dollar or it's just a timing issue.
If you combine assets that respond to monetary inflation. The answer is Gold+V king together. They match the gyration in liquidity 1:1. The fact that Gold did not go up when liquidity was expanding meant most of the impetus was showered in Voldemort assets.
But if you average the two out, it looks reasonable.
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Q14 Fed current power level = 3 X 2008 power level. Is it real power or not real power at all going forward.
The Fed 's main objective right now is to get the balance sheet down which in turn has strengthened the dollar.
We know that Fed and Treasury policy impact markets. Now think about what's important in the world for them. The answer is liquidity and global power. We all know what liquidity is, so let's talk about global power. It's also termed as economic power the ability to move capital around. Hence currency and credit are important.
So the dollar credit system is paramount within this world system.
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Q15 B. wood 1 vs B. wood 2 debate ? How does Boj fit here ?
This is nonsense. B. wood 1 never went away. Bretton Woods was the dominance of the dollar, basically setting it up at the heart of the world system so that trade flows and capital flows would move around the free world. It excluded China and Russia at that stage. We had the IMF and world bank to police that and you would happen to have a corollary of a fixed rate system. Now from that we got rid of the fixed exchange rate system but everything remains the same. So as the time went by the dollar remained more and more important.
There was a speech Janet Yellen made at Atlantic council. It's called friendshiring. What this meant was either you're a friend of America or you're a foe. There is no middle. Friends get access to dollar swap lines and foes don't.
Currently we have the world financial system divided into two bits. One controlled by Usa and the other nascent one by the Chinese. Ultimately what it means is there will be a challenge to the dollar system by china. Hence China is setting up equivalent swap lines to lure people into the yuan system.
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https://preview.redd.it/cvd81u5l06991.png?width=885&format=png&auto=webp&s=59952d82fa95f860b50460fce39ad7a5e9ced8aa
So Us is responding to this thread. We all know how everything in world is connected. Look at yen. It has devalued over 40 trading days by annualized rate of 83%. Markets can never do that to such a big currency only governments can do. So someone is shaking that tree by the orders of government. What you have seen in last 5-6 yrs across asian markets is something called Shanghai accord which came out in Shanghai G-20 meeting in spring 2016. It was an attempt to get strong dollar down. What happened was currencies went static across rate in asia with no volatility.
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https://preview.redd.it/3q950pqm06991.png?width=1426&format=png&auto=webp&s=c8d57bf5640861c40ae7dc26c8eda6647825f0a9
In the last 8-10 weeks that trend has broken. Someone is shaking up things in japan. Currency volatility in Asia has leapt higher. Yen is a trojan horse so China is being forced to tighten liquidity right now.
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https://preview.redd.it/adp80i3q06991.png?width=1425&format=png&auto=webp&s=bdde5c72b21e091dc01100e5cf900eefa3111c70
No one really knows what Ccb and Pboc will do next. April and May are normally the months for China to inject liquidity into the financial system. So what did they do in the last 2 months ?
They have taken 800B yuan out of the system. That is $120B dollars. That is a lot of money for them to do tightening.
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Q16 Why are Chinese tightening when their manufacturing Pmi is down and they are already in a recession. Shouldn't the Chinese govt., like the USA govt. in 2008, inject liquidity?
To try and stop devaluing your currency through Seven ( The Group of Seven i.e. G7 is an intergovernmental organization made up of the world's largest developed economies: France, Germany, Italy, Japan, the United States, the United Kingdom, and Canada.)
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Q17 Why is Fed 3x or 4x important right now ?
- Because of Basel 3 regulations. These regulations put constraints on bank's ability to lend.
- With Fed you get access to repo and standing repo facilities.
- Tax control of Eur-usd market ( About 5yrs ago under trump money was repatriated back to Usa )
- Importance of the fx-swap market.
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Q18 Does the Fed have reins. Is it a good thing or bad ?
Goodness : Everyone expects
The Fed has more power than anyone thinks of. They are the lender of last resort. This has basically expanded to everyone. It has expanded its role from lender of last resort back in Gfc to euro dial system through fx-swaps. It has also expanded its role as lender of last dealer to money market funds and also to the shadow banking system. If you look back at 2020 they have further extended lenders of last resort not only to banks but also to corporations.There is a corporate credit facility now. It has also tried to become a lender of last resort to businessmen and individuals through the ppp loan facility which basically works with the government. ( Asking banks to make loans to small business and people )
The Fed does not have the infrastructure to give money to people individually so they have to work through the banking system.
Badness : Forced by politicians
They have become more influential as well through regulatory aspects. Basel 3 expanded the regulatory power of Central Banks around the globe. Now they are moving to a role where the Fed may be able to suggest to banks that they have to do a certain type of lending. For ex : Making green loans to support green infrastructure. This model is not new. 30 yrs ago in Japan and much of South east Asia CB's operated in this manner. They would direct domestic banks to lend to certain key industries. Central banks don't stand in elections and if you work there you can never be fired. So you also don't know if they are making good decisions or not.
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In nutshell they have reigned
- Eur-usd system.
- They have complete control over reserves which they can manipulate with the wand of QE or QT.
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Q19 Discuss the importance of commercial banks?
These banks are important in driving inflation after Gfc 2008. Commercial banks lend to real people which in turn drives businesses. We cannot force banks to lend even though it does enforce an explosion of reserves which can then lead to an explosion of deposits. But these deposits aren't loans they are deposits from bank buying treasuries + Mbs from their own customer or must i say government. But if this inflationary cycle keeps on repeating then disaster is soon to happen. After the disaster , the Fed won't be able to stimulate bank lending. Hence questions we must ask is will Fed not be able to moderate bank lending and what if we have banks lend out way too much in 2022-23. Does Fed even have control over that?
So many economists are betting that the next phase would be introductions of digital currency. It would be a toolkit for the Fed to be able to do things like above.
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Last year Saule T Omarova, a professor in law from one of top bank regulator was nominated for paper on how economy would operate in CBDCs
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3715735
In nutshell :
The Fed would make loans and determine who gets the money or not. We're not there just yet or we're still building technology and infrastructure for it. If you look at 20 yrs in the future you would think the Fed would certainly be in fashion for political want. Meaning politicians would have more influence over who gets money. So make sure you have friends in politics.
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https://preview.redd.it/fb5dlcjs06991.png?width=1511&format=png&auto=webp&s=3c4955924292ad0291fe4b247a2f1016925308dd
Less bank credit creation in 2022 rivals historic growth since last year. Bank deposits look set for first annual decline since early 90's which sounds deflationary but that decline from bank deposits is due to QT & reverse repo and not credit creation itself. ( Creating money using alchemy )
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Q20 The Fed doesn't have the ability right now to stop banks from lending. What happens if inflation goes to 10-12% because of this ( lending is like creating money ) ?
There are some segments in the economy which are still okay. Bank credit creation is strong. At least well enough to lend people. We're still in an inflationary environment where everything costs more. Everything costs more hence everyone needs to borrow more to buy things you used to buy.
We are definitely going to have a slower economy in the next 2-3 years with a recession somewhere. It will be then you would expect credit creation to slow down. So we don't see disasters in this manner but yes the storm clouds are approaching.
The hurricane Dimon was probably talking about is if there is a recession, still the large corporations will help accelerate loans in the near term because they will draw down predetermined loan credit lines when they need them. This is feasible. But the main issue is how banks will fund their balance sheet and that kind of lending in a recession environment where deposits must be shrinking and money markets are tightening hugely. And then there is also the bigger problem of the Fed accident during QT.
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Q21 Who to buy what in treasuries i.e. bond market and why ? And why not if so?
There are a number of moving parts when you decide to go on shopping for treasuries.
- What is the underlying inflation
- Will growth actually slow
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The most likely scenario is we are gonna have a repeat of what we saw precovid.
Let's discuss inflation part :
In Usa we have 2-3% inflation targets. That's largely demographically driven because of an aging society as all west have low inflation. The deflation of Japan shows us that. But it will take time to get there due to the persistent nature of inflation. Bond market will price near term surge and hence we will not get an unnecessary hike at the front end. Hence the Fed fund would go as high as 4% only and not above.
Now for growth part :
Back end of the treasury is driven by the term premium. Term premiums are already very negative. And they can go more negative as well. What we investors need to know is equity never rallies until there has been a subsequent or previous surge in the fixed income market. 10 yr bonds prices have to move significantly up before equity begins to turn. In other words you're gonna see a drop in long yields at some stage. And that my friends is a recession driven environment where first long bond yields go up while stocks fall and then we will see that turn or rally up in equity.
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Another way to look at it is through a S&D and B&S lens which could be contradictory to above.
Supply :
So if you account for QT the supply of treasuries is gonna be $1.5T each. That's a lot for the market to handle in this slowly decreasing liquidity. Hence we are seeing large moves with small volumes.
Demand :
For the past few years we had different sets of marginal buyers. Precovid : It was Hedge funds doing basis trade. Comparing today to that time they have taken exposure down by $1T. Past 2020 : Fed (doing QE) and commercial bank (picking QE cash to work) Now : All have gone away.
We are going to have a new buyer somewhere down the line. We just don't know who it is. Foreigners aren't gonna buy because when they do they have to Fx hedge it. When you Fx hedge it's based on front end rates and front end rates are going higher too like back end. So it's not worth it for them. So we don't know who it is gonna be hence there is going to be a phase of price discovery that is probably gonna be volatile and probably much higher in yields than the marginal buyer of past years.
The Hedge funds buy these treasuries as part of a spreadsheet. They don't care where yields are by themselves. Fed too doesn't care and neither does commercial banks which are regulatory driven. Foreign banks are partially regulatory driven and in part what they have at home is negative notes. So if you want it to move to common folks who look at it as fundamentally then you're gonna need higher yields. Hence rates will go higher than normal levels.
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Q22 Discuss aging demographics in 2022. Is it really deflationary like Japan taught us or something has changed and we are starting to see its actually inflationary? How does it affect bonds and stocks?
This idea of the aging demographic being inflationary and not deflationary is a very fascinating concept. Basically what these new papers are saying is when you have lower supply of labor and if you decrease the supply of labor in the labor market what you're gonna get is higher prices because wages will go higher due to shortage of labor.
Ex : A person is retired at 60 who no longer is producing goods and services into the economy. However he continues to consume products or buy yachts or whatever else by living a high standard of life or the same standards he used to when young.
So monetary demand for more goods and services reduces supply of labor. This means higher prices.
But these so-called old economists point to Japan as to how the aging demographic can be deflationary. People who hold these views believe that in a global world, labor is a global pool. So even though Japan was itself aging globally there was still an enormous supply of labor from China and from developing countries. But that's changed now. Going forward, China is also aging pretty quickly because of the one child policy. So you're seeing more people buying and consuming but fewer fewer people working. So structurally it seems inflationary.
So bonds will be bought and you should dca whereas you don't touch stocks until bond yields peaks.
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Q23 Discuss what other factors you must think about making your first bond purchase.
Summary : What Central Banks will be doing.
Although in the previous statement we have dismissed foreign banks like Ecb and Boj but they still do play some role in the bond market.
Reason :
a) Bonds tend to correlate much more than equities do. The fact is if Ecb loses the battle on inflation which it looks like it is right now rapidly what effect does it gonna have on Bund. The charts don't look great and could easily feed into the treasury market.
b) The other thing to look at is the devaluation of Yen. It continues to devalue itself as we speak. Add more bond buying ( they have yield controls ) by them recently. At some point reality will hit Boj and they are gonna have to tighten policy and that is going to create a ripple effect in the bond market.
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Hence we may get pressure on bond market through these two shocks. Hence we need to dip a toe in the long end of the market but it would be more comfortable to be on the front end.
Overall : A shock by Boj to let their 10yr bond go to 50bps ( current 0.22% ) could surprise a lot of people and most of them won't be prepared for that. Idea being global bond investor will then look at german 10yr bund in same way as they look at 10yr treasury yield. They just hedge risk 10yr jpy government bonds. So if bund goes from 1 to 3 ( current 1.51% ) then 10yr treasury will go from 3 to 5 ( current 3.2% )
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Q24 Till now we have established conservation on how high the Fed funds go (max 4%) or how high short end go. But if you look at financial conditions in the Goldman Financial index which is related to GLI and has a lot more factors like dollar, interest rate, Fed tightening monetary conditions. Does equity have more room to downside? Does credit spreads need to widen and can you discuss more about why 3.5% or 4% is the highest Fed fund note 5%. ( A tail risk scenario )
You don't necessarily have to look at the Goldman financial index. Just look at the treasury market and dissect it.
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https://preview.redd.it/etimorbv06991.png?width=1098&format=png&auto=webp&s=65c8c4037e283452cc23e95ebc353c71484d5bec
Front end (interest rate exp) : 1-3 yr , 1-5yr spread for what markets are pricing for Fed rate hikes.
Back end ( Term premia ) : 5-10yr is for whats a crude measure and not a bad measure for what term premia on bonds will be.
Right now the yield curve is steepening on the front end (very vicious ) and flattening ( very vicious ) on the back end.
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https://preview.redd.it/zw8wp7ly06991.png?width=1427&format=png&auto=webp&s=50865b9993f2b7355b51c885a6591ac7e864f00b
This is telling us that the rate expectations are going up and the term premia is collapsing. Collapsing term premium is all about changing risk appetite.
It's all telling us that bond investors don't want to take any risk. They want the safety of a safe asset which is a 10yr bond.
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Now let's look at what it's telling us from a corporate point of view. Corporate raise money in about 3-5yr areas. So the first point being the cost of financing has gone up because of the front end rise. Secondly the appetite for debt has collapsed because of much more negative term premia.
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https://preview.redd.it/n8ens8t716991.png?width=1443&format=png&auto=webp&s=47f69b146209ad61dc85ac4c1981f951006bb00b
So this configuration of flat yield curve with giant belly around mid duration yields is the worst outlook for any bond investors. Much worse than inverted yield curve.
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https://preview.redd.it/1p68iika16991.png?width=1472&format=png&auto=webp&s=0141dd142f78d14e19e1e7ddd1eae1b3ca5dad03
Now you need to dissect the front end and back end movement.
So now you're seeing a black line ( rate exp ) i.e. 1yr fwd 10yr out suggesting terminal fed funds around 3.5%. Now this orange line is term premia measuring risk appetite of investors in fixed income market. This has collapsed.
Now what youre seeing here is black line cross orange line called the credit market death cross. This tells us within 12m a big problem will arise in credit market. Hence youre seeing credit spread widening about 6-12m after this above pattern unfolding.
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Red : Down below is a chart that have z score of different credit spreads like high yield, junk (CCC-B, B-AAA) , quality spread (BAA-AAA) these sort of things in index
Yellow : 10-5y US treasury yield inverted and advanced by 12m.
What happening this is tracking exactly the movement what the treasury yield curve is suggesting.
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https://preview.redd.it/ziqd088c16991.png?width=1325&format=png&auto=webp&s=c92f0b6efb1083c257063a9feb2be43c4b35d80d
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Q25 Is HYG down -10% Ytd because of credit spread widening or rate hikes ? Do you think the Fed thinks about term premia? Do they want it to go up or down ?
Credit markets are imploding. But this is due to rise in risk free rate which is fed but not widening of credit spread as every noob on twitter or wsb will say.
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https://preview.redd.it/wptg4icd16991.png?width=1403&format=png&auto=webp&s=db9c176346c39e94a40427653173260a00d63a97
There is a hedged version of HYG called HYGH. ( interest rate version of HYG )
You can clearly see whether it's because of credit spreads widening or because of interest rates.
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The Fed does care about term premia and they want it to go wider. That's what QT is all about.
QE : Compress term premia. So people shift portfolios to other assets and take out loans for housing.
QT : Expand term premia and Fed let markets digest more treasury.
QT for treasury is a bit strange. See Mbs for example. Once we know it's gonna be QT then markets become aware of it and spread b/w agencies and 10yr widens significantly. For treasuries it hasn't been much. We don't know if markets are slow or something else is happening that we don't know of.
Over the coming months a lot more treasury will come into markets. Hence term premia will expand a lot more. Who knows what credit spread will do going forward but everyone's guess is it should widen a lot. If this doesn't happen then that would mean departure from history.
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Q26 What is the difference between good liquidity and bad liquidity? How does it result in a change in the FX market , currencies as well as the yield curve?
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https://preview.redd.it/lkglbx6e16991.png?width=935&format=png&auto=webp&s=2315e108013158d20017db014ee8b57e92044a12
When we think of liquidity we should think of quality and quantity. Now this is what drives the fx market, fixed income market and also where we take the yield curve as probably the best measure of the fixed income market.
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Look at the graph below
Good liquidity is created by the private sector. Corporations create a lot of cash or households manage to produce lots of savings. This cash generation is coming from a vibrant economy. A vibrant economy then causes currency strengthening.
Bad liquidity is created by Central banks. It's bad from a forex point of view and hence the currency weakens.
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So what you want to look at from a currency perspective is to subtract Fed liquidity from private sector liquidity creation. And that will tell you how the forex market will be moving. What traditional academics do is they lump all money or liquidity together and start to compare US liquidity with let's say Canada, Japan or Mexico. This way above is a more accurate way of predicting currencies. (Looking quality mix and then taking that relative)
The other dimension to look at is what drives fixed income market.(sum of liquidity which is pure quantity and not quality)
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So the private sector creates liquidity. It's creating a lot of cash. The Fed is the one that creates that cash. Domestic investors are not bothered where it came from and if there's a lot of equity they can just go and use that liquidity and go down risk of bonds, stocks, voldemort asset class, commodities or lets say credit.
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In layman terms :
When corporations do liquidity they go to banks for borrowing which in turns creates goods and services. Meaning a good debt will be invested.
But when Central banks do liquidity it's providing money to the government to spend. They will then give it to friends or people with special interest. This in turn creates bad debt.
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Q27 Why is PBOC ( People's Bank of China ) not stimulating given they are in a recession ? Why is their strategic priority stability if China has many trillions of dollars as reserves ? Are they really afraid of yen-like depreciation that they don't want to stimulate right now and suffer the same fate as them ?
To answer these questions we need to look at the evolution of capitalism. As capital in this regime becomes mature you want to export itself and go international. For this you need purchasing power and hence a strong currency gives you that.
The Chinese want yuan to be used as a vehicle and savings currency. So basically a strong yuan will enhance that situation. So they want stable currency because they look for stability.
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In capital wars we learn that the goal of Chinese authority is to challenge the dollar. They want to get rid of it particularly in Asia (India recently purchased oil from Russia in yuan ~ Market Insider) and the route to do it is basically by three paths.
- Re-denomination Chinese trade in yuan.
- Open Bond market to foreign
- Creating a digital currency
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Q28 Why is China setting up so many swap lines around the Asia region ?
The purpose of swap lines is for yuan denominated trade. So basically they are preparing for Euro-Renminbi.
To stop that someone is shaking up the tree in Japan vigorously to put pressure on yuan. Yen is your Trojan horse from Troy which is trying to break that stability that the Chinese government is so proud of by putting pressure on China given the integration of the Japanese economy with china.
Look at Korea, India. Their currency has been devalued too recently. The Chinese are trying to stop this storm. This long term geopolitics macro politics objective is to take this as no1 priority over the strength of the Chinese economy i.e. health of real estate, steadying credit market, stock market etc.
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Q29 Discuss the Chinese balance sheet ?
Pretty much everyone is saying China will do a monetary ease. They did a big one after gfc. They haven't really done anything since 2016. They do a very tiny stimulus ( did this yr in april ) hence their balance sheet is flat line.
They love growth and stability over injecting Soma drugs into the system.
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Thank you guys
Sorry for ruining your Saturday day or night w/o any jokes. I really have no clue when to post this kind of sh9t. I’m still figuring it out.
“Keep enjoying life. Stay in cash and park with mmf in rrp if you really wanna be in safest asset or just take out your money from bank coz if we are going into depression there’s gonna be bank run”
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With lots of love
Regards
Uchiha