![]() ![]() While over bullish dumb money indicators have not always signaled a market top, they are always a condition for a top. What there will be is the end of this massively risk 'ON' phase, the job of which always was to turn Q4, 2022's unsustainable over-bearish sentiment profile on its ear, to its opposite condition. When the new steepener follows, in concert with an oncoming recession, there will not be much enjoyment. Goldilocks, and the Tech-led stock market rally have enjoyed the inversion, as would be expected. The Fed sure was tardy, but gold had been forecasting the hawk for quite some time before the eggheads actually got off their "transitory inflation" stance. Recall that gold led the 2020 inflation phase by a country mile and then led the correction in the traditional inflation trades (commodities, resources and their producers) by another country mile as it saw the Fed donning its hawk costume as far back as August, 2020. Gold is sought after when monetary regulators are indicated to be either losing control (under pains of inflation) ** or going overtly dovish (under deflation) while stocks would tend to either rotate toward commodity/resource producers and certain cyclical/value areas under inflation or go flat out bearish under deflation (as opposed to disinflationary Goldilocks) or a more virulent stagflationary inflation. While there is much play in the wheel, so to speak, with respect to timing between the correlations of gold and the stock market (SPX as the broad US measure) to the yield curve, gold is generally correlated to a steepening yield curve and stocks are correlated to a flattening curve. Nor did the next yield curve inversion in 1989. That situation, after a couple of recessions (shaded areas), resolved pleasantly disinflationary (as opposed to outright deflationary) as the resulting steepener – after several stops and starts – never did become impulsive. ![]() Today's situation is testing the inverted levels of uproarious events of the late 1970s to early 1980s. ![]() While people tend to worry about a yield curve inversion being a trigger to economic recession, it is actually the steepening that follows that usually brings the trouble, whether it be inflationary or deflationary. The 10yr-2yr curve is burrowing southward, perhaps for a test of the inversion low earlier this year. Goldilocks lives during a yield curve flattener. Goldilocks, favoring Tech, Semiconductor and Growth stocks, has held sway as we also projected. There are plenty of other high risk indicators currently in play on the macro but focusing on one important indicator, let's note that the extreme yield curve inversion that has taken place over the last year indicates that time is running out for the current macro backdrop, which sees a hawkish (and once again tardy, as it was with its silly "transitory inflation" blathering a couple years ago) Fed tilting at the inflationary windmill it was primary in creating. Here is one post discussing the rally in November, 2022. It is important to have credibility and indeed, NFTRH planned for a potential humdinger of a bear market rally back in Q4, 2022 based on the inputs of then extremely over-bearish sentiment, the bullish mid-term election cycle (which on average projects bullish for a year, post-election), a coming fade in inflation signals (with the attendant hopes for a softening Fed) being its primary elements. As the 10yr-2yr yield curve inversion plays out, the time is coming for a turn in fortunesīefore proceeding, I'd like to remind you that this article is not written by a perma-bear. ![]()
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