Over the weekend, urgent events in advance of the Fed’s rate cut decision on Wednesday have prompted me to do something I’ve never done in 30 years of forecasting markets and the economy.
I’ve moved my timeframe and will be hosting an urgent briefing at 10 a.m. tomorrow — Tuesday, July 29, at 10 a.m. Please keep your eyes peeled for details.
Three red warning lights cropped up that demand your attention.
I’m going to address specific actions to take in tomorrow’s urgent briefing, but in today’s Swan Dive, we’re giving some real context to the reason for organizing an urgent summit.
Again, please pay critical attention. This week’s events could profoundly impact your wealth in the months ahead.
Let’s begin…
Expensive, Extended, and Exposed
The Shiller P/E ratio on the S&P 500 hit 39x, the highest since the 2000 Dot-Com bubble burst.
Adjusted for inflation and based on the last 10 years of earnings, that puts us in rarified — and risky — air.
Historically, the market has only been this expensive 4% of the time.
The Buffett Indicator, which compares total U.S. market cap to GDP, has climbed to ~220%, surpassing dot-com levels.
As Buffett himself warned: “If the ratio approaches 200%, as it did in 1999, you are playing with fire.”
Meanwhile, the U.S. now accounts for less than 5% of global population but nearly 50% of global market value — a gap eerily similar to the divergence seen at the height of the dot-com mania.
Europe, China, and India represent a much larger share of the world’s population, but their market capitalizations remain proportionally far smaller.
Can the U.S. remain this dominant forever?
To top it off, central banks aren’t waiting for a crisis — they’re flooding the globe with liquidity before one.
China’s M1 money supply has jumped +4.6% YoY to $16 trillion, doubling the U.S.’s M1 and accounting for 33% of the G10’s total M1.
Liquidity this large usually brings price pressure in tow. Inflation may be poised to rear its head again — just as markets hit peak euphoria.
Which explains why …
Fed Is Injecting Money Into Repo Market
Late Friday, the New York Fed quietly doubled the scale of its overnight repo operations for the second time in a month. It’s now injecting up to $300 billion in daily liquidity just to keep the global plumbing functional.
The move barely made headlines — but seasoned watchers of the credit markets know what this kind of intervention portends.
In 2019, similar action preceded a crisis.
In 2025, it’s just the cost of holding the system together.
Inventories Are Building — Fast
The latest Commerce Department data shows that business inventories are rising faster than sales.
The inventory-to-sales ratio just hit 1.48, the highest level since the pandemic lockdowns.
That means businesses are sitting on goods they can’t move. Not exactly a sign of consumer strength.
Walmart’s CFO told CNBC this weekend: “There’s pressure at both ends. Inventory is too high, but price cuts aren’t moving product like they used to.”
Employment “Resilience” Is Masking Rot
Friday’s jobs report showed an uptick in non-farm payrolls — on the surface, good news. But dig deeper and you’ll see that full-time employment actually declined, while part-time and gig roles surged. Labor force participation also ticked down.
Goldman Sachs put it gently: “The underlying composition of job growth raises questions about the durability of the recovery.”
The Fed’s Tightrope Walk
Markets give the Fed just a 4% chance to cut rates on Wednesday. The real “action” this week will be in the Fed’s commentary on cuts for 2025.
On the surface, that suggests a calm week, with individual stocks moving amid a busy earnings week – with four of the Magnificent 7 stocks reporting their Q2 earnings.
My forecast is different.
As noted, I’m making an urgent forecast regarding the Fed’s move this week, the real economy and the overvalued stock market early tomorrow – 10 a.m. EST, Tuesday, July 29, 2025.
Make a note. Look for details.
A rate cut this week would mark the Fed’s first rate cut since it hurriedly cut interest rates last year.
But, as all of the data in this issue of Swan Dive suggests, cutting into weakness now could be interpreted by investors as desperation.
Despite that, President Trump still continues to call not just for lower rates – but a move down to 1% – a move that, should it occur, would turn a hint of a crisis into an actual one.
President Trump has already preempted the announcement, telling supporters at a rally in Phoenix that “Powell better not screw this up,” and repeating his call to “slash rates aggressively and get this economy roaring.”
Powell, for his part, has kept to the script — the pressure is unmistakable.
AI Still Driving the Train
Despite the macro tempest rising, Nvidia, Microsoft, and Alphabet continue to juice the index.
The S&P 500 closed above 6,350 on Friday. The Nasdaq posted its eighth straight weekly gain.
Do not ignore this warning: the rally is dangerously narrow.
Nvidia and Microsoft now make up nearly 15% of the S&P 500’s market cap — an unprecedented concentration.
At the peak of the dot-com bubble, the combined weight of energy, health care, utilities, and consumer staples was higher than that.
As JPMorgan’s Marko Kolanovic said bluntly: “This is not broad-based participation — it’s a mania in a few names.”
Manias don’t tend to end well.
Meanwhile, Oil Creeps Higher
Brent crude closed just shy of $70 per barrel on Friday, its highest level since March.
Supply cuts from OPEC+ and rising summer demand are behind the spike, but some traders suspect a geopolitical premium is being priced in.
The Strait of Hormuz remains volatile, and U.S. Navy presence has increased again in the Gulf.
With oil rising and money supply flowing, inflation may not be dead after all. A rate cut now would only fan the flames.
Political Theater, Economic Consequences
Behind the scenes, pressure is building across multiple fronts:
- The Trump administration’s $550 billion industrial fund is set to begin allocating capital this week, with early disbursements favoring red-state infrastructure and AI-linked manufacturing projects.
- Treasury Secretary Scott Bessent told Bloomberg: “We will pursue targeted growth regardless of what the Fed says.”
- China, sensing an opportunity, devalued the yuan slightly in after-hours trading Sunday.
Currency manipulation charges have already impeded the US-China trade deal. As of yesterday, the two countries tacked on another 90-day extension to trade talks.
If the Fed cuts this week, the markets will cheer.
But what are we really celebrating? A desperate pivot? A pause before the next shock? The rally is real — but it’s built on increasingly fragile ground.
The indicators don’t lie: liquidity stress, inventory pileups, overvaluation, and labor market illusions all say the same thing.
We have a massive week ahead:
- Tuesday: Consumer Confidence and June JOLTs Job Openings
- Wednesday: US GDP for Q2 comes out and and we’ll get the Fed’s rate decision (suspense)
- Thursday: June Personal Consumption Expenditures (PCE) inflation data
- Friday: July Jobs Report
Massive data week. But none more pivotal than the Fed’s announcement on Wednesday.
We’ll break it all down and discuss what it means for your wealth tomorrow at 10 a.m. at our urgent investor summit ahead of the Fed decision.
Don’t miss it.
~ Addison
p.s. “Are you saying,” Grey Swan member Jeffrey H. asked this morning,“now is a good time to sell equities and cash in on earnings?!”
We’ll address this question directly in tomorrow’s urgent briefing at 10 a.m. EST.
Special Announcement: Please pay attention. The urgent situation at the Fed is playing out so fast that I’m doing something I’ve never done in 30 years of forecasting market events. I’ve arranged an urgent broadcast for 10 a.m. ET tomorrow (Tuesday, July 29) in advance of the Fed’s meeting tomorrow. I believe very strongly this could be the catalyst that cracks the most significant bull market we’ve seen since the dotcom boom and bust. If so, your retirement savings are in grave danger. You won’t want to miss our urgent briefing. Stay alert. Tomorrow, 10 a.m. |
Your thoughts? Please send them here: addison@greyswanfraternity.com
