The Biggest Threat to Today’s Rising Markets

Investors continue to charge into the stock market. And when your 401(k) balance is soaring higher, it’s easy to overlook the fact that stocks aren’t the only game in town.

Not only that, stocks aren’t even the most important game in town.

It’s credit markets that matter. Without credit, from overnight lending to financing governments for 30 years or more, financial markets get far more unwieldy.

Right now, liquidity is drying up in the bond market at its highest level yet:

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Market liquidity in the bond market is now worse than during the 2022 bear market or even the Great Financial Crisis.

With bond yields back to 5%, and with markets showing signs of concern over the potential replacement of Jerome Powell at the Fed before his term ends, the bond market isn’t quite in full revolt.

But it’s trending in that direction. And investors may find that in times of rising illiquidity, increasing your own personal liquidity by raising cash may be the prudent move.

~ Andrew

P.S. Yes, as an asset without any counterparty risk, gold is also a standout in a panicking credit market scenario.

But even in that situation, gold could face a selloff as investors rush to cash, the final say in liquidity in today’s day and age.

That’s what happened in 2008 and 2020 as credit markets cracked. But both times gold was the last asset to sell off, and a sign that the crisis was peaking, before moving to new highs. Bitcoin, which was created in response to the money-printing that followed the 2008 crisis, saw a similar move in 2020 – an initial flush lower, before a face-ripping rally.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

Investors continue to charge into the stock market. And when your 401(k) balance is soaring higher, it’s easy to overlook the fact that stocks aren’t the only game in town.

Not only that, stocks aren’t even the most important game in town.

It’s credit markets that matter. Without credit, from overnight lending to financing governments for 30 years or more, financial markets get far more unwieldy.

Right now, liquidity is drying up in the bond market at its highest level yet:

Turn Your Images On

Market liquidity in the bond market is now worse than during the 2022 bear market or even the Great Financial Crisis.

With bond yields back to 5%, and with markets showing signs of concern over the potential replacement of Jerome Powell at the Fed before his term ends, the bond market isn’t quite in full revolt.

But it’s trending in that direction. And investors may find that in times of rising illiquidity, increasing your own personal liquidity by raising cash may be the prudent move.

~ Andrew

P.S. Yes, as an asset without any counterparty risk, gold is also a standout in a panicking credit market scenario.

But even in that situation, gold could face a selloff as investors rush to cash, the final say in liquidity in today’s day and age.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

But Green is describing more than just a new calculation. He’s talking about a new form of misery.’ It’s a poverty where you may still have most of the accoutrements of middle-class life. But your relationship with the financial elite has changed: you are indentured to the credit industry — for life.

Historically, when the Fed has cut into inflation above 3%, one of two outcomes tends to follow:

A brief reprieve, followed by a larger inflation wave (see: 1970s).

A crisis born from cheap money rather than expensive money (see: housing in the 2000s).

We are heading into another round of cuts with:

• A still-bloated balance sheet

• A new digital plumbing that auto-funds the Treasury

• Hard-asset markets flashing warning lights

Paul Tudor Jones summed it up in one dry quip: interest expense is now one of Washington’s largest bills; commodities are “ridiculously under-owned”; and “all roads lead to inflation.”

The Fed’s flip from QT to easing doesn’t end this inflation episode. It likely begins its next season.

The question investors should ask themselves isn’t whether this trend is sustainable – it isn’t.

Instead, they should ask if the $2 trillion increase in Google’s market cap has sucked capital away from other promising parts of the market – and if so, where investors can expect a rally when Google reverses.

Long have we dwelt on the corrupting influence of funny money on capital asset prices and on the economy. Everything gets distorted, perverse…and false. We get high prices. We get low prices. What we don’t get are honest prices.

Yesterday, we looked at the ‘small time crooks’ — ripping off the public for a million or two.

Today, we move to the big fry.

You’ll recall that the money in question was never earned by anyone. No one has a genuine claim to it. And what kind of apple falls from this funny money tree? Just what you’d expect…a funny one…with the worms already in it.