One cannot predict the future, but if they are wise, they can try and learn from the past.
We are witnessing a major shift, from decades of QE to possible decades of QT. These environments are just parts of the eternal cycle. Just like summer comes and goes, so do the balances of the economy.
Now we might be witnessing a super-cycle. Currency cost is at a 5000 year low. And this is not a typo. Never in the history of the economic world had one currency so little value.
There is literally no way down for currency strength.
Given that we are in the end of one cycle, we should try to analyze what is changing and what is not. The question arises: How can the economy balance in this new period?
Bonds
Yield rates went to basically zero. After 40 years of progressively lower yield rates, bond prices increased to all-time highs. They cannot possibly get more expensive. After all, the cost of bonds depends heavily on the direction yield rates move. With progressively higher yields in the years to come, bonds will significantly underperform.
The way we invested, is no more!
Yield Rates
We can compare the "total bond payments" to the total GDP to get a sense of just how much money is given into bonds.
We are witnessing a clear breakout of a long-term downwards trend. And there is plenty of headroom for yield rates to increase, with the government not going bankrupt.
There is plenty of room for bonds to drop, and plenty of room for yields to increase without risking bankruptcy.
Yield - Equity Correlation
Believe it or not, a shift from QE to QT and vice versa leads to actual correlation changes.
As we all know, high yield rates lead to bad performance of equities.
An apparent weakness in the last few years might lead us to believe that even with record-low yield rates, equities have hard time keeping indices going higher.
Bond - Equity Correlation
In periods of low interest rates, equities and bonds move in parallel directions. They behave as a diversification couple.
In periods of high inflation / high rates, equities and bonds move in opposite directions. They behave as a hedge couple.
Silver - Equity Correlation
During QT (progressively higher yield rates), the correlation between Silver and Equities was positive. They both moved in parallel.
During QE, the correlation went negative. An increase in SPX price was due to Silver dropping, and vice versa. In this period, SPX and Silver work as a hedge-pair. A decrease in one part of the investment is counteracted by an increase in the other part of the investment.
Bubble-based economy
After the Great Depression and WW2, a major shift occurred in the way the US economy worked. From a steady SPX*Silver multiple, to an exponential one. (Fiat Currency Period)
In a normal economy, SPX * Silver is relatively horizontal. Growth can occur either in commodities or in equities. Just like knowledge is not exponentially increasing, just like poverty and hunger is not exponentially decreasing, so must the real output of the economy stay relatively stable.
But this period of Fiat Currency seems to be ending.
The SIlver*SPX chart is showing signs of a blow-off-top move. This might be the beginning of a major balance shift. But for now, horizontal movement is expected.
This means that any growth in Silver will be due to a drop in SPX, and vice versa. Also, SPX cannot increase more than Silver can allow it to. The Silver/SPX correlation seems like it will return.
And as for Gold...
Gold cannot grow anymore against Silver. In relative terms, Gold is significantly overbought when compared to Silver.
Given that SPX / Silver correlation may get positive, and with the overpriced state of Gold, it may not be extreme to witness underperformance of Gold against equities.
Right now, SPX / Gold correlation is in record-high levels.
While this could mean that correlation could drop in the future, this might take decades to change. Correlations take time to change.
A Gold-to-SPX bull should think twice before concluding into the classic FOMO-Gold / TRASH-Equity mentality.
Not all is well for equities however.
With bearish dynamics for SPX in the months to come, and with so significant SPX-Gold correlation, it seems that in the following years the economic weakness might take everyone down.
Everyone except energy perhaps...
While near-term weakness may occur, long-term charts tell a frightening story.
And the ramifications may be hard and painful...
Farmers (and humans in general) may have an incredibly hard time to even survive.
From all the above conclude to some curious balances of power:
SPX and Silver seem to move in tandem. Silver may over-perform against Gold. Oil (energy in general) seems like performing better against anything else.
On the numerator we have co-relating indices (Gold, SPX, Bonds) and on the denominator we have USOIL by itself.
Alarmingly, Crude Oil by itself can win all 3 indices by itself.
Tread lightly, for this is hallowed ground.
-Father Grigori
P.S. I plan to update this idea with an analysis on Crypto, comparing them with the other major forces of the economy.
We are witnessing a major shift, from decades of QE to possible decades of QT. These environments are just parts of the eternal cycle. Just like summer comes and goes, so do the balances of the economy.
Now we might be witnessing a super-cycle. Currency cost is at a 5000 year low. And this is not a typo. Never in the history of the economic world had one currency so little value.
There is literally no way down for currency strength.
Given that we are in the end of one cycle, we should try to analyze what is changing and what is not. The question arises: How can the economy balance in this new period?
Bonds
Yield rates went to basically zero. After 40 years of progressively lower yield rates, bond prices increased to all-time highs. They cannot possibly get more expensive. After all, the cost of bonds depends heavily on the direction yield rates move. With progressively higher yields in the years to come, bonds will significantly underperform.
Yield Rates
We can compare the "total bond payments" to the total GDP to get a sense of just how much money is given into bonds.
There is plenty of room for bonds to drop, and plenty of room for yields to increase without risking bankruptcy.
Yield - Equity Correlation
Believe it or not, a shift from QE to QT and vice versa leads to actual correlation changes.
As we all know, high yield rates lead to bad performance of equities.
Bond - Equity Correlation
In periods of low interest rates, equities and bonds move in parallel directions. They behave as a diversification couple.
In periods of high inflation / high rates, equities and bonds move in opposite directions. They behave as a hedge couple.
Silver - Equity Correlation
During QE, the correlation went negative. An increase in SPX price was due to Silver dropping, and vice versa. In this period, SPX and Silver work as a hedge-pair. A decrease in one part of the investment is counteracted by an increase in the other part of the investment.
Bubble-based economy
After the Great Depression and WW2, a major shift occurred in the way the US economy worked. From a steady SPX*Silver multiple, to an exponential one. (Fiat Currency Period)
But this period of Fiat Currency seems to be ending.
And as for Gold...
Given that SPX / Silver correlation may get positive, and with the overpriced state of Gold, it may not be extreme to witness underperformance of Gold against equities.
Right now, SPX / Gold correlation is in record-high levels.
A Gold-to-SPX bull should think twice before concluding into the classic FOMO-Gold / TRASH-Equity mentality.
Not all is well for equities however.
Everyone except energy perhaps...
From all the above conclude to some curious balances of power:
SPX and Silver seem to move in tandem. Silver may over-perform against Gold. Oil (energy in general) seems like performing better against anything else.
Alarmingly, Crude Oil by itself can win all 3 indices by itself.
Tread lightly, for this is hallowed ground.
-Father Grigori
P.S. I plan to update this idea with an analysis on Crypto, comparing them with the other major forces of the economy.
Comment:
There are two ways to think about price. One of them is to consider it by its altitude. Another way to consider price is relative performance/curvature.
KST gives us a way to measure accelerating/decelerating velocity. It behaves similar to how Stochastic RSI does.
KST from different timeframes should verify one another.
Bullish 12M chart:
Bullish 6M chart (with asterisks):
In the 6M chart the KST-Based MACD prints a bearish signal. This however is an early notification of velocity deceleration, not necessarily a 180-degree turn (SPX crash). A trader must manage their expectations.
Bearish 3M chart:
Bullish 1M chart (with asterisk):
Specific care must be taken when reading KST. I am only recently began experimenting with it. KST is usually not warning us about anything. It rarely prints divergence signals. Filtering out the truth from the lie is hard and prone to subjective opinions.
While the 1M chart shows a bullish signal, the 3M chart showed significant KST resistance above. This means that the 1M chart will have a hard time oscillating upwards. The 1M chart might be brewing into a bearish divergence.
Bearish 1W chart (with asterisk):
Price might continue moving upwards with a downwards moving KST. Many weeks/months may be needed for significant bearish divergence to develop. Both 1M and 1W chart show evidence of future weakness (not too imminent).
KST gives us a way to measure accelerating/decelerating velocity. It behaves similar to how Stochastic RSI does.
KST from different timeframes should verify one another.
Bullish 12M chart:
Bullish 6M chart (with asterisks):
Bearish 3M chart:
Bullish 1M chart (with asterisk):
While the 1M chart shows a bullish signal, the 3M chart showed significant KST resistance above. This means that the 1M chart will have a hard time oscillating upwards. The 1M chart might be brewing into a bearish divergence.
Bearish 1W chart (with asterisk):
Price might continue moving upwards with a downwards moving KST. Many weeks/months may be needed for significant bearish divergence to develop. Both 1M and 1W chart show evidence of future weakness (not too imminent).
Comment:
One note to the ones ultra-bearish on equities and ultra-bullish on gold:
Comment:
Buy Europe?
Comment:
KST ≠ Future-Price-Teller
KST = Energy Accumulation/Depletion
KST ≠ Entry/Exit Points
KST = Bias
KST = Energy Accumulation/Depletion
KST ≠ Entry/Exit Points
KST = Bias
Comment:
Something regarding KST that needs an explanation.
Comment:
Comment:
Bitcoin measured in Crude Oil
Comment:
After a commodity spike, Diesel Fuel / Heating Oil is rapidly reaching normal levels.
Comment:
The future is weird indeed...
PPIACO is finding support against money supply.
Much upwards room for PPIACO to grow!
SPX is finding support against money supply.
Much upwards room for SPX to grow!
The markets are a fight for dominance.
Be with the winner's side.
PPIACO is finding support against money supply.
SPX is finding support against money supply.
The markets are a fight for dominance.
Comment:
The news is full of conversation as to how China is buying Gold reserves, as if this is bullish. Price action and news don't pair well...
Don't de-activate the wrong trendlines...
Comment:
In 2022, SPX did a deep dive. For such a small timeframe, it was surprisingly deep.
Compared to the very few periods when such an event occurred:
The vertical line is placed at the point when the 2W KST reaches a minimum. Such an abrupt event never has led to immediate downside. Price action considered alone, horizontal movement is at least expected for SPX.
After all, either we agree that price discounts everything, or well, we don't...
The vertical line is placed at the point when the 2W KST reaches a minimum. Such an abrupt event never has led to immediate downside. Price action considered alone, horizontal movement is at least expected for SPX.
After all, either we agree that price discounts everything, or well, we don't...
Comment:
Long live SPX!
Comment:
SPX is too high for yields to be as low as they are.
A rapid increase in yield rates will bring support to current prices.
The FED is not trapped, it never is. In an economy, someone wins and someone loses. Yield rates must grow!
There is no real trap.
These are just invisible handcuffs for our mind.
- Charles Patoshik, Prison Break
A rapid increase in yield rates will bring support to current prices.
The FED is not trapped, it never is. In an economy, someone wins and someone loses. Yield rates must grow!
There is no real trap.
These are just invisible handcuffs for our mind.
- Charles Patoshik, Prison Break
As for the crypto world, one thing is for certain. That the Equity Bubble is nowhere near as powerful as what the Bitcoin Bubble can get.