Money Flows Waning

Money flows are not supportive here, though only marginally so. The MFI is below the benchmark, in the similar 2018 selloff when MFI money flow did trend above or below the line (approximate in that series) that tended to support the bullish or bearish part of the cycle. The Bullish part of the cycle here didn’t produce much.

I did suspect the A/D would drop sharply and it did, the action on options expiration prior to the recent gave some hint that the hedges were coming OFF, and that resulted in a flurry of buying (short covering?) and also that need on the part of long term stock owners, to move the needle and get prices rising. Divergences are the sought after signals in money flows, you want some one or two of them to move against the price action. So far the OBV has been tracking the down trend line like a bloodhound.

The A/D took the aforementioned dip and MFI followed, when the money flows are synchronized there is no divergence. The real question is this just bad sentiment or have the gods realigned their forces. Is the drop in the monetary base a harbinger. Daniel Snider works the quirkiest symptoms of monetary disorder, the Eurodollar futures (TED spreads for the amateurs – and since TED is linked to LIBOR – and LIBOR is discontinued – I don’t know what value there might be in that, SOFR replaces LIBOR, and it is a completely Central Bank manipulated number). Pulling up the Fed Dashboard, a very neat view of a car whose design principles are seriously in question.

The FED rate hike-a-palooza is badly thought out, if inflation is supply chain driven and some of it is, and if the Chinese are pulling back (in a NeoMaoist purge of Xi’s loyalists) The US needs to build out those gapped supply chains, = economic growth needed, but <> not forthcoming while the cost of money is getting more expensive, (like everything else). Are we still going to be looking for the missing baby formula two years from now?

I really don’t like what they are doing, and so I am buying a few more TIP bonds. I sure as hell am not going to buy a five year fixed rate bond which earns negative 5% interest, on the expectation that a recession will cause a drop in interest rates and I can gloat about making an extra point and a half while inflation is STILL at 5% or higher and I might actually be further underwater.

Like all good bear markets this one leaves you nowhere to hide. There are some bargains out there, the Corporate High Yield bond ETF (HYG) is trading below its intrinsic value. This yields 6.5% at last view, and that is about where inflation is residing at present.

The TIP bond ETF is yielding 12% and if the bearish objective on this chart fills out at 100 the owner will have lost 13%. This is a caveat to a strategy of buying dividend stocks in a falling market. which has it’s weak points. What is Wall St most worried about?

Wall St is most worried about the political divide in America, which has the power to divide corporate boardrooms. They already threw Mike Lindell out of Walmart. The next pivot point in the ESG corporate governance conflict is Elon Musk, who is the richest man in the world. He can roil markets with a single tweet. Now the board at Twitter says they can sell him that company, at an inflated price which he offered some time back. Not good for Tesla stock owners, he will have to liquidate some of that cash.

And once the platform fills up with hate speech the users will leave, and they will go somewhere else, and Dorsey and the people who sold their platform, will be on another platform, instead of where they are now. Does Musk think the company assets are something other than the people who make it work? None of this is good for business, the world’s richest neo-robber baron wants to crush labor. How refreshingly obvious.

This market selloff and recession could drag out for some time. Should you buy real estate, gold, commodities. On commodities I see problems ahead. Experts calling for the great bull market in commodities, I offer this chart. There’s a lot of air underneath the commodity index. I wonder if the gap is going to close.

The believers in crypto currency have been advocating it’s use as a hedge against financial and economic volatility, and when Bitcoin sold off faster than stocks they were forced to eat crow. No hedge value was evident, it seems. I say they were absolutely correct. Bitcoin was a hedge, and when the margin calls came in, the hedger owners sold those positions to pay their bills. So yes it was a hedge and the two trillion dollars in that group was put to good use, holding up the stock market and the economy. Gold is also a hedge and because Bitcoin proved much better, the selling in gold was only modest.

Notice

Notice the bearish objective on the Bitcoin index is zero. Which way is digital currency going? I don’t think the buying will resume until monetary conditions return to their overinflated levels, which we may never see again. The new monetary policy is more is less. Government will be cutting deficits, maybe even the debt. There will be a celebration on that account, but contraction isn’t such a good thing for markets and the economy. Already dollar shortages are showing up. Inflation is “too many dollars chasing too few goods..” Deflation may be the opposite, too few dollars looking at an inventory overhang). Buyers can be choosers.

For decades asset prices on Wall Street were inflating, while inflation on Main Street was lagging the 2% target rate. It was a lousy time to own TIP bonds. In new paradigm economic growth, the supply chain issues (inflationary) will not subside, and that means higher prices on Main Street, and higher producer prices for companies, and that will hurt their bottom line, and hence asset price inflation will lag real inflation. The Fed made a major mistake and there is no way out of their mess. Main Street inflation is now persistent not transitory, and asset deflation takes hold. Only a deep recession or depression will temporarily alter the trajectory of inflation, or a sustained new high level of inflation. The price of goods went up 8% they will not come down 8%. Once the economists can see what the new floor on inflation might be they can make a better judgement.

Commodity prices will not benefit due to transportation and handling delays, and labor shortages, acerbated by the high cost of money, and lackluster demand due to companies cutting back on production. Empty shelf syndrome. Repairing the supply chain will take a decade or more. The Federal Reserve was hoping for a slowdown in production, they mentioned that in their FOMC minutes, they hoped that the excess jobs which business had created would be cancelled (and with that goes economic expansion – and the supply chain gaps remain open) and it seems like they will have their desire.

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