BTFD is Suicidal For Your Portfolio

The market is getting more hawkish than the Fed. The Dow was down nearly 1,000 points on Friday. Were you forwarded this email? [Sign-up to Rude Awakening here.]( [Unsubscribe]( [The Rude Awakening] BTFD is Suicidal For Your Portfolio - The Dow was down nearly 1,000 points on Friday. - Powell announced the Fed might hike 50 bps in May. - Investors now look for 75 bp hikes, weighing heavily on the stock market. Recommended Link [Urgent: Market Doomsday Indicator Flashing Red]( [Click here for more...]( This little-known “[market doomsday indicator]( has appeared before nearly every major financial crash in recorded history. And now after years of silence, it has begun to ring out again… With some experts already predicting that we could see a dow drop of 80% or more practically overnight. Then I’m urging you to drop what you are doing and [watch this now.]( Because if you miss [this warning]( now, it could already be too late… [Click Here ASAP]( Sean Ring Editor, Rude Awakening Happy Monday! I’ve discovered the Piemontese sausage that combines cinghiale (wild boar) with tartufo (truffles). My taste buds will never be the same again. As of right now, I’m not sure I could live anywhere else. Besides my culinary feasting this weekend, I shuffled through the burning embers of the financial press. How anyone is surprised the market tanked on Friday is beyond me. The Dow was down nearly 1,000 points. Indeed, a Rude reader like yourself would’ve been nodding along. Or shaking your head in abject disgust as the Fed PhDs wonder what’s going on. As the great Sir Harry Flashman once said, “It’s a great thing, prayer. Nobody answers, but at least it stops you from thinking.” I think that’s what’s happening in the Eccles Building right now. Everyone is praying, and absolutely no one is thinking! It’s terribly simple. If central banks raise rates too quickly, they tank the stock market after first tanking the bond market. The bond market always leads the equity markets. Then the equity market usually ignores the bond market. But not this time. It’s just too naked. Fifty basis points in a single meeting? With the leverage we’ve got in the system? It’s ludicrous. And yet the Fed is so far behind the curve, talking heads on CNBC and Bloomberg TV are speaking of a 50 bp hike as if they were discussing fashion or some other frippery. “Does my ass look fat in 50 bps?” My monthly asset class report isn’t due for another week, but let’s get to some charts and explanations early. Sucker’s Rally I’ve hated this stock market for a long time. At the beginning of this year, I was overjoyed the market started tanking. And then, the “death cross” happened. The SPX was below its 50-day moving average, and the 50-day moving average dipped below the 200-day moving average. It’s about as bearish a signal as you can get if you watch the moving averages. But this time, the market rallied instead of being sold off! I was annoyed as I could be and wrote so in the March 21st edition of the Rude titled, “[Stocks Way Up to End the Week]( After the ridiculous rally that week, I wrote: I wouldn’t be surprised if we rallied for a few more weeks from here. But I’m not ready to call a new bull market. Let’s recapture the old highs first. The SPX rallied for only another week after I wrote that, but has lost 350 points since then. It seems Jay Powell putting on his Paul Volcker mask is scaring the market. You can see here when I wrote the piece versus the SPX action: Also, in that piece, I wrote five reasons why I was skeptical this was a new bull market: - The VIX was too low. - The yield curve was flat to inverted. - The Fed is still hiking. - Furious bear market rallies are quite common. - Inflation hasn’t disappeared. All of those arguments still hold. The Bond Market Finally Capitulates Using the TLT as a proxy for the US treasury market, you can see that 2022 has been horrible. There was a brief respite in February, but other than that, it’s been a big selloff. And who can blame anyone? Why on earth you’d want to hold fixed coupon bonds when the Fed is committed to its hiking path is beyond me. You can also see how the TBT, the inverse of the TLT, has done well since the beginning of the year. I don’t see this changing anytime soon. And it’s not just government bonds that are hurting. Recommended Link [Crazy “Back Door” Way Into Alt Coins]( [Click here for more...]( Virtually hundreds of tiny cryptocurrencies have shot up 1,000’s of percent over the last year... And our crypto expert James Altucher has found a weird ["back door"]( way into these types of fast moving cryptos completely free. One that requires NO monetary investment on your end... (just a few minutes of your time). I know that sounds crazy, but it’s 100% true.. James will explain everything in less than 2 minutes. [Click Here To Learn More]( Here’s the LQD, the liquid investment-grade corporate bond ETF: This is the junk bond ETF, the HYG: It’s important to remember that the bond markets lead the equity markets. Rarely do stock people listen to the bond markets, though. The Equity Market is Partying Like It’s 1999 I saw this chart last week, and my eyebrows nearly hit the ceiling. I can’t remember who posted it on Twitter, so I had to recreate it myself. Please forgive me, originator of this exemplary chart! This shows just how much trouble the tech market is in. It shows the ratio of the Nasdaq composite compared to the S&P 500. The last time tech stocks were this high, we had ourselves a little dot-com crash. To be fair, this ratio peaked again in 2020. But back in 2000, Greenspan’s Fed didn’t quite cotton on to what was happening until too late. As you can see in the chart below, the Nazzie fell from early 2000 until the end of 2002! That’s an eon in stock market terms. Man, it was ugly! Will history repeat itself? It’s important to note that after Greenspan realized his mistake in hiking rates, he frantically started cutting interest rates. Here’s the chart of Greenspan’s rate moves from January 2000 to January 2004. This time, Jay Powell is raising rates. That’s not a recipe for a soft landing. The Fed’s Pickle The worst part is that the fed funds target band is 8.00% below the current inflation rate. As [Joe Carson, a former economist for Alliance Bernstein, wrote]( Never before has it started to raise official rates when the Fed funds rate stood 800 basis points below the current inflation rate. The new promise by the Fed is to get back to a "neutral" policy. What is the new "neutral" for monetary policy? Is it a fed funds rate equal to the inflation rate, or is the old "neutral," 200 basis points above the inflation rate. Pick your poison. The Fed has a lot of tightening to do, even if the reported inflation rate falls by half or even two-thirds. In the late 1990s, policymakers raised 175 basis points to 6.5% official rates. (Editor: you can see from the chart above the fed funds rate didn’t hit 6.5% until May 2000, but that’s splitting hairs. The hiking cycle indeed started in the late 1990s.) Carson continues: Higher rates, less liquidity, and the failure of new internet companies and others to live up to the hype triggered an abrupt and sharp decline in equity prices. With the cyclically adjusted P/E running at near-record highs, equity investors overestimate returns and misprice risk even without a change in Fed policy. Add a hike of 200 to 300 basis points in official rates and a sharp correction in equity prices of 20% to 30% is not unreasonable. I couldn’t agree more. But it remains to be seen whether or not the market will hold up that well. Wrap Up I’d have preferred to write about something happy on a Monday, like Marine Le Pen beating Macron in the French elections. Perhaps unsurprisingly, the French went with the incumbent. Yawn. But it’s important to know where we are before we can forecast. We’re in a severe hiking cycle, with a Fed Chairman frantically trying to make up for lost time. We’ve got insane inflation, low base rates, and the bond market looks like it’s already rolled over. Next, it’s the equity markets’ turn. Tech stocks have been beaten up and will continue to get beaten up. The broad market doesn’t look much healthier. With the dollar rallying, cash doesn’t look nearly as bad as it usually does. Keeping your powder dry for the coming opportunities - and there are many - is critical to your financial future. Now is not the time to “buy the f*cking dip.” Until tomorrow. All the best, Sean Ring Editor, Rude Awakening To sign up for the Wiggin Sessions, [click here.]( By clicking this link, you will receive a free subscription to Wiggin Sessions and offers from us and our affiliates that we think might interest you. You can unsubscribe at any time. [Privacy Policy](. [Whitelist Us]( | [Archive]( | [Privacy Policy]( | [Unsubscribe]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [unsubscribe](. 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