Steven Brooks [must read]

[View this email in your browser]( ** I wrote this email to my Inner Circle members this morning, however, I think it will be valuable for all of you to read as well. First, let's recap. The S&P 500 is down 21.22%, the worst first half of the year since 1963. The Nasdaq is down 30%, the worth first half of the year ever. Treasuries are down 6.12%, the worst first half of the year ever. Credit is down 13.5%, the worst first half of the year ever. Global equity and bond market caps are down $31,000,000,000,000 (trillion), the worst first half of the year ever by a factor of 7. This may rub some people the wrong way in me saying this, but it's not overly complex to understand exactly how we got to this point. The Fed is currently enacting its most aggressive tightening cycle since the 1970s. Call it what you want, but in 2020 the Fed enacted its most aggressive easing cycle that rose the S&P 500 by 100% over a two year period. It's not a stretch to understand that when they do the opposite, the most aggressive tightening cycle, we will get an opposite and commensurate result in the opposite direction. The good news is, this was very clear to us since the day after Thanksgiving 2021 and we have not wavered on that opinion for one second so far. So the first half was basically the worst first half ever. What about the second half? It's not starting off well. The three major issues that have plagued the market this year have been A) a war B) record high inflation and C) an aggressive Fed. Let's look at how those are going so far just this week. This week, we saw a renewed commitment by the US and its fellow G-7 nations to financial support the war between Russia and Ukraine in [perpetuity](. Wonderful. After Congress approved a $35 billion package for Ukraine a few weeks ago (which the administration decided to up to $40 billion because what's other 5 billion of taxpayer money), the US and UK decided yesterday "fuck it, let's send them [$2 billion more]( while we are at it because of DEMOCRACY!" Yes, the Ukrainian democracy that [bans its opposition party](. So how long is the war going to last? Well according to the actions of our leaders, hopefully forever. Is that going to help energy prices? No. So war...not getting better. Record high inflation is mostly due to the price of oil, because while we are told repeatedly that oil is evil and that we will all be living underwater in a few years because of our reliance on fossil fuels (I wonder why I am not living under water yet?) oil is in everything, and our administration is currently preparing for [$200 oil](. While CPI may come down (it's a completely faked number), real world inflation will not come down until oil comes down. Of course, we can give up all hope that rather than trying to mediate a peace deal our leaders are perpetuating the war. The US has already drained so much of its oil reserves to try to get prices lower than our oil reserves are at a [40 year low](. Imagine my shock. We are on our own to reduce the price of oil, which will only come from demand destruction at this point, which is just a nicer way of saying recession. Speaking of a recession, like we have been saying the entire year, [we are already in one](. Imagine my shock. Oh, but the consumer is strong! Then why are [83% of Americans]( cutting back on spending? And the Fed, that's a quick one. They can't do jack shit to reduce inflation because they cannot change fiscal policy. They can talk like they can, but they can only make a recession happen faster. Soft landing? Like, not a bad recession just a baby one? By doing what? Exactly my point. The reasons why we just had the worst first half of the year have not gotten better. That's not to say they can't, they just have not. Sadly, there is one way, and unfortunately, one way only to reduce inflation overnight. It would be for the President to come out and try to articulate and speak somewhat closely following off a teleprompter "Hey look, guys, we are sorry. We hoped that a project that would really take us 100 years could be taken care of in 2. So because of that, we are going to go back to being energy independent, and over time, like decades, do the ESG stuff." Sadly, this would never happen because of the devotion and financial rewards to the ESG movement by a minority of the country. Hell, Blackrock's ESG fund's top 3 holdings are Amazon, Microsoft, and Google (so ESG, right?) and doesn't even include Tesla (because free speech is not ESG!). But if we were to wake up tomorrow in the Matrix and the President said anything close to that, oil would be at $60 in like a week, and the following week people would be asking, "what inflation?" In short, the stuff that made the first half the worst first half ever have not improved. Ultimately, for some sort of a bottoming process to begin, we need the Fed to go from aggressively hawkish to kinda hawkish. Until then, we clearly want that war to last as long as possible, we clearly want oil prices to be as high as possible, so not much good is really able to happen unless the Fed becomes less hawkish. Today, I see support at $3750, $3710, and $3700. I see resistance at $3800 and $3900. I still think there is a good chance we visit $3400 pre FOMC (end of July) as most of the puts that have rolled off in the past two weeks have rolled down to that level (which is the pre COVID highs). Stay small and win more trades, Steven STONY BROOK SECURITIES LLC IS A PUBLISHER AND DOES NOT OFFER TRADING ADVICE OR RECOMMENDATIONS. ALL INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY AND NOT AN OFFER OR A RECOMMENDATION TO TRADE FUTURES CONTRACTS, STOCKS, OPTIONS OR FOREX. 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