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Market Update

# The SPX continued to correct into Friday and fell below 4400 as we got a .618 retracement of the rally from 1/28; it is do or die here for both the bulls and the bears on Monday/Tuesday. 

# The only allowed bullish EW count here on the hourly is for a very bullish 1-2, i-ii pattern; if this count is valid, we should see SPX at least at the SPX 4500 level on Tuesday’s close. 

# If the bearish count is working, we should see the SPX close below 4400 on Tuesday. 

# Rumors of an imminent Russian invasion of the Ukraine permeated the markets Friday afternoon and the SPX may have already priced in that risk. 

# The bulls have two things going early Monday; 1) Fed President Bullard will be interviewed pre-market Monday and will definitely attempt to “walk back” his comment of a 0.50% rate cut in March and, 2) if the Russians haven’t invaded the Ukraine, the markets should bounce on that news. 

# Still, even though we believe that 2022 will be a bear-market year, we believe that we saw a “final blow off” rally in stocks begin at SPX 4222 on 1/24 and that a fierce short-covering rally will take both the SPX and NDX to new all-time highs in the next few weeks...

# Be agile, cash is still our largest position (~50%) and our best asset in this volatile market, but we have some SPY shares to play the short-covering rally in the SPX. 

# Bitcoin is testing S1 pivot support at 41807 Sunday night; hopefully the end of an EW a-b-c correction. 

# Crude oil defied our short-term call for a top and exploded higher Sunday night to test $95. Even so, the BPENER (bullish percent for energy stocks) is at 100%, pretty toppy here in the short term for oil stocks. 

# Gold exploded higher to test $1864 Friday evening on a risk-off move, a weekly close above $1860 is significant to keep us bullish. 

# Silver is testing $23.8 Sunday evening;- we need to see a move above $23.90 early Monday to keep us long. 

# Bonds got shredded after a hot CPI report and the 10-yr US rate rallied to 2.063% on Friday, the highest since 2019. 

# The USD tested 96.10 Sunday evening and remains close to the 96 level that has provided support for months now....

Andrew Thornebrooke; China Aims To Be "World's Most Influential Power", US Warns In New Indo-Pacific Strategy

The White House released its long-awaited Indo-Pacific Strategy on Feb. 11, outlining how it plans to deal with the increasing adventurism of the Chinese Communist Party (CCP) and to better secure and improve the region for the international community. In an associated statement, the White House said that interest in the region from partners and allies was converging, and that the realm would play a critical role in the future development of the United States both economically and diplomatically. “This convergence in commitment to the region, across oceans and across political-party lines, reflects an undeniable reality: the Indo-Pacific is the most dynamic region in the world, and its future affects people everywhere.” The strategy, as such, focuses on five key concepts: That the Indo-Pacific ought to remain free and open, connected, prosperous, secure, and resilient. Across these concepts, the strategy outlines various broad actions that the Biden administration intends to take in the region, including a plethora of investments in democratic institutions abroad and efforts to ensure that commons such as the skies and seas are navigated in accordance with international law. The strategy, as such, focuses on five key concepts: That the Indo-Pacific ought to remain free and open, connected, prosperous, secure, and resilient. Across these concepts, the strategy outlines various broad actions that the Biden administration intends to take in the region, including a plethora of investments in democratic institutions abroad and efforts to ensure that commons such as the skies and seas are navigated in accordance with international law. 

* The Royal Australian Navy guided-missile frigate HMAS Parramatta (FFH 154), left, is underway with the U.S. Navy amphibious assault ship USS America (LHA 6), the Ticonderoga-class guided-missile cruiser USS Bunker Hill (CG 52) and the Arleigh-Burke-class guided-missile destroyer USS Barry (DDG 52)... 

The strategy centers on the United States’ intent and continued ability to leverage its relationships with partners and allies in the region to counter growing adventurism from the CCP. “The PRC is combining its economic, diplomatic, military, and technological might as it pursues a sphere of influence in the Indo-Pacific and seeks to become the world’s most influential power. The PRC’s coercion and aggression spans the globe, but it is most acute in the Indo-Pacific,” the strategy reads, referring to the country’s official name, the People’s Republic of China. “Our collective efforts over the next decade will determine whether the PRC succeeds in transforming the rules and norms that have benefitted the Indo-Pacific and the world.”

# The statement is important for clearly defining the CCP as the foremost challenge in the region, and stating plainly that the administration considers the competition between the two nations as nothing less than a battle between differing visions for the future of the global order. “We recognize the limitations in our ability to change China, and therefore seek to shape the strategic environment around China by building a balance of influences that advances the future we seek, while blunting Beijing’s efforts to frustrate U.S. objectives and those of our partners,” a senior administration official said during a Feb. 11 press call. The official pointed out, however, that the document did not cover the administration’s entire China strategy, however, but presented its vision for further securing the region. “This is not our China strategy. This, you know, we very clearly identify China as one of the challenges that is, that the region faces and, in particular, the rise of China and China’s much more assertive and aggressive behavior,” the official said. “But, you know, our China strategy is global in scope. It recognizes the Indo-Pacific as a particularly intense region of competition.” 

# The strategy further regards the United States’ network of security alliances and partnerships as its “single greatest asymmetric strength,” and says that it will expend significant investments to push the so-called Build Back Better World plan, and its goal of global infrastructure development. Importantly, the strategy also defines the administration’s approach to Taiwan and the ongoing crisis with the CCP over the island’s continued de facto independence. On this issue, the United States appears set to maintain the same policy of strategic ambiguity that it has held for decades. Under this policy, Washington is deliberately vague on whether it would come to the island’s defense in the event of a Chinese invasion. “We will also work with partners inside and outside of the region to maintain peace and stability in the Taiwan Strait, including by supporting Taiwan’s self-defense capabilities, to ensure an environment in which Taiwan’s future is determined peacefully in accordance with the wishes and best interests of Taiwan’s people,” the strategy reads. As such, while the administration appears set to increase investments in the Indo-Pacific across the realm of security, diplomacy, and economic development, it will not pursue changes in the status quo regarding Taiwan....

After a catastrophic start to the year for hedge funds, which was followed by an epic shorting frenzy before hedge funds reversed and rushed to buy all risk assets last week, which reaffirms the common them seen across 2022 - nobody has any idea how to trade this market. Still, the good news is that after a dismal beginning, hedge funds performance has stabilized modestly and as Goldman Prime writes in its latest weekly note, the GS Equity Fundamental L/S Performance Estimate rose for a 2nd straight week by +2.71% between 2/4 and 2/10 (vs MSCI World TR +1.19%), driven by beta of +1.41% (from market exposure and market sensitivity combined) and alpha of +1.31%, representing the best weekly alpha returns in the past year... 

Thanks to this performance rebound, overall book gross leverage increased 2.9% to 238.6% (46th percentile one-year) and Net leverage also rose 1.2 pts to 79.5% (2nd percentile one-year). Still, overall book L/S ratio little changed at 1.998 (lowest since Jul ‘20). Fundamental L/S Gross leverage +2.5 pts to 178.7% (59th percentile one-year) and Fundamental L/S Net lev erage +2.5 pts – the first increase in 7 weeks – to 60.2% (6th percentile one-year)... 

Not surprisingly, just days after Goldman Prime reported the biggest bout of shorting in history... 

The GS Prime book saw the largest net buying since late December (+1.0 SDs), driven by risk-on flows with long buys outpacing short sales 8 to 1. Net flows diverged between Single Names (3rd straight week of net buying) and Macro Products (4th straight week of net selling); suggesting a shift of focus to micro variables. Furthermore, as GS Prime notes, all regions were net bought led by North America (driven by long buys) and to a lesser extent DM Asia (driven by short covers). 8 of 11 global sectors were net bought led in $ terms by Info Tech, Materials, Financials, and Consumer Disc, while Comm Svcs and Energy were the most net sold. Net buying in US Info Tech continued this week but hedge funds sold Non Profitable Tech stocks (GSXUNPTC) in each of the past three days, suggesting that managers faded the group’s price rally this week amid a growing focus on profitability. While price of the Non Profitable Tech basket is down nearly 50% from its all-time high, net exposure in the group remains well above historical averages... 

US Financials have been net bought for five straight days led by long buys and short covers in Rate Sensitive Financials amid a higher than expected US CPI print and higher bond yields. Despite this week’s buying activity, net exposure in Rate Sensitive Financials, at just 1.3% of the overall US single name book, remains well below its long-term average in the 63rd percentile vs. the past year and in the 37th percentile vs. the levels seen going back to Jan ‘18... 

From Goldman, we switch to JPMorgan's Prime desk which writes that in light of the volatility we’ve continued to see in equity markets recently, "it’s interesting to note that while we didn’t see clear signs of consistent HF capitulation a couple weeks ago, post some dip buying 2 weeks ago, we have also not seen a desire to add much additional risk over the past week." If anything, the bank notes that “sell the rally” behavior has been apparent in some parts of the market (generally in the US and somewhat specifically in Tech). In general, JPM concludes that there were some data points across volatility metrics, retail & ETF flows, as well as a few HF-related points that suggested a fairly negative change in positioning right near the Jan low. Thus, there might still be room for further upside in near term, but how the market rallies and whether we see a “double dip” will be important to watch....

Dreaming About Puts?

More challenging, still double digit equity upside; Goldman lowers S&P500 target from 5100 to 4900. GS: "The macro backdrop this year is considerably more challenging than in 2021. However, we continue to expect that equity prices will rise alongside earnings and reach a new all-time high in 2022. During the last 50 years, a “goldilocks” environment of accelerating GDP growth and stable real yields has typically been associated with a 12-month S&P 500 return of +16%. However, when growth is decelerating and real yields are rising, 12-month S&P 500 returns have averaged +8%"... 

Dreaming about puts; Net put value as a percentage of market cap is hitting extreme levels. People are scared and see the market moving much lower. The dynamic equity "analyst" has gone from an expert on inflation to suddenly being an expert on war. Let's see how this plays out form here... 

Earnings continue to be revised upwards; The Fed has sown seeds of doubt in the markets mind about future growth. You can see a sharp divergence between price and forecasts. The forecasts line is all the more impressive given the supply chain and raw materials head winds we are experiencing. In the end, it is all about earnings, and they are going up.... 

Inflows keep flowing in; Equity inflows have not even been close to being negative for a single week during this whole sell-off. At the end of the day money (on the sidelines) and where it goes is all that matters... 

Curveilicious? When the 10Y-2Y spread is between 75 and 25bps (and it is currently at 43bps), stocks actually perform quite well; It hasn’t only been the sharp upward trajectory of rates that’s gotten risk sentiment to come in, it has also been the shape of the curve. Both the short and long end of the curve has been rising, and the pace for short end rates has been the fastest in over a decade. As a result, we have seen the 10Y-2Y spread come in rapidly from multi-year highs. Frequently, this is cited as a harbinger of doom. However, it’s only really bad if the spread inverts. When the 10Y-2Y spread is between 75 and 25bps (and it is currently at 43bps), stocks actually perform quite well. Shown in the chart below, similar periods of time have typically coincided with the middle of prior cycles, when economic expansion was broad-based. Worth highlight ing the mid-90s, mid-00s and late-10s... 

That surprise hike; With the Fed hike "narrative" in full blown panic mode with everybody now an expert on when and how Fed will hike, Sentimentrader reminds us of how things looked back in 1994. They write: "The economy was recovering, stocks were soaring, and inflation was becoming a concern. Stocks bottomed AFTER the Fed surprised investors with a hike"... 

SKEW index has stayed at relatively lows levels during the past market "turbulence"; A relatively low skew tells you that downside protection isn't pricing puts overly expensive versus calls. It tells you little about market direction, although the current set up resembles some of the past bounces...

Joe Carson; Does The Fed Still Believe In The Efficacy Of Monetary Policy?

In January, consumer price inflation of 7.5% for the past year represents the highest twelve-month increase since 1982. As alarming as that is, the more shocking development is that the Federal Reserve eased monetarily every month for the past year and continues to do so even today... 

For a central bank that has repeatedly stated that "inflation is always and everywhere a monetary phenomenon," the policy decisions of the past year are unprecedented and indefensible. It is unclear how much politics and financial markets influenced policy decisions, but policymakers are overly sensitive to both. As bad as the policy decisions were in 2021, policymakers don't seem aware of the challenges they face to get inflation under control. Even though one policymaker called for a 50 basis point move at the next FOMC meeting in March, press reports indicate that others still believe a gradual or measured approach is the best policy option... 

If policymakers still believe in the efficacy of monetary policy, how does the projection of three of four rate hikes to 1% in 2022 slow an inflation rate of 7.5%? That policy would still leave monetary policy in a more accommodative position than any time during the pandemic and with a jobless rate of 4% and fast-rising wages. Blunders by the Fed come with a cost, and the price is increasing with every passing day policymakers do not pursue a policy stance to contain inflation....

Strip out the emotion and markets digested the awful news rather well. The S&P 500 is simply where it was 7 months ago. But 10yr yields at 1.94% are now where they were in July 2019, when the S&P 500 was 32% lower than today (Nasdaq was 44% lower). And we are left to wonder at what level rising bond yields will matter?

The Overton Window And Bitcoin

As Bitcoin enters the mainstream conversation, it is becoming increasingly common for politicians to embrace or disparage the technology. As Bitcoin moves into its adolescence, many people from all walks of life, from all across the world may be pondering the question: Is Bitcoin mainstream? Is it in the process of becoming mainstream? Or is it something that may never become mainstream? The answer to this question will likely have profound effects on how governments around the world behave toward Bitcoin in its teenage years. The reason that public perception plays a large role in how governments behave toward a certain topic is related to a concept called the Overton window. In this article, we examine the Overton window: What it is, how it relates to Bitcoin, and whether the Overton window for Bitcoin has shifted far enough toward mainstream to warrant support from governments. 

# WHAT IS THE OVERTON WINDOW? Wikipedia states, “The Overton window is the range of policies politically acceptable to the mainstream population at a given time. It is also known as the window of discourse. “The term is named after American policy analyst Joseph P. Overton, who stated that an idea's political viability depends mainly on whether it falls within this range, rather than on politicians' individual preferences. According to Overton, the window frames the range of policies that a politician can recommend without appearing too extreme to gain or keep public office given the climate of public opinion at that time.” At the core of the Overton window is public perception. Contrary to what many people think, politicians, at least politicians that want to stay in office, cannot enact any policy they please. Instead, they must choose from a range of policies that are politically acceptable at that time. The Overton window defines that range of ideas. Examples of movements that have shifted from fringe, outside the Overton window, to mainstream include women’s suffrage, racial equality and recreational marijuana use. Once these movements became mainstream, government policies began to align in support of the movements...

# HOW DOES THE OVERTON WINDOW RELATE TO BITCOIN? Now that we have a fundamental understanding of the Overton window, let’s examine how it relates to Bitcoin. Bitcoin turned 13 on January 3, 2022. During its first 13 years, it has gone from a network primarily used by cryptography enthusiasts, extreme privacy advocates, hardcore libertarians and Austrian economic enthusiasts to something used by everyday individuals all around the world, companies small and large and even nation-states such as El Salvador. With the understanding that the Overton window dictates “the range of policies politically acceptable to the mainstream population at a given time,” we can then ask ourselves, “Has the Overton window for Bitcoin shifted far enough toward the mainstream to warrant support from governments?” To answer that question, let’s examine the U.S. government's actions related to Bitcoin to date and then extrapolate what those actions may mean moving forward. 

# UNITED STATES GOVERNMENT AND BITCOIN; Contrary to what many bitcoin skeptics may say, in examining the U.S. government actions surrounding bitcoin to date, one would be hard-pressed to find anything overly burdensome. In 2014, the IRS classified bitcoin as property. The United States has some of the strongest property rights of any country in the world. Bitcoin being classified as property affords it the same legal protections as other types of personal property, such as real estate, and is an important reason that some of the largest bitcoin holders choose to own their bitcoin in the United States. In 2017, the CME Group, working in conjunction with the CFTC, launched a bitcoin futures market, an important step for any commodity. The U.S. Securities and Exchange Commission (SEC) has repeatedly reiterated that bitcoin is not a security and thus not within their field of regulation. Other cryptocurrencies, on the other hand, may be in for a rude awakening when it comes to SEC enforcement. In 2020, the Office of the Comptroller of the Currency gave federally chartered banks the green light to custody bitcoin. In 2021, the first bitcoin exchange traded fund (ETF) in the United States was approved. Yes, the ETF is based on bitcoin futures and does not hold physical bitcoin, but the fact that a bitcoin ETF product was approved at all is just another feather in the cap of bitcoin when it comes to favorable regulation in America. So, when we review the totality of government action related to bitcoin in the United States, we can see that the U.S. government has been supportive of bitcoin overall to date. Now let’s turn our attention to what this may mean moving forward for Bitcoin as it relates to the Overton window. 

# IS THE TIME RIGHT FOR POLITICIANS AND GOVERNMENTS TO LEAN INTO THE BITCOIN MOVEMENT? With millions of people owning bitcoin, corporations of all sizes owning bitcoin, and even nation-states owning bitcoin, it is clear that Bitcoin has, or is in the process of, passing through the Overton window in many parts of the world. That being the case, the time is ripe for politicians and governments to lean into the Bitcoin movement and use it to their advantage. We’re starting to see the first inklings of this play out. In the United States, politicians such as Cynthia Lummis, Ted Cruz, Aarika Rhodes, Tom Emmer and others are leaning into pro-Bitcoin politics. In doing so, they’re tapping into a large base of voters who care about the issue of Bitcoin more than they do any other issue. This large single-issue voting block is powerful for any politician to tap into, as they tend to be very vocal and, in a world of 24/7 social media influence, being vocal is important. Dennis Porter wrote a great article, “Why Bitcoin Represents The Ultimate Single-Issue Voting Bloc.” I highly suggest you read it here. 

# Another great example of politicians and governments leaning into Bitcoin is President Nayib Bukele and El Salvador. Bukele and El Salvador burst onto the international scene in 2020 when they announced a law that would make bitcoin legal tender. Instead of continuing to be beholden to agencies such as the International Monetary Fund (IMF) and World Bank for funding, El Salvador instead chose to plug into the Bitcoin network. Bukele became internationally recognized almost overnight, and the country of El Salvador went from being a small country, mostly forgotten by the West, to being on the international stage. You can bet that other countries are considering similar actions. Now that we’ve reviewed several examples of politicians and governments taking advantage of the shifting Overton window for Bitcoin, let’s review an example of a government trying to keep Bitcoin out of the Overton window: China. China has “banned Bitcoin” more times than I count. Which makes sense when you think about it. A Communist country run by a dictator doesn’t want its people having access to a global, distributed, censorship-resistant sovereign monetary system? Shocking! However, in 2021, China took its disdain for Bitcoin to a whole new level. They were serious this time. They cracked down on miners, resulting in 50% of the Bitcoin hash rate being relocated to friendlier jurisdictions. They cracked down on exchanges, forcing accounts serving Chinese citizens to be closed. They generally put enough fear into enough people to dissuade many of them from interacting with Bitcoin. China put on a classic display of attempting to keep a movement from shifting into the Overton window. In my opinion, history will not be kind to China for its grave mistake. 

# CONCLUSION; The Overton window is an important concept to understand. Simply put, the Overton window dictates a range of policies that are acceptable to the mainstream population for a given topic at a given time. As Bitcoin embarks on its teenage years, and adoption continues to grow, it is clear that the Overton window for Bitcoin has shifted, or is at least in the process of shifting. Politicians and governments around the world will be well served to lean into the Bitcoin movement, use it to their advantage to attract single-issue voters, and to strengthen their position on the global stage. In the United States and El Salvador, we are seeing this process begin to play out. In other countries, such as China, we see attempts to thwart Bitcoin before it can pass through the Overton window. In my opinion, these countries will look back and realize that trying to stop the inevitable was a grave mistake....#

The 20 Internet Giants That Rule The Web

With each passing year, an increasingly large segment of the population no longer remembers images loading a single pixel row at a time, the earsplitting sound of a 56k modem, or the early domination of web portals. Many of the top websites in 1998 were news aggregators or search portals, which are easy concepts to understand. Today however, as Visual Capitalist's Nick Routley details below, brand touch-points are often spread out between devices (e.g. mobile apps vs. desktop) and a myriad of services and sub-brands (Facebook’s constellation of apps). As a result, the world’s biggest websites are complex, interconnected web properties. The visualization below, which primarily uses data from ComScore’s U.S. Multi-Platform Properties ranking, looks at which of the internet giants have evolved to stay on top, and which have faded into internet lore... 

# America Moves Online; For millions of curious people the late ’90s, the iconic AOL compact disc was the key that opened the door to the World Wide Web. At its peak, an estimated 35 million people accessed the internet using AOL, and the company rode the Dotcom bubble to dizzying heights, reaching a valuation of $222 billion dollars in 1999. AOL’s brand may not carry the caché it once did, but the brand never completely faded into obscurity. The company continually evolved, finally merging with Yahoo after Verizon acquired both of the legendary online brands. Verizon had high hopes for the company, called Oath, to evolve into a “third option” for advertisers and users who were fed up with Google and Facebook. Sadly, those ambitions did not materialize as planned. In 2019, Oath was renamed Verizon Media, and was eventually sold once again in 2021. 

# A City of Gifs and Web Logs; As internet usage began to reach critical mass, web hosts such as AngelFire and GeoCities made it easy for people to create a new home on the Web. GeoCities, in particular, made a huge impact on the early internet, hosting millions of websites and giving people a way to actually participate in creating online content. If it were a physical community of “home” pages, it would’ve been the third largest city in America, after Los Angeles. This early online community was at risk of being erased permanently when GeoCities was finally shuttered by Yahoo in 2009, but luckily, the nonprofit Internet Archive took special efforts to create a thorough record of GeoCities-hosted pages. 

# From A to Z; In December of 1998, long before Amazon became the well-oiled retail machine we know today, the company was in the midst of a massive holiday season crunch. In the real world, employees were pulling long hours and even sleeping in cars to keep the goods flowing, while online, Amazon.com had become one of the biggest sites on the internet as people began to get comfortable with the idea of purchasing goods online. Demand surged as the company began to expand their offering beyond books. Amazon.com has grown to be the most successful merchant on the Internet.

# Digital Magazine Rack; Meredith will be an unfamiliar brand to many people looking at today’s top 20 list. While Meredith may not be a household name, the company controlled many of the country’s most popular magazine brands (People, AllRecipes, Martha Stewart, Health, etc.) including their sizable digital footprints. The company also owned a slew of local television networks around the United States. After its acquisition of Time Inc. in 2017, Meredith became the largest magazine publisher in the world. Since then, however, Meredith has divested many of its most valuable assets (Time, Sports Illustrated, Fortune). In December 2021, Meredith merged with IAC’s Dotdash. 

# “Hey, Google”; When people have burning questions, they increasingly turn to the internet for answers, but the diversity of sources for those answers is shrinking. Even as recently as 2013, we can see that About.com, Ask.com, and Answers.com were still among the biggest websites in America. Today though, Google appears to have cemented its status as a universal wellspring of answers. As smart speakers and voice assistants continue penetrate the market and influence search behavior, Google is unlikely to face any near-term competition from any company not already in the top 20 list. 

# New Kids on the Block Social media has long since outgrown its fad stage and is now a common digital thread connecting people across the world. While Facebook rapidly jumped into the top 20 by 2007, other social media infused brands took longer to grow into internet giants. By 2018, Twitter, Snapchat, and Facebook’s umbrella of platforms were all in the top 20, and you can see a more detailed and up-to-date breakdown of the social media universe here.

# A Tangled Web; Today’s internet giants have evolved far beyond their ancestors from two decades ago. Many of the companies in the top 20 run numerous platforms and content streams, and more often than not, they are not household names. A few, such as Mediavine and CafeMedia, are services that manage ads. Others manage content distribution, such as music, or manage a constellation of smaller media properties, as is the case with Hearst. Lastly, there are still the tech giants. Remarkably, three of the top five web properties were in the top 20 list in 1998. In the fast-paced digital ecosystem, that’s some remarkable staying power....

Russia Blasts White House's Fresh Friday Ukraine Panic As "Distraction And Disinformation"

Both the US and Russian sides have confirmed that Biden and Putin are scheduled to hold an urgent phone call Saturday at the request of Washington. The White House earlier said it is "trying to stop a war". Below is Russia's full reaction to the afternoon's White House press briefing and flurry of statements from officials alleging Putin has made the decision to invade Ukraine within "days"; 

* Russian Foreign Ministry spokeswoman Maria Zakharova slammed reports Friday about Russia's "imminent invasion" of Ukraine as a "mass disinformation campaign" against Russia. "The White House hysteria is more revealing than ever. The Anglo-Saxons need a war. At any cost. Provocations, disinformation, and threats are favorite methods of solving their own problems," she wrote in a post on her Telegram channel. "Road roller of the American military-political machine is ready to go through people's lives. The whole world is watching how militarism, imperial ambitions denounce themselves. And a propaganda brigade chaired by Bloomberg serving all this"...

Zakharova said the position of Western officials "in conditions of a mass disinformation campaign against Russia" is worth a separate mention, avoiding giving a proper assessment of what is happening, the authorities validate their involvement in "fakes." "We can talk about the collusion of the authorities of Western countries and the media in order to escalate artificial tension around Ukraine by the massive and coordinated publication of false information in geopolitical interests, in particular, to distract attention from their own aggressive actions," she wrote....

Despite Turmoil, Stocks Seeing Largest Ever Inflows In 2022

Something odd is happening in the market: while stocks are tumbling, pushing most tech names into a deep bear market amid the worst turmoil for markets in years, inflows into stocks - both institutional and retail - are soaring. According to EPFR data compiled by Bank of America, cumulative equity flows YTD in 2021 have hit a record $153bn, exceeding the pace of early-2021 (when the year started with $151bn in inflows, ahead of a record year of more than $1tn inflows). How can this be? Well, the catalyst behind this unprecedented scramble for risk is that despite falling prices, investors are bailing on other even more impacted securities, and with a record outflows from money markets/cash as well as huge capital flight out of bond funds, this money has to go somewhere, and that "somewhere" is stocks for now, even though if the Fed is indeed set to hike 7 times this year and drain $2+ trillion from its balance sheet, the pain for stocks is only just starting. Here are the weekly fund flow details: 

* Huge $46.6bn inflow to global equities, $0.3bn into gold, $10.5bn from bonds, $47.5bn outflow from cash. 

* largest 4-week outflow from cash/MMF ever (-$35.2bn, Chart 3), this despite soon-to-be-inverted yield curve encouraging reallocation from long-end to short-end; 

* largest 4-week outflow from corporate bonds since Apr’20 (-$8.6bn Chart 4)... 

Largest inflow into US large cap equity funds ever ($34.1bn); 

* In summary: as noted above, cumulative equity inflows YTD $153bn exceed the record pace of early-2021 ($151bn in '21, record year of $1tn inflows); this despite bullish “sentiment” as measured by AAII falling to lowest level since Aug’20 (Chart 5); and despite big reversal in credit flows -$32bn in ’22 vs $58bn inflows in '21 (Chart 6)... 

Drilling further down into the source of inflows, earlier this week Bank of America's Jill Carey Hall reported that last week, during which the S&P 500 was +1.5%, clients were big net buyers of US equities for the second week - the $5.2BN in inflows was the 9th-largest weekly flow in BofA's post-08 data history, with clients buying equities across all thee size segments (small/mid/large). It wasn't just institutions, as retail clients led the buying after also leading in Jan. (typical Jan. seasonality following tax loss selling by the group in Dec., vs. earlier tax loss selling by mutual funds in Oct.). But institutional clients and hedge funds were also buyers (for the second week and first time in four weeks, respectively)... 

And speaking of retail, JPMorgan writes that during Thursday's post-CPI/ Bullard rout, retail investors bought $1.7bn, second highest amount on record ($1.95bn on Feb 1). In short, even though the Fed is now openly asking for a significant deflationary market correction, it has instilled such an unprecedented BTFD Pavlovian instinct across all investor groups - including retail - that not even a crash may be sufficient to get them to pull their money out of the rigged casino....

Inflation Rages While The Fed Prints

The CPI came in hot, hot, hot for January at 0.6 percent, exceeding expectations. Yet the Fed is still pumping, adding a total of $123 billion into the economy in 2022, which should end soon. What the heck? Has the Fed morphed into the old Banco Central de Argentina? 

It’s not the supply chain! The supply chain has been swamped and overloaded with too much demand. Ports are overwhelmed by too much traffic. Sure, some price inflation results from real supply shocks, but this is primarily driven by excess demand, instigated by the overstaying of too much stimulus. We certainly agree that the initial stimulus package was needed, but it was very poorly structured. Come on, man, Wall Streeters taking PPP loans while many small businesses were shut out? 

# Semiconductor Shortage; Market wide semiconductor shortage? Think again. Look at worldwide semi revenues, up 23.7 percent year-on-year in November. Some of that is inflation, but the quantity of semis produced continues to expand quite rapidly. No doubt, in a few sectors there is a real supply shock where the quanity of certain semiconductor products are falling. Talk to most any semiconductor CEO and he/she will say the same... 

# Why Is The Fed Dragging Their Feet? I think the Fed fears what we fear. The U.S. economy is way too dependent on the asset markets with a stock market capitalization north of 2x GDP the last time we looked, which the Fed is mainly responsible for, by the way. That puts the U.S. economy in an unstable equilibrium. If the Fed slams the oven door too hard, the soufflé collapses in on itself.. This is illustrated in the following chart, which we have posted several times. The Fed needs to reach for the Draino, and fast, like several months ago...

Lance Roberts; This Time Is Different, The Fed's Next "Minsky Moment"

“This time is different.” Those are words usually uttered at the peak of bull markets throughout history for stock market investors. However, this time is likely different when it comes to the Fed and their current view of aggressively tightening monetary policy. To understand why “this time is different” for the Fed, we also need to know why the next “Minsky Moment” almost certainly awaits them. 

# So, what exactly is a “Minskey Moment?” Economist Hyman Minsky argued that the economic cycle is driven more by surges in the banking system and credit supply than by the traditionally thought more critical relationship between companies and workers in the labor market. In other words, during periods of bullish speculation, if they last long enough, the excesses generated by reckless, speculative activity will eventually lead to a crisis. Of course, the longer the speculation occurs, the more severe the crisis. Hyman Minsky argued there is an inherent instability in financial markets. He postulated that an abnormally long bullish economic growth cycle would spur an asymmetric rise in market speculation, eventually resulting in market instability and collapse. A “Minsky Moment” crisis follows a prolonged period of bullish speculation, which is also associated with high amounts of debt taken on by both retail and institutional investors. One way to look at “leverage,” as it relates to the financial markets, is through “margin debt.” In periods of “high speculation,” investors are likely to be levered (borrow money) to invest, which leaves them with “negative” cash balances... 

# This Time Is DIfferent; Understanding what a “Minsky Moment” is makes it easier to understand why “this time is different” for the Fed as they approach their current monetary policy tightening cycle. Since 1980, every time the Fed tightened monetary policy by hiking rates, inflation remained “well contained.” The chart below shows the Fed funds rate compared to the consumer price index (CPI) as a proxy for inflation. There are three essential points in the chart above. 

1) The Fed tends to hike rates along with inflation, to the point it “breaks something” in the market. 

2) For the majority of the last 30-years the Fed has operated with inflation averaging well below 3%. 

3) The current spread between infaltion and the Fed funds rate is the largest on record. 

Historically, the Fed hiked rates to combat inflation by slowing economic growth. However, this time the Fed is hiking rates after short-term fiscal stimulus pulled-forward demand, creating inflationary pressures and a surge in wages. Combined with already high levels of leverage, an aggressive rate campaign is precisely the “catalyst” needed to ignite “instability”... 

# The Fed Will Have To Choose; In 2010, Ben Bernanke launched “quantitative easing” to lift asset prices, increasing consumer confidence. While that worked previously, it isn’t working now... 

More importantly, Jerome Powell and two other Fed members are heavily hinting at more aggressive policy. 

* BOSTIC SAYS FED COULD EASILY PULL $1.5 TRILLION OF “EXCESS LIQUIDITY” FROM FINANCIAL SYSTEM. THEN WATCH MARKET REACTION FOR FURTHER BALANCE SHEET REDUCTIONS. 

* MESTER: ABLE TO LET BAL SHEET TO RUN DOWN FASTER THAN LAST TIME. 

* POWELL: WE EXPECT TO ALLOW BALANCE-SHEET RUNOFF LATER IN 2022. 

* POWELL: BALANCE SHEET IS FAR ABOVE WHERE IT NEEDS TO BE. 

The problem with a more aggressive campaign, as Hyman Minsky alludes, is the potential unwinding of that leverage. Such has historically had poor outcomes... 

As noted above, the Fed didn’t have inflation during successive rounds of monetary interventions. The trillions in bond-buying programs did inflate asset prices, not to mention “wealth inequality.” However, Q.E. didn’t translate into surging price inflation. Such was because the Fed’s monetary interventions remained contained in the financial markets rather than leaking into the general economy... 

Today, however, is a very different story, and the Fed’s biggest problem is maintaining stability. The Fed’s ongoing interventions have created a “moral hazard” in the markets by inducing investors to believe they have an “insurance policy” against loss. Therefore, investors are willing to take on increasing levels of financial risk, as shown by yields of CCC-rated bonds. These are corporate bonds just one notch above “default” and should carry very high yields to compensate for that default risk. As noted, with the entirety of the financial ecosystem more heavily levered than ever, the “instability of stability” is now the most significant risk. The Fed must now choose between supporting asset prices and maintaining stability or combating inflation. It is a lose-lose proposition... 

# Outcome Will Be The Same; While the Fed is currently “hopeful” that economic growth will remain strong in 2022, they are likely to be very disappointed once again. Given the economic surge was a function of temporary liquidity, the expansion will also be just as transient. Savings rates and disposable incomes already show early signs of reversion... 

Unwittingly, the Fed has now become co-dependent on the markets. If they acknowledge the risk of weaker economic growth, the subsequent market sell-off would dampen consumer confidence and push economic growth rates lower. If they ignore inflation to keep asset prices elevated, inflation will eat into the consumer’s ability to sustain their standard of living. In turn, consumption will slow, and the economy will slide into a recession. The Fed has a tough challenge ahead of them with very few options. While increasing interest rates may not “initially” impact asset prices or the economy, it is a far different story to suggest that they won’t. There have been absolutely ZERO times in history the Federal Reserve began an interest-rate hiking campaign that did not eventually lead to a negative outcome. The Fed is now beginning to reduce accommodation at precisely the wrong time; 

* Growing economic ambiguities in the U.S. and abroad: peak autos, peak housing, peak GDP. 

* Excessive valuations that exceed earnings growth expectations. 

* The failure of fiscal policy to ‘trickle down.’ 

* Geopolitical risks 

* Declining yield curves amid slowing economic growth. 

* Record levels of private and public debt. 

* Exceptionally low junk bond yields. 

Such are the essential ingredients required for the next “Minsky Moment.” When will that be? We don’t know. What we do know is the Fed is going to make a “policy mistake” as “this time is different.” Unfortunately, the outcome won’t be....

Markets Turmoil Amid 'Russia Invades' Reports And Bullard's Bond Bloodbath!

A sudden slap to the face seemed to shock investors from their multi-month stupor, waking to the reality that The Fed is serious this time about raising rates and withdrawing liquidity. That realization, considering US equity valuations have never been higher (combined with a collapse in US consumer confidence) have many wondering just where (or if) these two lines will ever converge... 

The awakening sent rate-hike odds soaring this week. Even with today's attempt to walk back Jim Bullard's hawkishness, the market is now pricing in a 60% chance of 7 rate-hikes this year, a 70% chance of a 50bps hike in March, and even a 25% chance that The Fed will surprise with an inter-meeting hike before March (note that there is an unscheduled Fed meeting on Monday)... 

But around lunchtime today, a series of reports of an imminent Russian invasion sparked turmoil in all markets. The Russia headlines sent rate-hike expectations lower for March... 

Between Russian headlines and an unrevised POMO schedule, the odds of an inter-meeting hike were erased... 

The upswsing of all this; US Treasury markets just suffered their worst start to a year ever... 

With a massive bear flattening in the curve, Treasury yields soared this week as the short-end exploded 27bps, most since Volcker (on a sigma basis), and the long-end suffered too (30Y +12bps). But then 'Russia Invades' reports sent yields plunging (but still up on the week) with 30Y ending up only 4.5bps (while the short-end was still a shitshow)... 

For context, the 10Y yield was clubbed like a baby seal yesterday, with yields up 15bps and then some repeated rumors of Russia's imminent invasion sends yields back down 13bps... 

The forward curve is forecasting an imminent recession (1Y fwd 2s30s is now inverted)... 

The swaps market is now pricing for a rate-cut at some point next year, Fed policy error... 

If Dr.Copper (relative to Gold) is right, then 10Y yields have around 100bps further to go at least...

Credit markets are very much starting to crack with HY spreads at their widest in 14 months... 

Equity risk expectations are starting to catch up to credit risk expectations...

Stocks were volatile today, with a big puke today as Russia Invasion warning headlines dropped and were taken seriously this time. Everything closed red today with Nasdaq the biggest loser, all closing near their lows...

The week was a game of two halves with an incessant bid into Thursday's CPI print, then a pukfest after Bullard's hawkish comments, some dip-buying, then Russia headlines hammered markets to the lows. Small Caps managed to hold on to gains on the week as Nasdaq plunged 3% followed by decent drops for the S&P and Dow... 

All the majors puked back below their 200DMAs... 

Energy and materials stocks ended the week higher while tech and rate-sensitive Utes were pummeled... 

VIX spiked back above 30 intraday... 

The dollar ended the week marginally higher after two days of chaos in the world's reserve currency... 

The Ruble was routed today, its biggest daily drop against the USD since 3/18/20... 

Cryptos were mixed this week with Ethereum tumbling back to unchanged on the week, Ripple outperforming and Bitcoin managing modest gains... 

Bitcoin rallied up near $46k after Bullard's comments and tumbled back down near $42k today after the Russian headlines... 

Gold surged above $1860 on the Russia headlines, the highest price for the precious metal since before Thanksgiving... 

Oil prices exploded higher on the Russia headlines with WTI topping $94.50 for the first time since Sept 2014... 

Finally, it is worth considering the fact that globally, central bankers are facing their nemesis, stagflation. As growth expectations slow, so inflation expectations continue to rise dramatically...

Central bankers are going to need something to blame when they blow up the world. Oh and there's this...