Hey There Income Hunter,
Jerome Powell and co. may have bullied the market a bit too much.
After leaking 50, 50, 50 re: rate hikes – then whispering 75, 75, 75 into the ears of their favorite pawns on Wall Street meltdown has ensued …
Meanwhile, the only pullback on the market pricing for the number of tightenings has slipped just 6 basis points …
If Powell is seeing the same numbers I am, he must be terrified right about now.
Today, I’ll share forward-looking data that shows how far off Powell really is …
Bankruptcies Turning the Corner
Recent reports show the number of weekly bankruptcies, which includes companies with over $50 million in liabilities, rose to the highest level since September of 2021 (graph below).
2021 saw an extremely low number of bankruptcies historically, but now we are clearly seeing rising credit risk with the Fed only one rate hike from zero.
What will four or six more rate hikes do?
Record Easing to Record Tightening
The investment bank Piper Sandler puts out a report called the cyclical cost conditions index (CCI). The index combines 5 key drivers of the profit cycle and historically the index leads earnings and economic momentum:
Equity Out-flows Highest Since Covid Crash
$30 billion in equity outflows in the past two weeks.
Initially the down trades were triggered by option flow hedging, but the past week has been long liquidation!
Real money flows liquidating into cash will need to find a new home and if just a small percentage of the cash goes into real assets we will see a renewal of the uptrend in reflation trades.
Bring It Home
What a week it has been already.
I have been waiting for earnings to wake the market up and that is exactly what’s happening.
If we get the S&P 500 index (SPX) below 4,000, could Powell still tighten 50 basis points?
He may have to vote politically the same way Congress initially voted against the bailouts in 2008. That is until stocks plummeted the next day and Congress had to approve a much larger stimulus package …
This may be deja vu all over again.
Have a great day as always …
Live and Trade With Passion My Friend,
Griff