Hey There Income Hunters,

This was a huge week for shifting the narrative further away from inflation and more towards recession.

Check this Fed statement taken directly from the actual minutes … I am paraphrasing for clarity. 

 

If banking and financial conditions were to deteriorate more than assumed, then risks to the economy would be skewed to the downside because historical recessions related to financial market problems tend to be more severe. 

The Markets Reacted Accordingly 

• • • The US dollar via DXY was down 2%
    • Silver was up 5%
    • Bitcoin was up +10%
    • SPX was up +2.27%
    • TLT was down -2.8%

The Fed waking up is bullish for risk assets because now it’s all about the pause, and then the pivot to QE …

Today, we will take a look at what the Fed is seeing and how much worse it could actually be. 

Disinflation Is Here

The chart below shows hedgeye consensus estimates for inflation the rest of the year. By the end of 2023, it could reach 4%.

The Fed will have to live with that because disinflation – meaning slowing inflation as opposed to negative inflation or deflation – is the best we will get. 

Banks Are In Trouble

The Fed is still hiding the fact that regional banks are in big trouble. Last month’s numbers don’t show the damage being done to the economy.

The Fed is hanging their hopes on a pull-back in lending helping restrain growth and taming price increases.

That is like saying I am going to get rid of the termites in my house by using a blowtorch!

Let’s Take a Look at Bank of America’s Insights Into Spending 

In March, credit card spending by households barely increased – and that’s before the impact of the bank failures. 

The problem is wages and salaries after taxes are growing at an even slower pace than 2019. 

Get Ready for the Recession Progression

The recession begins with liquidity events morphing into profitability declines, which leads to a credit crunch.

We have already had 2 bond market liquidity events: the first being last October, and the second being the regional banking crisis. 

Next comes the profitability event, which we will get a glimpse of this earning season.

And lastly comes the credit event as layoffs drive defaults and bankruptcies.

What’s the Trade? 

You have to be real when you are trading the markets. Ignore the noise, leave your emotions at the door, and focus on making money. 

This week was confirmation the Fed is cracking and in the short-term that can be good for risk assets.

My key is the S&P 500 Index (Ticker:SPX) breaking above the 4200 level. I think it could happen in the next two weeks. 

Every dip is being bought right now, the pain trade is higher prices …

Come join me and my community of great people and income hunters at Power Income Trader.

We make nothing but money and have fun doing it!

Call 1-888-872-3301 and speak to Option Pit’s customer care team.

Live and Trade With Passion My Friend,

Griff