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Tech and Bonds Sharing the Pain

The 60/40 portfolio strategy (that’s 60% stocks, 40% bonds) is getting crushed.

 

Onlookers are watching the iShares 25+ Treasury Bond ETF (Ticker: TLT) and SPDR Select Sector Technology Fund (Ticker: XLK) go down together.

 

This shift in trading is important to recognize because tech and bonds have not moved in the same direction since the 2008 financial crisis.

 

My thesis all along has been that financial (or paper) assets such as stocks and bonds will be heavily sold as the Fed is forced to keep printing money.

 

Yes, keep printing money.

 

Because the central bank’s attempt to stop inflation by raising rates and draining dollars from the economy will fail. That’s a fact and the reason is simple …

 

The Fed can’t accumulate debt to the tune of 1.3 times its income and think it can raise rates high enough to slow down wage, price and monetary inflation.

 

Today, I’ll share more details so you can be flexible and open to the major changes that are coming.

 

The Fed’s Nightmare

 

The government has politicised inflation so they can blame their own ineptitude on something other than stupidity.

 

Now the Fed has no choice but to drain liquidity from the markets AND raise borrow rates on consumers in hopes of slowing down inflation.

 

Well, the 1,000-pound gorilla is laughing at them.

 

Why?

 

Because the Fed is so late to the game that it will now be tightening into an already slowing economy … 

 

Look at these recent economic numbers …

 

      • Institute for Supply Management: (ISM) Manufacturing 58.7 vs 60.0 expected (manufacturing slowdown)
      • ISM Services: 62.0 vs 67.0 expected (service sector slowdown)
      • Jobs Report:  199k vs 450k expected (lower job growth)
      • Retail Sales: -1.9% vs -0.1% MoM expected (big drop in retail sales)
      • Industrial Production: -0.1% vs +0.2% MoM (production slowdown)
      • Consumer Sentiment: 68.8 vs 70.0 expected (consumer not doing well)

 

In December, the rate of inflation also slowed and will come down further in the months ahead. 

 

The Market Is Already Tightening for the Fed

 

It’s important to understand that the market is already tightening.

 

The Fed purely reacts to the markets and they are always very late to do that.

 

Honestly, the time to tighten was Q2 2021, when both inflation and growth were accelerating.

 

But no. All J-Pow wanted to talk about was transitory inflation and how the Fed could be patient. 

 

Now the Fed is probably NOT going to be able to raise as many times as the market has priced. And if they do? They will surely push the economy into recession.

 

Heck, they made the same mistake in 2018, which ended in a 20% drop in the S&P. 

 

That will take SPDR S&P 500 ETF (Ticker: SPY) down to $384 and that will only be the first leg down. 

 

The Fed will then print many trillions more of dollars and the market will have one more sugar rush rally before plummeting again.

 

That’s why I don’t want you to miss out on what will be an incredible year this will be to make money trading.

 

If you can understand the way the Fed works, you can make an absolute killing this year.

 

But make no mistake about this … 2022 is about the Fed coming to the end of their long-term debt cycle.

 

The jig is up and there will not be another boom/bust cycle after this one breaks for a very long time. 

 

Bring It Home

 

Next week’s Fed FOMC meeting is HUGE.

 

Look for details on a live session I’ll be hosting on the afternoon of the 26th following the meeting.

 

I’ll break down the Fed’s message and any changes since December.

 

Plus I’ll share my favorite ideas for 2022 and trades to put on now.

I look forward to cleaning up on profits while the Fed and US government try to clean up their mess.

 

Until then …

 

Live and Trade With Passion My Friend,

 

Griff

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