US Dollar is Signaling a Sovereign Debt Crisis
US Dollar is Signaling a Sovereign Debt Crisis
The Fed is going to do whatever it takes to get inflation under control.Even if that means hiking rates so high it completely chokes off economic growth.Stocks and bonds are moving lower together again.The US dollar is up 17% this year, and this could lead to a sovereign debt crisis.
Central bankers always try to avoid their last big mistake. So every time there's the threat of a contraction in the economy, they'll over stimulate the economy, by printing too much money. The result will be a rising roller coaster of inflation, with each high and low being higher than the preceding one. - Milton Friedman, American Economist
US Dollar is Signaling a Sovereign Debt Crisis
The Ivory Hill RiskSIGNAL turned back red in the short-term, and the medium-long-term trend is still negative. We are hovering a little over 60% cash.
The S&P 500 has fallen 5% in less than a week after a failed test of the 200-day moving average amid overbought market conditions.
Strong and sustainable rallies are built on heavier trading volume. While volumes tend to be lower during the summer, trading volumes peaked during the June bottom. Since then, volume has steadily declined, even as the S&P 500 pulled back. Short sellers tend to jump in after three or four rallies on low trading volumes, which could bring the market down even further.
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The whole point of a relief rally in a bear market is to make you think that the bottom has been reached. This is sometimes described as a sucker rally.
During the 2001 bear market, the Nasdaq had seven relief rallies of 20% or more. This was the FIRST relief rally of 17% or more during the bear market of 2022.
There are a lot of worries about the big picture, and there are a lot of bears on Wall Street. Nerves are high, and any setback makes people feel sick.
The Volatility Index (VIX) is back in the "chop zone," so you can expect strong moves up and down in the near future. Again, this is a very emotional market, and people look at any news with a lot of doubt. We haven't seen inflation this high in more than 40 years. Also, keep in mind that almost no money managers today were alive when inflation was this high for this long.
When inflation is high, bonds and stocks are positively correlated, making it hard for big Wall Street firms to run and hide. Most of the time, the correlation is negative when the environment is deflationary. One thing that makes the often-used 60/40 portfolio work is the negative correlation; it's not working this time and this is why I do not believe in buy-and-hold investing or asset allocation. If you were in a boiler plate portfolio like they use at the bigger firms, you would have had the opportunity to lose money both fast and slow.
Fed Chairman Powell's Jackson Hole Speech
Powell's speech in Jackson Hole was honest, direct, and crystal clear. The Fed will allow a recession or bear market if it means getting inflation under control.
To be more direct: the Fed is going to continue to aggressively hike rates, and the idea that the Fed is getting close to cutting rates is a fantasy.
Powell acknowledged that rates will need to be restrictive and this was a direct punch to the bullish idea of an imminent Fed pivot to cutting rates. Practically speaking, Powell stating rates will become restrictive means a fed funds rate above 3.5%, and that’s NOT priced into the market yet.
Click HERE for the full analysis.
Outperformance is achieved through the avoidance of major market crashes.
Best regards,
-Kurt
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Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
Email: kurt@ivoryhill.com | ivoryhill.com
8400 Normandale Lake Blvd, Suite 920, Bloomington, MN 55437