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The Silence of the Bears - 6/28/22

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I guessed right yesterday that the 5 day cycle down phase would go sideways. Now we await its conclusion and the next pop in this rally. It might come today. It might come tomorrow. It looks good for at least 3965. But there's a massive wall of supply above that from 3965 to 3995 on the ES, S&P 24 hour fuguetures.

Of course, the best case from a bear perspective would be a double top here and a rollover. There's a big Treasury coupon settlement on Thursday that will suck cash out of the market system, so I wouldn't rule it out. Even if a minor breakout happens today, that wall of supply, and the Treasury settlement should lead to a downdraft at the end of the week. 

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Bond traders are already getting a whiff of what's to come. Look at how that uptrend channel held on the 10 year yield. It's going much higher from here. 

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Nothing new to report on the crapto front. BTC is just hanging out in consolidation waiting for the next leg down. Massive resistance in the 21-22k range is keeping it from rallying. The consolidation is likely to continue for days or weeks, but ultimately BTC should head for its 1 year cycle projection of 9-12K and its long term measured move target of 5000 below zero. 

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On the currency front, the EUR/USD has an inflection point at 1.06. The cycle oscillator setup is bullish for the euro. But it will only be so if ECB policy gets tighter, more in line with the Fed's extreme tightness. As long as the imbalance between tighter Fed policy and less tight ECB policy continues, I don't expect euro rallies to amount to much. 

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Gold is just a bore. But if it holds above 1790 for a couple more weeks it could go from bore to buy. 

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I'll have more on that tomorrow.

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As the Fed raises rates, the rate they pay on RRP goes higher as well. With their portfolio filled with low yielding Treasuries and MBS due to years of QE, at some point they can only raise rates so high before the earnings from their asset side is not enough to fund their payout from the liability side. In effect. they begin losing money (or having to create money) to continually fund the ever growing RRP. Doesn't this game have an eventual ending?

 

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13 minutes ago, potatohead said:

As the Fed raises rates, the rate they pay on RRP goes higher as well. With their portfolio filled with low yielding Treasuries and MBS due to years of QE, at some point they can only raise rates so high before the earnings from their asset side is not enough to fund their payout from the liability side. In effect. they begin losing money (or having to create money) to continually fund the ever growing RRP. Doesn't this game have an eventual ending?

 

You're making my brain hurt. 😄

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They can just print it and deposit it in the accounts of the payees, whoever holds deposits or RRPs at the Fed. It would be an offset to QT, which will end by August anyway. 😆

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I don't think it's productive to dream of what internal constraints the Fed may or may not have. They have enough problems with what's going on outside their walls. The markets will force a policy change way before the Fed faces any such possible constraints. Personally, for practical purposes, I don't think there are any. 

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Just now, DrStool said:

Been warning about this. 

Fed requires some banks to raise capital reserves

New Liquidity Trader report later today. 

Just imagine all the investors who can't wait for their shares to be diluted and who are lined up to buy more bank bonds. Woowoo. 

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Second power outage of the day on this stormy day here in Nice. First heavy rain in the 5 months I have lived here. 

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1 hour ago, DrStool said:

They can just print it and deposit it in the accounts of the payees, whoever holds deposits or RRPs at the Fed. It would be an offset to QT, which will end by August anyway. 😆

You mean by August the wheels will fall off and therefore the FED will be forced to reverse course?

Imagine „the market“ cracks the BoJ, mon dieu! If those JGB‘s blow up… ou la la!

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