The stocks crash window is now open

It will get worse only if the FED or Treasury druids do something very dumb!


Historically July, August and September are the worst months for stocks, Oct is in 4th place.

Two dumb plays which could make things worse.

Yellen has been encouraging the US dollar higher to $110 DXY to fight inflation (oil) and is also trying to hurt Russia. The last time Yellen did this with some success was in 2014/15 while the US debt levels where under 100% of GDP and the strong dollar did not hurt stocks, bonds or tax receipts. Now this is not the case, a strong dollar is hurting US and debt to GDP is over 120%. If would be very dumb to continue the strong dollar policy. The latest news is that Yellen is overseas organising currency swaps for US dollars. 

The FED is intending to decrease their balance sheet by $95BN a month (starting Sept 2022). The Move index measures the risk in the US treasury market and the current risk is now higher than the COVID March 2020 crash. The FED's number one job is to ensure the US Treasury market is operational, and the Move index says it will be very dumb to add more supply to the debt markets. The FED hiking interest rates is a show for the uniformed, the US 1 yr and 2 yr are already over 3% so who cares about the FED Fund rate. Watch for FED comments on their balance sheet reduction plans or reversal of them in the next few weeks. 


The next 3 months could be the lows in the risk on markets. Well maybe, ha! 

Yes we know: could be, would be, should be.
But the FED and treasury can do some very dumb stuff!

This blog likes Larry MacDonald of the BearTrapsReport comments here.


Chart 1 - Here are two examples when the central planning druids did dumb things. Both resulted in market crashes which latter required more QE and debt to climb out of.

Chart 2 - Market tightening (strong dollar represents a shortage of dollars for world transactions) may be a cycle reversal or at least a pause is near.

Chart 3 - When the US dollar supply increases (from a lower US dollar) anti US dollar trades do well.

Chart 4 - Copper (and oil) will show the way.

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Money supply crash will force a sharp FED reaction

The FED money supply pump and dump will have to be followed by another pump if they want to avoid a depression.


In the chart 1 below, M2 money (blue line) shows the COVID pump and dump by the FED. Yes this is the FED's mess, a panic reaction to COVID, and now a panic reaction to the inflation the FED created. 

True Money Supply (TMS, red line) is M2 less time constraint money (money in time lock deposits), so this is ready cash to spend in 24 hours and a much better forecaster of the economy in 12 or 18 months time.

Money supply also suffers from purchasing power effects (inflation), so M2 and TMS have been adjusted for inflation in the chart below. 

When ever the red line (TMS) sinks below the zero line a recession has followed in the months ahead, then what are we going to get in 2022/23 after the sharp crash of TMS (red line)?

In 1994/95 the TMS fell below the zero line, yet no recession followed, this was due to the very low oil price at the time. Therefore when the red line falls below the zero while oil has been high a recession is highly likely to follow in the months ahead (subject to the FED timed reaction with monetary policy).

The Chicago financial conditions index has not yet sunk to the lower gray line (@@CHCR), so no recession yet. The FED made this mess, and the FED can fix this mess. But they will be late, so we shall have a few quarters of terrible growth. A transfer of wealth to the informed will be made in the coming tough economic quarters. Let you be the informed!


Chart 1

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Gold Stocks Review

Gold miners do well when gold is higher, and borrowing and gasoline costs are lower.


Lets start with a question: Why do governments own gold?

1) The need it to support their economy during an energy crisis. If their currency is collapsing oil producers will not take fiat for settlement, but they will accept gold.
2) While the US prints money the purchasing power of the US dollar is declining, hence gold is a hedge.

A particular market action which forces traders to move gold higher is when oil moves higher while the US dollar falls. This means the US dollar is losing purchasing power against oil, therefore gold will go higher as the demand for (1) above explodes. Some history, gold moved higher sharply in these years 2007, 2011, 2016, 2020. All these rallies coincided with a move higher in oil and a move lower in the US dollar. Recently oil moved from $70 to $110 but gold did not move higher, this is because the US dollar was strong during the same period.

Currently some 2022 H2 fundamentals are brewing which may see higher oil prices with a lower US dollar:

Oil: The coming 2022/21 European winter will send world oil and gas prices much higher. Europe has refused Russian supplies and the clash between consumers and politicians is coming, and before a deal is done oil and gas will be much higher.

US dollar: The FED pauses or cuts rate, halts balance sheet reduction. Due to high recession risk they are forced to pivot. More so they pivot while the ECB is hiking rates. Biden has worked out the recession doom talk is worse than inflation going in to the US mid terms.  

A move higher in gold will see the gold miners do well, more so if the stock market moves higher as well. This may happen when and if the FED switches from extreme hawk to maybe a mild hawk or even a dove with monetary policy. 

Yes the FED can flip flop!

Some charts


Chart 1 - Gold Miners Junior: Good accumulation is present. Richard Wyckoff laws applied.

Chart 2 - Gold working the channel

Chart 3 - Silver working the channel

Chart 4 - XAU working the channel

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Cycle Review

Some large cycles are near tops and bottoms of major trends.



Bitcoin is at or near a bottom, maybe time for a base to build.

Big gold cycle getting ready to signal much higher prices into the next decade. 

ASX Gold stock near the bottom.

Crude Oil is running hot.

The mighty US Dollar is near a peak, easy money has been made.

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