Where does the money go? OpEx pt. 2, Inflation - Intraday post (18/July)
For long-term investors too... Distribution, GOLD, BTC, Yields, MMFs
Yesterday’s positioning and breakdown,
I said that CPI will set the tone, and PPI and retail sales will confirm the trend…
Now, the problem is that inflation is not muted at all, and the probelm is exactly the wealth effect that this short squeeze rally created. Trump has lower control over the datas than his counters, and he trapped himself. He wanted to mask growth problems so hard, that it made rate cuts unnecessary.
CPI showed that inflation is above the target, PPI showed increasing good prices foreshadowing further pass through to customers, and retail sales showed increased spendings. There is no disinflation, while AI-bubble outperforms the DotCom-bubble
Fed Funds odds for no cuts went from 39.6% to 47.1%
OpEx juices up the volume a bit, but into Monday, after the hedge unwinds, the volume will just turn back to be low, and vol of vol supply will do its job of provide some sort of support for the markets.
Momentum is very bullish across the index, sentiment is extremely greedy.
BTC and GOLD show topping tail, 115k - 95k supports for BTC (whales are slowly distributing), and 3240 - 2950 for GOLD, but they will go up, as dollar is being beaten, as we are heading towards a new digital economy.
Yields are expected to go up to 4.6% - 4.7% and even 5% later.
The momentum is bullish for now, profits getting taken, volume is low, and liquidity is unstable. All what you see is mechanical flows and short-term speculative tradings and short squeezes. And I’m pretty sure that this trend will hold until FOMC, that is my main risk target since May. This is why I keep emphatizing since June 24, that don’t rush to short this market yet.
But market needs Powell to comfirm it. If no Fed cut, no yield relief = no cash out of MMFs, meaning no liquidity boost for equities. Market support from short‑term liquidity evaporates, causing a significant unwind of the current, liquidity‑driven rally. Simply because the liquidity lifeline stays locked into MMFs and T‑bills. Lower front‑end yields have been a key catalyst for equity rallies. And this is what the Fed can control, the long-end is owned by the investors. So, as Treasury issuance outstrips MMF absorption capacity, yields will spike, liquidity will decline, and this fake growth rally will unravel.
The thing is that since the 2000s the M2 went from 4.7 trln to 21.94 trln USD, while total market value from 13.45 trln to 62.2 trln USD. So it means that excess liquidity has been the primary driver of soaring stock valuations, rather than proportional growth in real economic output.
I strongly think that when equities start to fall, BTC will go with them as well, the way it did in April:
Money goes from risk assets to safe-havens, then allocate a portion of it into digital assets and some back to legacy markets. And so on. Deposits must be washed slowly out and market needs new home.