The Party Pooper

There is always a Party Pooper, and for the market, its interest rates.  The market believes with free money from Democrats we will have inflation.  I agree free money will inflate some prices, and depress others, as any government intervention does.  

The market 'shows' this expectation by raising interest rates required for someone to 'risk' buying US federal bonds.  If the interest rates rising ever gets away from the FED, that would spell draconian reactions by the US government and the FED.  The US society is built on debt, and rolling that debt forward rather than paying it down.  It can't tolerate interest rates that rise too much.

But what is too much?  If you find a great whitepaper that can calculate the exact 'too much' please share in the comments!  For now, best I can do is look at what is relative to our near past.  The chart below is US bond values, and the lower the value the higher the interest rates.  Bond values have an inverse relationship to rising interest rates.  To learn more, watch this.

I drew a red line that caused markets to fall a couple of weeks ago creating a panic.  Overnight rates spiked below that line and markets are poised to open lower.  Yesterday the Nasdaq failed to come close to new highs, the S&P 500 failed to close at a new high.  Bitcoin failed to make new highs.  The VIX spiked (volatility).  So the market is NOT in a confirmed bull mode.

Interest rates ARE the story! Without rates complying, the market will not advance.  One way to make them comply is to simply go Zimbabwe and the Fed announce they will buy infinite bonds to keep rates low.  If you don't know why that's bad, read about Zimbabwe currency.  So I highly doubt the fed will do this unless there is a market crisis beyond 2008.

Today with this confirmed market weakness, and seeing how badly the market reacts to interest rates, I will not flip to bull mode until I see the Nasdaq, the S&P 500, bitcoin all make new highs and either rates falling OR the dollar dropping.  That was what we had over the last year with this bull, easy money.

To the charts! Interest rates overnight broke the red line I drew going back to July 2019.  The second chart is a close up of last nights action, talk about a big money setup!

Closer look

Recent interest rate and NASDAQ action  since NASDAQ high.