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Posted June 10, 2022

Sean Ring

By Sean Ring

Buckle Up For The Ride Down

  • Remember when they told you inflation was transitory?
  • It seems like ages ago, and theyre hoping youll forget by the midterms.
  • If theres no recovery before then, itll be a Red Tsunami.

Happy Friday!

Im so looking forward to a glass of Barbera tonight.

This is the last week my good friend and business partner Andy is in Asti.

He must fly to Asia for three months to teach there this summer.

So he booked his last Airbnb about 200 meters from my apartment. Easy to sneak out for a few cold ones.

Next week, Ill write the Friday Rude from Milan, as Im seeing Andy off.

Ive never been there and cant wait to see the Duomo (cathedral). Though Milan was never a priority for me, now Im excited to see it.

You may know that Milan is Italy's business, banking, and fashion capital.

So, theres loads of history up there.

Milan is the capital of Lombardy. Lombard banking was one of the earliest ways to circumvent the churchs usury laws to create credit.

The Lombards were pawn shops. A borrower would stake his collateral in return for a loan. Once he paid off the loan, he got his collateral back.

Incidentally, this structure has many parallels in the Islamic banking world.

Economically, its equivalent to how the Fed uses repurchase agreements to borrow from and lend to the treasury market.

There are many famous Lombard Streets in the world, and the most famous is probably San Franciscos crookedest street in the world.

But my favorite is Londons. Of course.

I bring all this up because the Fed is frantically scraping to get back ahead of the curve.

At least Jay Powell and crew are making an effort.

Christine Lagarde and the ECB arent even trying yet.

Ive written about the repercussions of silly central bank policies before.

But yesterday, the stock market was hammered. Again.

Lets look at what happened and try to divine what Mr. Market, the famous manic-depressive, is feeling.


Before we got smacked yesterday, I thought we might be in the middle of a mini-accumulation structure (the blue lines).

Though Im long-term bearish, I expected the SPX to spring upwards out of that coil.

Instead, we had a big down day (blue arrow).

This doesnt mean we cant go up from here.

But the probability of doing so soon is diminished.

JC Parets said you couldnt be short when the SPX is above 4,100.

Its no longer above 4,100.

In fact, its 2% below that level.

Be that as it may, I still point to the fact that recent down days are bigger percentage-wise than up days.

Thats not a good sign.

Worse, the index was green for the morning and then fell off a cliff in the afternoon, with no recovery.

As I write, most Asian and European markets are down pretty hard today. Not a great way to end the week.

Yields and the Dollar

So what happened?

The 10-year yield moved up, remaining above 3.00%.

As Joke Biden gave Powell the political cover he needs to keep increasing rates, Mr. Market may feel Powell will go through with his hawkish hiking far beyond 2.50%.

Right now, the upper bound of the Fed Funds target band is 1.00%.

I like to remind people that moving from 1.00% to 2.5% isnt a 1.5% move.

Powell would be increasing rates 2.5 times.

And that will hurt weak companies used to operating practically interest-free.

This led to the USD surging yesterday.

As USD rates increase, USD deposits are more attractive.

So, foreign investors tend to move their weaker currencies into USD.

As a side note, even though I live in Italy, I keep no savings in EUR.

I move money over when I need to pay for things. Thats all.

Now, think of it this way:

    1. If your assets are priced in dollars,
    2. And the dollar increases in value thanks to higher interest rates,
    3. You need fewer dollars to buy those assets.
    4. So, dollar-denominated assets fall in price.

This dollar rally puts enormous pressure on anything priced in dollars, such as stocks, bonds, and commodities.

Even oil was slightly down yesterday. (But dont get excited, your gas prices will remain elevated for quite some time.)

Energy Hits Consumers Hard

Let me show you some hard evidence: as the stuff you need (energy) gets more expensive, you spend less on the things you want (consumer discretionary).

This is 2022 year-to-date:

This is another great chart from the Chart Report:

Did you see how well Exxon is doing out of Bidens policies?

And how about this peach of a headline from the WSJ?

Your money is funneled from the stuff you want to the more expensive things you need, thanks to your senile old presidents stupid policies.

The frustration consumers feel is palpable.

Yesterday, I had a great conversation with Aussie Simon, who still lives in Melbourne, the Peoples Republic of Australia.

His cost of living is out-of-control.

In Europe, gas and food prices are insane.

And Asia still hasnt wholly reopened from the government-induced private sector shutdown.

All this just to appease their master in Washington.

The rest of the world cant wake up soon enough.

Wrap Up

Usually, I like my Friday Rudes to be a bit lighter.

But since it couldnt be light, I kept it short.

Yesterdays moves made me sit up.

My long-term downside target for the SPX remains 3,413.

Again, the market may rebound in the coming days, but Im not sure it will.

Smarter people than I are looking for a rally here, but Im not optimistic about that.

Lets see how the market performs today, and Ill update you on Monday.

Until then, grab a lovely glass of something cheerful tonight and enjoy your weekend.

You earned it!

All the best,



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