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As Warned Before, the Rally Yesterday was a Mirage

30.06.20 05:45 ET

The fixation on the US equities market is amazing and as this author has warned in the past, watch the smart money.

The entire day yesterday was a “pump it up month end window dressing please buy our crap” used care sellathon on “financial” news television. Between attacks on President Trump by CNBC and Bloomberg over the CCP Virus, they had numerous individuals talking about how it wasn’t too late to jump on board.

At the end of the day however, the numbers do not lie. On Friday the NYSE and NASDAQ traded a combined total of about 16.5 billion shares. Yesterday the total was about 9.1 billion shares, just over half of Friday’s volume during a 730 point sell off. There was no conviction, no verification that this was a sustained bounce and worse, the smart money really made a statement yesterday and again this morning:

Chart courtesy of Investing.com

The entire front end of the short term yield curve is inverted versus the 2 year Treasury. The 10 year has moved far below the earlier month yield of 0.90% and now is technically primed to make another run for 0.40% or lower by autumn. In fact the 2 year Treasury chart screams one thing:

The smart money is parking for the summer. Liquidity in the equity markets will consist of the Fed, the Hoodies, and those hedge funds that were suckered into believing that the virus was contained and all is well.

The big message is that the worst case scenario might well be setting up for the global economy this upcoming winter, especially as the second wave hits in January 2021 and moves through the remainder of the population. And that worst case scenario is one single, depressing, solitary word that terrifies central bankers:

Deflation

The deflationary second wave is coming which will cause a massive stock market crash and loss of faith in the current global central banking system. In the mean time, individuals should load up on primary goods, precious metals, and only the safest of investments because once the realization that the economy is not bouncing back with the vaunted “V” these clowns keep proclaiming is here and the economy moves in a falling or crashing “W”, then all bets are off.