Welcome to the St. Patrick’s Day Leprechaun slaughter.
Okay, maybe it’s not as bad as the St. Valentine’s Day Massacre of 1929, but the lethal leprechaun did his damage to the US financial markets today leaving a bloodbath in his wake.
First and foremost, when I state that everything bad that could happen to these markets today, did.
What am I talking about?
Let us start with the 2-10’s US Treasury spread. The inversion narrowed not just a tad this week, but dramatically as the bank failures set the markets to the torch.
The chart speaks for itself with an almost 70 bps swing from March 8th until today, which means that panic under the surface of the financial system is well underway. Everyone on the street and in board rooms across America appears, again, to be on the wrong side of the trade and how the economy is really about to perform.
Next up is our old friend, gold. Ignore silver for now as it is just a passenger. But gold moved the way it was supposed to this week, as indications of geopolitical and economic instability indicated that more problems were about to appear, or the existing issues are far, far worse than advertised:
The war in Ukraine is going bad for the West, China is increasing its influence in Asia and relationship with Russia, and Saudi Arabia has led the Arab bloc out of the arena of Western hegemony. None of this bodes well for the future of the US dollar in the global arena thus leaving the smart money to start hedging with the universal currency, gold.
Speaking of which, the USD is no longer the “flight to safety” trade and for some strange reason the currency of the zombie economy, the Japanese Yen is:
As more nations abandon the US Dollar for international trade, the liability not developing a secondary safety currency beyond the Yen will become apparent. The Euro and Sterling obviously, are not it.
The S&P 500 continued its long term down trend, which today experienced the highest volume down day in the last two years.
Meanwhile the 2nd and 3rd largest bank failures in US history happened this past weekend, and now it would appear the bleeding has not stopped. The 14th largest institution in the US, First Republic Bank in San Francisco, CA received an infusion of $30 billion in deposits, not investment, from the largest “too big to fail” banks in the US overnight.
This evening, the stock collapsed again, indicating that the bank run may not be over as their announced capital raise was greeted with another 15% sell off after hours:
Dead man walking, no ifs, ands, or buts.
Next up, the Conference Board Leading Economic Indicators were down for the 11th consecutive month with a m-o-m reading of -0.3%. On an annualized basis, it’s a very succinct chart from the Conference Board website which tells the tale of reality:
So far this century, the track record for predicting a recession is 3 for 3 as highlighted above.
Lastly, the 2 year US Treasury yield is indicating a massive flight to safety. It closed below 4% for the week and that is the final warning that an economic contraction is about to begin as the smart money is wagering that demand for money and credit will taper off dramatically:
I elected to use the 5 hour tracking chart to demonstrate the magnitude of the drop and why this is screaming panic.
Buckle up boys and girls. Things may or may not fly apart at the seams during the next two weeks, but i reality, the damage to the markets technically has been done. The economy is about to come to a slamming full halt like a race car into the wall by the end of this summer and there is nothing the Fed can do but fight inflation to soften the blow until the deflationary cycle begins.