🗞 Liquidity Sweeps

WHILE YOU POUR THE JOE… ☕️
Devil in Disguise

Believe it or not, the GDP reading at 2.4% was actually horrendous… 📉 

Why?

It was only driven by 4% growth in consumer spending, and a complete collapse of government spending, and we know from this post that only the wealthiest of Americans are the ones doing all the spending today.

Nonetheless, the market seemed to be on a risk-on theme for those who know what we mean on the global macro scale, so we waited for the dip on people selling onto this GDP print to buy. 📈 

Anyway, another double-digit rally ending the week at over 400 points given to you guys in profit from our Twitter.

Speaking of government spending, let’s get on with today’s email 📧…

END THE CYCLE
Them Curves Baby

Seen a lot of nice curves here in Croatia, but I’m talking about THE curve.

The yield curve (10yr minus 2yr) specifically.

Why? Because it is one of the most accurate indicators of a recession, and right now it is telling me that money is being pulled out of the system, which reiterates the collapse in government spending mentioned from GDP. 👀 

The recession signal comes when the curve inverts (goes negative) as it did in 1999, 2000, 2007, 2019, and 2022.

But

Crashes typically only begin when the curve steepens back above negative, such as it is doing today. By the way, this is part of reading and understanding the liquidity and credit cycle, which is chapter 2 in our Sovereign Trader Program: 5 No-Sweat Tools Taken From Goldman Sachs. ✅ 

It’s not for everyone, but everyone does deserve a chance, so test your luck and apply here.

Anyway, back to the numbers. ⬇️ 

This is the weekly balances of the Federal Reserve, and there are two lines I want you to focus on:

• U.S. Treasury Securities

• Notes and bonds, nominal

Specifically, the 100x increase in outflows from our central bank, meaning a tightening in the liquidity and credit cycle.

Now this would tie in perfectly to what we see in the yield curve as well, thus creating a potential volatile environment for the stock market in the coming months. 🔥 

The reason is that low liquidity in the markets create a wider map in the bid / offer spread, making the swings more vicious such as the ones seen in the past week, 100 or so points moving back and forth on an average day.

This is what our proprietary volatility spread model says about the S&P 500, and if you notice, there’s a whipsaw going on recently which might be the result of this withdrawal of liquidity.

What we can deduce from this is in equal parts for downside and upside shocks, so make sure that you are tuned into our Twitter where we casually drop levels on what we’re trading through the day. 🕊️ 

One last gauge I can give you is the lag of equity risk premiums to the $SPY ETF.

Notice that the risk premiums (in white) are now finding a bottom range and looking to break out on the upside, narrowing closer to zero. 👀 

This means that risk appetite for equities is becoming more favorable, at least in the short term, which is something that we can at least agree with as we retest $5800-$5850 on the S&P 500 futures. 🎯 

Fundamentally, I think it’ll take the market a minute to realize that the optimism is going to be found in overseas markets (like China and Brazil) rather than the US.

Here’s one last chart for you to keep in mind in this underwater volleyball of a stock market (though one that might not be in our back yard).

TRADE OF THE WEEK
Risk-Off?

This is the ratio between Goldman Sachs and J.P. Morgan Chase.

Now I consider this another gauge of risk-on vs risk-off in the United States economy. The reason is that Goldman is more exposed to the business cycle and interest rates than J.P. Morgan is due to investment banking and trading fees.

Notice that the 2020-2022 period saw Goldman significantly outperform J.P Morgan, due to the undeniable belief that lower rates would bring on more M&A activity and more sales and trading volatility.

Then it all changed in late 2022, as rumors of rate hikes started to come into the scene, where the ratio reversed. 📉 

Today, you see the ratio start to break down again, as the fears of a recession could threaten Goldman’s stance in the market, especially if the government spending cut trickles down to more risk and volatility as already explained.

This is the market / volume profile for J.P. Morgan stock, and as you can see we are sitting at a pretty significant handle for 2024 and now 2025. 📅 

Markets sitting around these handles of liquidity might mean a potential sign of accumulation in the making, and if our thesis of continued volatility and hedging is correct, then this banking stock could be one to consider fo the coming quarters.

There is a short-term tailwind coming into J.P. Morgan stock here, and it’s via the latest buzzword in the market: Quantum. 🤖 

Whether it works or not, the popularity contest is going to likely favor J.P. Morgan stock in the future, not to mention on the fundamental safety side as well.

But get this.

If it does work, and the quantum space starts to take over short-term trading, you best believe that it will be global macro and other concepts we cover in our program that will survive. ✅ 

I saw this shift first hand during my time at Goldman, and it should be nothing but 5x the volume now. 🫰 

GO AND MAKE IT HAPPEN
Lest We Repeat It

I am fond of learning from other traders' stories, mistakes, and victories.

Axia Futures is a story I respect a lot. It features guys with grit who weren’t afraid of pulling through one day and saved their firm from collapse. Today’s book recommendation 📖 is fresh out of the oven (literally came out yesterday).

Filled with lessons, I’m already halfway through, and that’s how good it is.

To your success,

G. 🥃