Market Relocation in Progress

On January 4th, 2022, the S&P 500 peaked just over 4800. Back then, the VIX sat under 18. Bitcoin was trading above $45k, while crude oil was trading at ~$80/barrel. 1 US Dollar ($) was worth 115 Japanese Yen (¥). The 10 year US Treasury traded around 1.6%.

As of Wednesday, June 22nd, 2022, the S&P 500 closed more than 1000 points lower than the year’s peak at 3755, marking a decline from peak of ~22%. Vix closed at 29 (+60%), BTC traded at $20k (-55%), crude 107 (+33%), and Yen (¥) 136/$ (-15%). The 10 year US Treasury is now at 3.2%, a whopping increase of 100% YTD!

Crypto markets are experiencing a liquidity crisis, the likes of which it has truly never experienced before. From the de-pegging of Terra Luna to Celsius’s blocking of withdrawals, from Microstrategy’s potential margin call to Three Arrows Capital’s call for a bailout, crypto is experiencing its “2008” moment.

Inflation is still running hot in Europe (8.1%) and Japan (2.5%), the UK (9.1%) and the US (8.6%). It seems no asset class, not even energy, is safe from potential stagflation and geopolitical risks. But with over 80% of investors bearish on the stock market, perhaps the contrarian call is that recession risks are overblown and the Fed actually will execute a soft landing.

Nevertheless, the 2 year 10 year yield curve inverted a couple of months ago and again last week, a worrisome recession indicator (with a lag of 9–24 months) that suggests the Fed may be “ahead” of the curve (for once). As the central bank raises interest rates and attempts to offload its $10 trillion balance sheet, many investors are asking, who’s buying?

This unprecedented round of quantitative tightening may prove to push the world economy into recession territory, but what is certain is that this is one of the most massive market relocations in human history, not only in aggregate nominal value (>$10 trillion lost YTD), but in relative terms as well.

Stay tuned for Market Relocation in Progress.