Where are we now?

If I could sum up the state of the market looking back a week, it would be the image above.

A total, unadulterated, disgusting, expensive, devastating wreck...

And we haven't even broken the February lows yes on the ES.

The way I like to picture the market where it lies right now is like the bubbling in your stomach you get just before you commit an atrocity in the toilet when you have food poisoning...

You know things are bad, you know bad things are coming and you're hopeless to stop it.

It just hasn't happened yet.

A quick lookback

There's a reason why you only receive a few premium articles per month.

If I were writing to you every day, the important bits I'm focusing on would be mashed into all the other 'stuff' going on, just so that I can make you feel like I'm helping you understand the market more.

Yes, I could write to you everyday, but when we're looking at more actionable macro stuff, that is not necessary.

Let's take a look at the articles from back in August and the start of April and late March as a recap, since they are part of what's going on now.

We're at peak growth

This one is from August where I urged caution at being 'too long' equities over the next 6 months, specifically the NASDAQ.

On the Yuan and China...

Getting short Germany

Why do credit spreads matter?

Now, not to blow my own trumpet, but they've all come off.

I did not get long USDCNH, but the DAX has been absolutely THUMPING.

Key point here is all this is occurring with a simple 25bp hike by the Fed...

And this week we have them hiking by 50.

Whilst the SP500 is sitting at these lows.

And under the 200DMA.

I am a big fan of thinking about, 'who is fucked,' and in the current context of selling rips, anything that turns bid next week in risk land is a fade, pretty much based off this principle  👇

And in terms of credit turning...

I don't think the DAX looks very healthy either...

And this is without the ECB doing any real hawkish pivot just yet.

See below at the yield on Investment Grade European debt reaching above pandemic highs...

That is seriously dogshit.

Great for our DAX trade, but dogshit for the index.

Switching back to the US, interest rate risk is growing.

In this environment, tell anyone trying to be bullish to fuck off, quite frankly.

Especially on Twitter.

I might start doing it more, actually.

Check out the rate hike probabilities for the June meeting and tell me if you'd like to call the Fed's bluff on that one.

What we're looking at here, is after the expected 50bps rise this week, the Fed will go 75bps in June.

There are still deniers of interest rate risk for some reason.

I think they look at things historically and say, 'FiFtY bAsIs PoInTs Is NoThInG, Sp500 wIlL sTilL bE bId.'

Yes of course it will...

A hiking cycle after the largest increase in retail leverage ever is bullish, honey.

Honestly, F.O.

If meme stocks have been able to collapse at the mere thought of hiking, as they started to do in 2021, imagine what ACTUAL hikes will do to the larger growth stocks.

Death is knocking...

Welcome Apple

Personally, I think the whole of the SP500 relies on Apple staying up at this stage.

We are very lucky that it hasn't really moved much amidst this rising interest rate risk.

I've said for ages that Apple is a blue chip sovereign bond...

But with rising interest rates, this validity ebbs away (it's only valid when rates are rock bottom with no sign of rising).

See Apple vs Eurodollar futures (inverted) below.

The top in Apple came when the market REALLY started pricing in higher rates back in December...

Now that we're going to 50bps, if Apple goes then everything goes - there are no two ways about it.

You don't need a complex model to understand what a rising rate does.

You need to think of what it does to you, then extrapolate it out to a larger business.

It raises costs.

This is one of the reasons why they have just committed to a fairly large share buyback...

It's all about lowering their working average cost of capital, not increasing their share price like many might think, necessarily (the conditions don't make that the logical conclusion as to why they'd buy 'em back since rates are rising).

It's actually rather Keynesian when you think about it...

My main focus over the next month is to really start looking at how aggressive the Fed is going to be...

And the strategy remains to sell any form of rip.

I'll be back later this week with my thoughts on the dollar!