Discussion
I continue to maintain that the most bearish thing for the equity market is for me to be wrong on the economy. Economic bulls think I am wrong because they don’t believe the Fed has the resolve to respond to a stronger-than-expected economy. But I believe I have an edge on the Fed, so it allows me to interpret economic data with, IMO, a differentiated view.
This morning’s package of data - higher GDP and lower claims - is the worst case scenario for equities if you have my view, and the response from rates and the curve confirms my view. The 3y/10y UST curve is almost 118% this morning and Fed Funds futures are moving higher. On top of that, Bill Dudley is out this morning with a Bloomberg op-ed detailing why “higher for longer” cometh. In short, rates are ripping while the underlying fundamentals of an over-leveraged economy continue to deteriorate. This is precisely what happened just hours ahead of SVB’s failure. I strongly suspect Financial Crisis 3.0 (with UK LDI and SVB being 1.0 and 2.0) is coming soon.