2024 euphoria, then recession!

and how I am positioned this year (medium-long thread)

The thread will contain details about FED rates, DXY, bonds and bond yields.

Will start with the obvious: 1. the S&P500 index, which is a good market indicator as a whole and continue with 2. Bitcoin, which is the same for the crypto emerging market

My whole thesis since January 2023 (last pinned tweet) was that the SPX will get to a new ATH during 2023, and it was based on how FED would play with rates. SPX was at 3800, rates were at 475 bps.

We got at 0.4% off the last ATH, but the move is not done IMO!

TL;DR this is what I expect:

Historically, when FED pauses rates, markets rally very hard. When they keep rates higher for longer, the rally is higher and longer. I posted this many times throught 2023 as people kept thinking high rates = bad market

What higher for longer really means:

Now, the first rate cut is expected in March, and the last pause on 31 January. If you’re interested in how Bitcoin performed the last time we were in this period, check this out:

During the last days of high rates, the SPX has volatility, but keeps going higher, climbing the wall of worry.

Market already pricing in 3 rate cuts for 2024, and the rate cuts are not bearish - it’s what comes after the rate cuts.

So my thesis continues: SPX should climb the wall of worry into euphoria - that means from here to 5500-5800$ before hard crash back to 3500$-ish. During this time I see the FED coming in to restimulate with massive QE and bail out some big players (while others fall to dust).

The problem is already advanced - we saw it in March 2023 credit crunch - as the majority of the banking system is insolvent, because they run on a treasury asset with no liquidity: bonds (unless they are backed)

The problem with bonds is that the liquidity is backed by the government, so in the end they decide which banks receive the backing when credit has another systematic problem. The backing this time is almost 20 trillion $ - that’s what they would need to print to save the system.

The market already knows this, and before any major problem - like a potential recession - the market rallies in advance. It happened 100% of the time in all of history.

Felix Zulauf is one of the best macro minds out there, and he expects something similar, but I do not agree with his H1’24 take, in which he expects shallow SPX ath (smth at around 4900$) and then the abrupt fall, as selling begets selling.

The majority of investors are too concentrated on a few stocks, as he says: magnificent seven and others, and also long bonds - the most long bonds in last 40 years history (or smth like that) - this assessment is very accurate; he predicted the 2022 bear, the 2023 credit crunch in March (which is insane) and the 2023 rallies!

So when the selling starts, and you have nothing but 7 seven stocks to sell, that’s what you sell, as SPX falls of a cliff.

Where I am not agreeing with Felix is the level of which SPX should get before falling, because of one important reason: market can remain irrational longer than you can stay solvent - that applies also to to upside. I guess my thesis here is that the next rally would start for two reasons

Those two reasons could fuel the next move:

As euphoria gets in, FED is cutting, market is rallying, other players add to their shorts and get liquidated (longer than you can stay solvent), credit system gets worse, SPX would begin the fall very aggresively (pandemic style), and in a 1-3 months window, it should get to the 3500$-ish area.

I saw lots of good analysts that predict an 1932 style crash, but I see that only after this decade is over (other threads I will do in the future), and for now I don’t think SPX should close weekly under 3400$ as every SHMITA year (2022, 2015, 2009, 2002 etc.) marks the bottom going further.

Also I think we're in a secular bull market, ending after 2034

Confluence with FED restimulating and bailing out the banking system, somewhere in the summer to fall, the next hard rally in assets will be underway, to 2025-2026 as SPX should get to 7-8000$, but this will mean a new thread next year.

We are in an inflationary environment and the FED is only participating. As seen in the Dewey and Dakin inflation model, next inflation top should come 2033-ish, meaning this decade is one of spending - meaning no matter how much money they print, it will be spent instantly - meaning asset prices would go parabolic (I will make an other post about FED and their Interest Rates "strategy" later today).

To compare, similar times we find in the Roaring Twenties (1920 - 1929):

So much similarities can be found at that time: cultural boom, immigration boom, civil war in the US (KKK inception), peak inflation, global pandemic, technology boom (cars, planes, supermarkets - now: money tech, AI, digital cars, space travel etc.) and global conflicts getting more frequent…

Also, as bond bulls are mistaken next years, bond yields are also in an uptrend, as FED rates are:

So the next target for bond yields (10y) would be 3% -ish short term, but as inflation and rates rise, yields would go much higher (probably to 10% -ish this decade) - that means bond bull WILL GET F-ed!!

The DXY, I think will give the last signal in the next ride down of the SPX. As in 2019, it spiked up hard when the market melted down. The reasoning is simple: people and institutions demanded dollars very quickly: that is the backing of deposits that I was talking about.

When DXY falls hard after the spike, SPX should be done correcting = opportunity of a lifetime, as doomsters would want more downside to enter, and would be left behind.

As for the last cycles, we had 3 phases for each one:

I expect DXY to spike, but don’t know at what level and honestly don’t care, it doesn’t matter. That is before it dumps - FED restimulates, everyone want to use dollars again, assets soar.

People still chart Bitcoin or some altcoin, but they forget this space is correlated with trad-fi (still). So to know what the crypto space will do in this 2024 carousel, we need to first look at the S&P and then at Bitcoin.

In my 2023 market view, I assumed BTC would come to an ATH, following SPX, but with lag. People along the way called me crazy as they called for tops all of 2023 - 25k top; 31k top; 37k; 42k… finally they’re saying now we’re topping at 48k because of last cycles confluences, 0.618 fib retrace, ETF sell the news, rally of 2023 overextended etc.

I was in the 2021 bull market, and no one (except for a few people) I mean not one of the people saying this is the top, predicted the top in 2021, or the bottom in 2022.

As the market is a game of liquidity and supply and demand, BTC followed SPX in the last major moves. 2019 with a multiplyer of 12x in % gains, 2021 15x multiplyer (we had more time), and now we are way bellow the % gained. Would this time be different? Another post about liquidity will be posted later today or tomorrow)

So my view still is a new ATH before SPX is done with its move, frontrunning every halving theorist, ‘macro bad’ doomster, ‘ETF sell the news’ guy etc., but imo it does not get over 100k$ before the downside comes. 80k-ish is my best case scenario this next months. Also for a topping signal I would watch the weekly RSI (another post about RSI will come later):

The downside in BTC, as it is a wild card, even predicting a new ATH could be wrong (maybe the 50-60k area would be the top, because there’s no time to catch up with SPX - will know when we get there), is very hard to predict, but my best case is when SPX goes down, the 31k is a strong support, or in an event of cascade liquidations we could go down to 20k (I would monitor daily PA when the time comes, and watch opportunity presents itself)

In this kind of movement, alts would get massacred, and the next opportunity would be life changing.

This is how I am positioned this year, going to 2025. First, will get out these next few weeks/months - DCA out, and then place some shorts after Q1 into summer 2024, but I will also post here how I look at intra-week positions, not doing a lot of trading.

The fewer the moves, the more wealth you acquire. In 2023 I made 2 big moves: March credit crunch - last Bitcoin entry; June to September 2023 last altcoins entry. 2024 I would de-risk the same, based on the movement I’m seeing in the S&P

As the market moves up, euphoria grows, soft landing is on everyone’s tongue, new paradigm, no one calls for tops anymore - and then, surprise. Same with the Halving theory - halving has passed, nothing bad happens, only up, new paradigm, BlackRock is here to pump our bags, no one calls for tops anymore - and then, surprise.

This is just how I am prepared to ride the market this year, will adjust on the road (price targets are never precise, nor does timing the market), but as in 2023 with my portfolio going +400% overall, I will stay true to my plan.

I will make an another (long) post about a wave 5 theory that gets this decade’s crypto space into a prolonged bear market ... just my point of view

Peace out!