Talk about a turn of events:

Hong Kong's Hang Seng index just crashed 9.4% today, posting its largest drop since 2008 and 2nd largest drop since 2000.

Over the last 3 weeks, China's stock market was up nearly 30% on stimulus announcements.

What just happened?

(a thread) A record 3.5 TRILLION yuan (US$500 billion) of equities changed in China's trading session today.

This surpassed the previous all time high which was set on September 30th after stimulus announcements.

So how can the market go from extreme euphoria to a crash so fast?

You can't make this up:

Bonds are falling like the "Fed pivot" is cancelled and the yield curve just turned NEGATIVE again.

The last time the yield curve was negative was the day of the Fed's 50 basis point interest rate cut.

What just happened to the "Fed pivot?"

(a thread) The 10-year note yield is now up 40 basis points since the "Fed pivot" began on September 18th.

For the first time since August 8th, the 10-year note yield is above 4.0%.

Just days ago, markets were calling for 2 MORE 50 basis point cuts in 2024.

Talk about a turn of events.

Current market mentality:

1. Jobs report above expectations: Buy stocks, we avoided a recession.

2. Jobs report below expectations: Buy stocks, the Fed is going to cut rates.

3. Jobs report in-line with expectations: Buy stocks, the Fed is on track for a "soft landing."

How did we end up here?

(a thread) This morning, the Labor Department reported that the US economy added 254,000 jobs in September.

This means the US economy added 107,000 MORE jobs than expected last month.

Markets traded higher with the S&P 500 up +48 points even as the "Fed pivot" was priced out.

Current situation:

1. Stocks are rising like we have avoided a recession

2. Gold prices are rising like we are heading into a recession

3. Oil prices are rising like we are heading toward WW3

4. Bond prices are falling like geopolitical tensions are easing

5. Crypto is falling like risk appetite has disappeared

6. Tech stocks are rising like risk appetite is at all time highs

The epitome of a broken market. Meanwhile, US treasury yields are back on the RISE even after a Fed pivot began.

As volatility spikes, geopolitical tensions rise, and the Fed cuts rates, treasury yields should be down.

So why are they up sharply?

Wars are breaking out.

Some scholars say we are on the "brink of World War 3."

When Russia invaded Ukraine, the S&P 500 fell -11% in 3 MONTHS.

Today, oil prices are up 5% on Middle East tensions.

So, what happens to the stock market during times of war?

(a thread) Stocks are crashing today as tensions in the Middle East have escalated.

Iran just launched a major missile attack against Israel which also sent oil prices +5% higher.

For the first time in months, markets are pricing-in a real probability of a major war.

It has officially begun:

Over 50,000 port workers across the United States are now on strike for the first time since 1977.

These ports handle nearly 40% of ALL US imports and it could cost the US up to $5 billion PER DAY.

So what does it mean for the economy?

(a thread) For some background, port workers are on strike because of failed contract negotiations.

In June, the ILA, a union that represents port workers, suspended talks with the United States Maritime Alliance.

On September 30th, the contract officially expired without a deal.

This is insane:

In a matter of days, China has gone from severe recession worries to posting its biggest daily stock market gain since 2008.

There has been so much economic stimulus that brokerages are crashing due to high demand.

What just happened in China?

(a thread) China's Shanghai Composite index just soared over 8% today ALONE.

This puts the index up over 20% in 5 days, more than DOUBLE the average S&P 500 ANNUAL return.

This would be like the S&P 500 going from 5,000 to 6,000 in one week.

Truly unprecedented.

What is happening in China?

Just days ago, China announced MASSIVE economic stimulus as their economy crashed.

Now, retail investors are piling into stocks like pandemic-era stimulus is back.

Something is seriously wrong in China and it's too late for stimulus.

(a thread) It all began with a massive collapse in Chinese real estate.

It even prompted the bankruptcy of Evergrande, one of China’s largest real estate giants.

Currently, China's real estate market is BELOW 2008 levels, down over 80% from its recent all time highs.

The million dollar question:

Between inflation, wars, elections, and the Fed, the stock market has had every reason to crash this year.

Yet, the S&P 500 is now up 21% year-to-date and has more than DOUBLED the average annual return.

How is this possible?

(a thread) Since the October 27th low, the S&P 500 is now up a MASSIVE ~40% in 11 months.

That's more than four TIMES the average annual return of the S&P 500.

During this time, we have had TWO drops of 10% or more and the S&P 500 has still been able to hit 41 record highs in 2024.

Something doesn't add up here:

Oil prices are now falling toward their lowest levels in 14 months.

This comes even as the Fed cuts rates, wars have broken out, and markets think we have a "soft landing."

So why are oil prices falling like we're in a recession?

(a thread) Historically, oil prices have skyrocketed in market environments like the one we have right now.

When Russia invaded Ukraine, oil prices surged over 30%.

We now have wars in the Middle East AND Ukraine with production outage risks.

With this view, oil prices should be soaring.

China is panicking.

In fact, China is showing 2008-like signs as they are on the brink of a severe recession.

Over the last 2 days, China has begun Pandemic-level stimulus, as seen during lockdowns in 2020.

Is China dragging the global economy into a recession?

(a thread) The first signs of weakness came after China’s HY real estate index fell a massive 82% in just over 2 years.

This came as Evergrande, one of China’s real estate giants, filed Chapter 15 bankruptcy.

This put the index back down to 2008-levels, but barely anyone talked about it.

You can't make this up:

Silver is quietly in one of its hottest bull markets of all time, now up 36% in 2024 ALONE.

Like Gold, Silver is trading as if we are in another a major crisis.

But, it's barely getting any attention.

So what's happening to Silver prices?

(a thread) Silver prices, $SLV, are now up nearly 80% over the last 2 years.

This significantly exceed's Gold's 2-year run of 60% and it's up almost 10% MORE year-to-date.

We are seeing 2009-like movement in precious metals but a vastly different economic backdrop.

Interest rates are actually UP since the Fed cut rates last week.

In fact, some products have seen interest rise 20+ bps over the last week, even as the Fed cut rates by 50 bps.

How's this possible?

Here's how we knew the move was coming and capitalized on it.

(a thread) The 10-year note yield, $TNX, has risen from 3.60% to 3.80% in just 6 days.

Since the Fed announced a rate cut, bond prices have gotten crushed.

This comes even as the Fed announced a LARGER than expected 50 bps rate cut.

But why?

What in the world is happening to Gold?

Gold prices are up a MASSIVE 28% in 2024 to a fresh record high of $2,660/oz.

This puts Gold on track for its best annual return since 1979, all while the Fed is calling for a "soft landing."

Is Gold telling us something?

(a thread) If Gold closed at its current price on December 31st, it would post its best year since 2010.

However, if the current pace of the rally continues, Gold could see its best year since 1979.

That's when gold rose 126% in a single year.

Gold is trading like we are in a crisis.

Something doesn't add up here:

This week, the Fed started rate cuts with a 50 basis point cut for the first time since 2008.

Even 1 week prior to the decision, market odds overwhelmingly supported at 25 basis point cut

Was the Fed pressured into a larger rate cut?

(a thread) Here's a graphic summarizing market expectations of the Fed meeting outcome on Wednesday.

1 week before the meeting, markets saw a 70% chance of a 25 basis point rate cut.

Even 24 hours before the decision, odds of a 25 basis point cut were as high as 72%.

It's official.

The Fed has kicked off the interest rate cut cycle with a 50 basis point rate cut.

This is only the THIRD time in recent history that the Fed has started rate cuts with a 50 bps cut.

The previous 2 times, the economy crashed.

Is this time different?

(a thread) The 2 previous times were in 2007 and 2001.

As shown in the returns table below, those were the rate cut cycle with negative 1 and 2-year return in the S&P 500.

In 2001, the market fell 31% after 2 years and in 2007 the market fell 26% after 2 years.

These were major crises.

It's officially Fed day.

Markets are heading into the most divided Fed meeting since 2008.

The majority of investors think that the Fed should cut interest rates by 50 basis points today.

But here's why history says you DON'T want a 50 bps rate cut.

(a thread) Currently, 65% of investors believe that the Fed should cut interest rates by 50 basis points.

Over the last 40 years, there have only been 2 times that the Fed started with a 50 basis point cut.

Both times, it did not end well for the S&P 500.

The countdown begins:

We are now less than 24 hours away from the Fed interest rate decision.

Markets are divided, with a 60% chance of a 50 basis point rate cut and a 40% chance of a 25 basis point cut.

Here's why a 50 basis point rate cut would be HISTORIC.

(a thread) Since the 1980s, 25 basis point rate cuts have become the Fed's preferred course of action.

In fact, only 2 interest rate cut cycles have BEGUN with rate cuts greater than 25 basis points:

1. 2001, during the Dot-com bubble

2. 2007, during the Financial Crisis

Everyone is talking about whether the Fed will cut interest rates by 25 or 50 basis points.

But, what actually happens to the stock market when the Fed starts cutting rates?

History says a large move is coming for stocks.

Here's how you can get ahead of the move.

(a thread) While a 50 basis point rate cut is favored, at a 65% chance, a 25 basis point cut still has a 35% chance of happening.

However, the real secret here is it DOES NOT MATTER in the long run.

Regardless, futures see the Fed funds rate going down to ~3.00% over the next year.

The odds of a 50 basis point interest rate cut this week have gone from 2% to 59% in a matter of hours.

But, there was no new material economic data or guidance from the Fed.

A 25 basis point rate cut was the expectation until a few hours ago.

So what happened?

(a thread) It all started after the Wall Street Journal published the below headline early Sunday morning, at 5:30 AM ET.

This article effectively said that the Fed's short term target rate of 5.25% to 5.50% is too high.

This is the highest Fed Funds Rate since 2001.

Stock markets around the world are crashing right now, but why?

The answer to this question is the Yen carry trade, a term you'll probably hear many times this week.

So what exactly is the Yen carry trade and why did it cause a market downturn?

A thread to explain:

(1/7) It all started after the Bank of Japan (BOJ) decided to raise rates at their most recent meeting.

The BOJ raised rates to ~0.25% in their second rate hike since 2007, effectively ending negative rate policy.

For years, traders took advantage of these ultra low rates.

(2/7)