🤔 When do rising Treasury yields become a problem for risk assets?

Recently, it's not about the nominal number.

It's about where yields are relative to where they have been.

Specifically, when yields move to the 80th percentile of their rolling 1 quarter (63 day) range, according to @WarrenPies and @3F_Research (for the 10-year Treasury yield).

I've shamelessly stolen his indicator and recreated it for TradingView.

It flipped green on Friday January 17.

Pretty good for the S&P 500:

Not as good for bitcoin - but maybe still useful:

Now you can steal it too.

I'll put the Pine Script code for TradingView in the comments.

Note:

This appears to be a relatively new correlation - the correlation is nowhere as strong before 2022.

It remains to be seen for how long this correlation will continue.

Must be viewed on a 1-day chart:

//@version=5
indicator("US10Y 63-Day Range Percentage", overlay=false)

// Input for customizing the length of the range
length = input.int(63, title="Range Length")

// Get the ticker data for US10Y
us10y = request.security("US10Y", timeframe.period, close)

// Calculate the highest high and lowest low over the range length
highestHigh = ta.highest(us10y, length)
lowestLow = ta.lowest(us10y, length)

// Calculate the range and current position in the range
priceRange = highestHigh - lowestLow
positionInRange = us10y - lowestLow

// Calculate the percentage of the range
rangePercentage = positionInRange / priceRange * 100

// Plot the percentage
plot(rangePercentage, title="63-Day Range Percentage", color=color.white, linewidth=2)

// Add optional horizontal line for context
hline(80, "80%", color=color.gray)

// Display background color if the percentage is above/below thresholds
upperThreshold = input.float(80, title="Upper Threshold")
lowerThreshold = input.float(80, title="Lower Threshold")

bgcolor(rangePercentage > upperThreshold ? color.new(color.red, 85) : rangePercentage < lowerThreshold ? color.new(color.green, 85) : na)

Introducing my new Financial Conditions Traffic Light Indicator.

It has previously captured large parts of upside swings, while also largely mitigating major downside swings.

It works very well for both US stock indices and bitcoin.

Here's how it works... 🧵👇 The NFCI is published by the Chicago Fed weekly (Wednesday).

It shows whether conditions in money markets, debt and equity markets are "tightening" (generally bearish) or "loosening" (generally bullish).

It's composed of 105 measures of financial activity (pictured).

🤔 Is a big Federal Reserve liquidity injection coming?

Another US debt ceiling deadline looms ahead.

And this could mean $750bn of liquidity flowing into markets from the Treasury General Account (TGA).

Let me explain why... 🧵👇 The TGA can be seen as the US Government's bank account at the Federal Reserve.

When cash sits idle in the TGA, it is essentially "dormant", because it is removed from markets.

There's a secret liquidity rhythm pumping through financial markets. Can you hear it?

If you'd bought bitcoin 3.5 years ago and held it - you'd be up 114%.

But if you'd have played along to the beat - you could have been up 893%.

Here's how to groove to the rhythm... 🧵👇 Hundreds of billions of dollars are constantly flowing between the Federal Reserve and markets.

We can measure this US "stealth stimulus" through a measure known as Net Fed Liquidity.

It has played a big role in driving asset prices over the past 3.5 years.

🌊 A wave of Federal Reserve "stealth stimulus" is coming.

⬆️ Net Fed Liquidity is set to rise over the coming months.

📈 And this could be good news for the price of stocks, gold and bitcoin.

Let me explain why... 👇 Net Fed Liquidity measures the total amount of liquidity entering markets directly from Federal Reserve sources.

It can basically be seen as the measure of "stealth stimulus" in the US, and it can be influenced by both the Fed, but more importantly the US Treasury.

For Jerome Powell, it's all about liquidity.

👀 That's why he's watching bank reserves closely.

If reserves drop, banking problems could explode again - & more liquidity will be needed.

So why are bank reserves important, and what will happen next? Let's take a look... 🧵👇 The financial world runs on liquidity - like a car runs on gas.

Liquidity must rise over the long-term.

When liquidity drops, financial crises occur.

This is due to the huge amounts of debt in the world ($350 trillion +) and the need to refinance that debt.

🌊 Net Fed Liquidity is an important driver of the price of assets like stocks, gold and bitcoin.

📰 And we just had a big week of policy news that has shifted the liquidity picture.

🤔 So what's changed and where is Net Fed Liquidity going next?

📝 Let's take a look... 🧵👇 LIQUIDITY MOVES MARKETS

Generally speaking:

As the liquidity tide rises - asset prices rise

As the liquidity tide falls - asset prices fall

A rising tide lifts all boats. But the liquidity tide lifts some boats higher than others.

😮‍💨 The QRA was previously a snoozefest.

🫨 But now it's a huge market-moving event. Why?

🔫 Because Janet Yellen has access to a $1.5 TRILLION liquidity bazooka to unleash onto markets, and she's not afraid to use it. But will she?

📝 Let's take a look... 🧵👇 WHAT IS THE QRA?

The QRA (Quarterly Refunding Announcement) is a set of documents published by the US Treasury every quarter.

The papers outline expectations for upcoming issuance of Government bonds.

The documents show much debt will be issued, but perhaps more importantly, the "mix" of that debt (how much short-term debt will be issued and how much long-term debt will be issued).

💵 Liquidity moves markets.

⬇️ And markets were hit by a substantial drop in liquidity last week.

📉 Not surprisingly, markets struggled.

📝 Let me show you exactly what happened - and 3⃣ things to look out for next: 🧵👇 Total Global Liquidity (TGL) is what ultimately matters the most for asset prices - but an important component of TGL is Net Federal Reserve Liquidity (liquidity from Federal Reserve sources).

Net Fed Liquidity has been rising since early 2023.

The Federal Reserve is officially "tightening" and reducing its balance sheet.

But through the back door it has actually been juicing markets with liquidity, alongside the US Treasury.

Rising Net Fed liquidity has coincided with a rise in asset prices.

The price of the S&P, gold and bitcoin have all soared [picture 1].

Rising Net Fed liquidity is particularly correlated to the price of bitcoin [picture 2]. It doesn't track perfectly on a tick-by-tick basis. However, periods of generally declining Net Fed Liquidity coincide with $BTC down or flat, while periods of generally rising Net Fed Liquidity coincide with $BTC up.

💵 A $170 TRILLION sea of global liquidity moves markets.

It's THE MOST IMPORTANT driver of stock, gold and bitcoin prices (statistically proven) - & it flows in predictable tides. 🌊

But it's often misunderstood - so I spent 47 hours studying it.

Here's what I learnt... 🧵👇 🌊 WHAT IS GLOBAL LIQUIDITY?

First of all, nearly every estimate of global liquidity you see online is incorrect.

Global liquidity is NOT simply M2 money supply.

And it's NOT central bank balance sheets.

🤔 You think the Federal Reserve is tightening? Think again.

Through the back door, it's been sneaky "stealth QE" 🥷 - with net Fed liquidity INCREASING by around $1 TRILLION.

And this partly explains why #Bitcoin, gold and stocks have been soaring.

Let me explain... 🧵👇 🔴 FED TIGHTENING?

Many will be familiar with this chart of the Federal Reserve balance sheet.

The official narrative is the Fed is "running off" its balance sheet (Quantitative Tightening), or tapering, which should be tightening financial conditions to fight inflation.

The US Government has hit the point of no return.

It's drowning in $34 TRILLION OF DEBT - and it can't pay the bills without even more debt.

Now a crazy report from the Fed makes clear - if spending isn't slashed, printing money is the only option.

Let me explain... 🧵👇 🔴 THE BIG DEBT PROBLEM

The math could not be simpler.

The current US debt-to-GDP ratio is around 120%, the highest it's been since World War Two.

And its getting worse, with Government budget deficits of more than 5% expected every year moving forward.

Two huge upcoming events could cause big problems for the Federal Reserve.

The end of a bank bail-out (BTFP) and the end of a Government debt lifeline (Reverse Repo).

And they are both likely to happen at the same time.

Let me explain... 🧵👇 Around March/April, two massive sources of liquidity for US markets are set to end:

1) The Bank Term Funding Program (BTFP) will be terminated

2) The Reverse Repo is likely to be fully depleted

But why are these so important? Let's take a look at each one in more detail:

So, the UK is now officially in a "technical recession".

This is bad.

But why has this happened? (Hint - it's the money, stupid)

Let me explain the ridiculous chain of events that caused this recession - in the simplest terms possible... 🧵👇 🔴 1) WHAT'S A RECESSION?

Two consecutive quarters of negative Gross Domestic Product (GDP) growth.

This means the economy is contracting - which is bad.

UK GDP was -0.1% in Q3 2023.

And today we were told GDP was -0.3% in Q4 2023.

So it's recession time.

I'm shocked more people aren't talking about the grim reaper hanging over the US economy.

It's name is the inverted yield curve signal.

It has a 100% accuracy in calling recessions.

And it's flashing red.

Now the man who discovered it 40 years ago is speaking out: 🧵👇 🔴100% accuracy

An inverted yield curve has historically ALWAYS been followed by a US recession.

It has an 8/8 hit rate since the 1960s, with zero false signals.

This is Campbell Harvey. He discovered the signal in 1986. So he knows what he's talking about.