The current relief rally after a nose bleeding first half of 2022, which saw more than nine trillion dollars wiped from the market capitalization of risk assets, stocks, cryptocurrencies, and even the relatively low-risk fixed income, is likely to build momentum.
What is our thesis explaining why this relief rally will continue into the second half of 2022, pushing stocks out of bear market territory?
“first half of 2022, which saw more than nine trillion dollars wiped from the market capitalization of risk assets, stocks, cryptocurrencies”
WEALTH TRAINING COMPANY
Darren Winters cycles analysis indicates that investors will seek alpha in the second half of 2022 at the higher end of the risk asset scale.
The investor psychology cycle indicates investors moving out of depression since the June relief rally. Peak depression sentiment is highlighted by Celsius and the latest Nuri, crypto exchange filing for bankruptcy, all indicating deleveraging is underway.
More financial stress in the crypto space was flagged with the collapse of Luna’s stablecoin peg to the US dollar.
Hedge funds throwing in the towel is another sign of peak depression in the investor psychology sentiment. So recently, Cathie Wood ARK’s “Transparency” ETF closed down, and Bill Ackman returned four billion dollars to investors because he did not see any investment opportunities indicating peak investor sentiment depression.
But capitalism needs investors, so when the bigs are not investing, that is a sign that those at the top of the human food chain will make a change to keep the status quo, capitalism kicking in. After all, why would they kill the golden goose, capitalism that serves them so well?
“The investor psychology cycle indicates investors moving out of depression since the June relief rally”
WEALTH TRAINING COMPANY
Bank failures are another sign of peak investor depression
Now let’s zero in on the top of the human food chain, the central banks with their sole legal right to create currency with the stroke of a keypad. Central banks, in reality, bankroll governments, so they are the unelected government. In the age of central banks, there is no price discovery, just central bank liquidity and a bloated central bank balance sheet that makes Bill Gates look humble.
“The takeaway of the relief rally thesis continuing is that investor psychology is coming out of a depression”
– Wealth Training Company
The central bank liquidity cycle indicates a trough in central bank liquidity, and if correct, that supports the relief rally gaining momentum
It is not inflation that has become entrenched in the system, it is central bank liquidity. The latest US CPI data underscores peak inflation, and peak central bank tightening. The relief rally could turn into a bull market as the bulls fear missing out on securing their place, suckling on the central bank money teat.
The takeaway of the relief rally thesis continuing is that investor psychology is coming out of a depression, and hope that the rally continues gains momentum as monetary policy pivots from tightening to normal to easing.
Demand destruction is putting out the inflation fire. The fallout of more than 150 basis point rate hikes will feel like 600 basis point rate hikes. The economy is so leveraged.
Expect more negative GDP data, but the bad news is good news. So bulls can suckle at ease. But you should never feel comfortable playing the game. The world order cycle indicates periods of geopolitical instability.