by Ivan Martchev
November 15, 2022
The 3-month/10-year Treasury curve inverted last Thursday on better-than-expected inflation (CPI) news. The 3-month Treasury rate closed at 4.20%, while the 10-year closed at 3.83%. Fed Chair Jerome Powell had been saying that until that curve inverted, the yield curve is not really inverted. Well, now it is.
If the 10-year note can stay below 4% until the end of 2022, we could see the stock market rally extend into Christmas, but here are some reasons why the 10-year note may rise above 4% again.
It is peculiar that the 5-year inflation expectations rose again last Friday, coming in at 3%. When that indicator shot up to 3.1% in June, it caused the Fed to bump its expected 50 basis point rate hike up to 75 bps later that month and caused all subsequent rate hikes to stay at 75 bps. I think the Fed is using the rear-view mirror to decide the size of its rate hikes, but with these kinds of inflation reports (and more are coming), the pivot that the stock market was celebrating last week may turn out to be a mirage.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Personally, I would prefer that the stock market rally till the end of the year and worry about Powell next year, but what I prefer does not count. It’s what the probabilities are, given the inflation outlook. If I ask myself where the 10-year yield will be in December if the Fed funds rate stands at 4.50% (and later is at 5%): Is it higher or lower than where it closed last week, the answer I come up with is higher. In other words, the next 50 bps in the 10-year yield away from its 50-day moving average (red line below) is up.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Powell can make all this craziness go away by announcing a pause in rate hikes at the December meeting and the stock market would surge. The question is: How likely is that to happen? The answer I come up with is “not likely,” based on his statements and actions so far in 2022.
Could a Tentative Truce in Ukraine Happen Before Year’s End?
One event not connected to the central bank’s monetary policy that would cause the stock market to surge would be a truce in Ukraine and an end of the war. This war is a major economic event for the world that was not discounted by the stock market at the end of 2021. The Russians have pulled away from Kherson, booby-trapping all bridges as they calibrate their next move on the other side of the river.
Putin never expected that this “police operation” in Ukraine, which he envisioned to be a two-week operation, would turn out to be a military conflict more costly than any the Russians had fought since World War II, if not more than all of them combined (the Russians lie about their casualties and losses; any credible estimate characterizes their losses as horrendous).
The great Chinese general Sun Tzu said, “Every battle is won before it’s ever fought,” meaning the key to warfare is strategy and preparation. The Russians were not prepared for the Ukrainians to fight back, come “hell or high water.” In that light, the 2014 takeover of Crimea, which was clearly well-prepared, is night and day a success by comparison with the 2022 invasion of Ukraine proper.
If Putin can annex what is “on the other side of the river,” across from Kherson, and assure a non-aligned status for Ukraine (meaning no NATO membership), he may be able to stop the war and cut his losses. That would also help the stock market big time, although we need to see some successful negotiations first, which puts the final outcome sometime in the future, although a tentative truce can happen any time.
When Bitcoin Started Hitting the Tape, FTX Collapsed
FTX International has now filed for Chapter 11, which is a major milestone in the spectacular failure of one of the largest bitcoin exchanges. Some credible news organizations have estimated the hole on FTX’s balance sheet to be as much as $8 billion, but we will not know for sure until all investigations are done, most importantly the one from the U.S. Department of Justice. There will be many twists and turns in this saga in 2023, but one thing is for sure: As an exchange, FTX is finished.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The price of bitcoin has now taken out all major support levels. As a speculative digital asset generating no cash flow, bitcoin may fully unwind its entire rally since the March 2020 bottom, putting it at $3,949, similar to the way a major ETF of speculative securities, ARK Innovation Fund (ARKK), recently did.
For more on my recent views on bitcoin see these past columns.
11-23-21: Could This Be a Double Top in Bitcoin?
1-4-22: Bitcoin is Not Acting Well
6-22-22: Fortune Does Not Favor the Bitcoin Brave
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Countries Face Winter in Warm Spots – Bali’s G20 and Egypt’s COP27
Income Mail by Bryan Perry
Stocks Impress as Crypto Is Eviscerated
Growth Mail by Gary Alexander
Are You Better Off Than You Were…50 Years Ago?
Global Mail by Ivan Martchev
The Fed Finally Caused the “Complete Inversion”
Sector Spotlight by Jason Bodner
What Last Thursday’s Market Surge Told Us
View Full Archive
Read Past Issues Here

Ivan Martchev
INVESTMENT STRATEGIST
Ivan Martchev is an investment strategist with Navellier. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev
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