Of all the indicators you can choose from to assess the current market conditions, one in particular stands out – and it is sending a clear warning. It’s a warning that it has flashed before, and was followed by a big drop in the market.
It’s my Composite Liquidity Indicator (CLI).
The CLI is telling us that the market is as overextended now as it was in January, just before the big February “adjustment.”
That correction looked like the beginning of a bear market.
Since then, the market has crawled all the way back.
On Wednesday, and again today, the S&P 500 has momentarily exceeded its January high by a few pennies.
But the CLI is now telling us that market risk is as great, or greater, now than it was in January.
Many of you remember the old Warner Bros. cartoon series, Looney Tunes – specifically the slapstick episodes involving the hilarious duo, Wile E. Coyote and the Road Runner.
Somehow, in every episode, the fast-running ground bird manages to outwit the coyote, despite repeated attempts by the coyote to catch and eat it.
No matter how ingenious and complex the contraptions the coyote devises, they always manage to backfire – often with the coyote running off the cliff, falling deep into the canyon, as seen from a bird’s-eye view.
And this is exactly what we are seeing right now with the Federal Reserve.
The market is overinflated, and the Fed has concocted an elaborate plan to engineer a soft landing.
But it won’t be a soft landing. It will be a hard landing, just like the coyote running off the cliff and falling deep into the canyon.
So today we’ll look at the interplay between the Fed and the Treasury, and how that’s influencing the markets.