This market is totally collapsing (And its not in stocks)

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What happened with the bond market in the uk should be concerning to everybody and we are seeing ripple effects here in the u.s as well when economists and analysts talk about a 2008 like black swan event it is usually because there is something unforeseen in the financial system that is over leveraged and once that hidden leverage becomes uncovered and unravels

That is what leads to black swan type events now before we get into the story in details in summary what’s happening is that the u.s treasury is now exploring the purchasing of bonds yes you heard me right the u.s treasury do not mix that with the fed now if you’re a fan of this channel you know that this comes at odds with what the fed is trying to do which is

Quantitative tightening the exact opposite of buying bonds they are trying to release bonds off of their balance sheet so why is the u.s treasury doing this and why could this lead to a black swan type of event if we have a lack of liquidity in the bond market and furthermore what does this mean for your stocks and the stock market as the s p p 500 is sitting at the

Very pivotal 200 week moving average here are we finally going to find some interim support or is the market going to finally break through this level and keep crashing and i’ll also give you an update on our plays and how i’m planning on approaching the market going forward again another jam-packed video let’s get right into it before i get into the main story

With the treasury buying back bonds the volatility that we are seeing in the market is really presenting us with some great day trading opportunities especially on zero days to expiration spx options we had one spx put that we ended up closing for 585 percent another one that ended up closing for 70 percent at the max we were also selling covered calls on the

Downtrend and we have a bunch of cash secured puts open and because the dividend yields on some blue chip and semi-blue chip companies right now look attractive i’m also looking to pick up some of these shares and potentially sell calls against my share not only picking up dividend yields but also making money on the shares themselves if you want access to all of

Our plays click the link in the description there are only a few spots left for october book a free call with one of our ambassadors and they’ll get you well on your way to applying to the academy okay so why is the u.s treasury doing this well the us treasury is worried about liquidity in the bond market see what happens when there is a lack of buyers of bonds and

Remember the bond market is way bigger than the stock market yes this is my shitty drawing representing bonds the bond market is 24 trillion dollars the stock market is around 16 trillion so way bigger than the stock market and what happens when there aren’t buyers for these bonds is the yields start going up to make the bonds more attractive so that investors can

Actually start buying bonds again but when the yields go up what happens is the bond prices start tanking because remember there’s an inverse relationship between the bond yield and the bond price now in a normal market these fluctuations are okay but we are nowhere near a normal market here especially what was uncovered in the uk now why are rising yields bad well

Rising yields are bad because it makes everything more expensive very rapidly especially when those yields are rising rapidly so everything from mortgages to car loans yes this is a drawing of a house i’m gonna stop drawing everything from mortgages to to car loans the cost of financing personal debt as well as commercial debt expanding businesses etc when rising

Yields go up really fast that tends to break the economy and really cause a hard landing and the fear there is that that a recession will happen if if yields keep rising fast enough now the further danger is what is going on with the uk if there is some sort of over leveraged element of the financial system in the u.s like we just discovered with the uk pensions

Then rising yields could break something not not only cause a recession but break something fundamental and cause a broad-based recession that can last a very painfully long time like 2008 did when we uncovered the over leverage that was in the mortgage-backed security space so what happened in the uk was you had these pension funds right so these manage these uh

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Managed funds that manage people’s pensions they’re usually very large funds because a lot of people people are on pensions now obviously they’re not just taking people’s cash and and keeping it they the pension funds themselves are investing to grow uh the the cash that they have collected from people and workers are entrusting the pensions to invest that money

Wisely so classically these pension funds would buy what are called guilts these are the equivalent of u.s treasuries or u.s bonds however very recently they started buying into derivatives that are essentially leveraged guilt funds so if a guilt or treasury goes up by 10 these leveraged guilt funds that these pensions have bought into will go up by 30 percent

You can think of it like almost a leverage a 3x leveraged etf now what happens when the value of guilts goes down well obviously it goes down disproportionately as well now because these leveraged guilt funds are bought on something similar to margin well if the value of guilt drops sharply then these can essentially be margin called and these pension funds can go

Broke now again in a normal market these these up and down fluctuations are fine but not only is the uk in a very terrible inflationary situation much worse than than the us but their new prime minister liz truss decided to implement a debt finance tax cut mainly for the wealthy british citizens during a time when inflation is wreaking havoc on the uk economy now

What makes it debt financed is that they’re going to have to sell more bonds in order to finance these tax cuts so what happens when you issue more bonds into the already flooded bond market where there is a lack of liquidity well you are going to increase the supply of bonds which is going to tank the value of these bonds or guilts as they are called in in the uk

And that is exactly what happened there was a panic bond sell-off or guild sell-off because because of the tax plan that she proposed which is going to be debt financed which is going to massively increase the supply of guilt which when you increase the supply and don’t meet that at the demand side is going to drop the value of these guilts so these pension funds

That have been holding essentially let’s just call it 3x leveraged guilt funds now the value of guilts dropped sharply unprecedentedly and they were getting margin called so essentially the uk was minutes away from total financial collapse we’re talking about trillions of pounds here we’re not talking about paltry amounts and these funds essentially hold uk citizens

Most of their life savings so what had to happen is the bank of england which is their version of the fed had to come in and start buying bonds to improve the liquidity in that market and moreover the uk prime minister had to roll back those tax cuts those idiotic tax cuts that couldn’t come at a worse time because of the panic that it caused in the market however

This uncovered a hidden leveraged risk that wasn’t known before that these pension funds are engaged in really risky behavior and were on the verge of complete collapse and who knows could actually collapse because the bank of england said that we’re only going to be doing this for three days get your in order start liquidating your assets to raise the funds to pay

For these margin calls so you don’t go into complete collapse now who knows what’s going to happen after those three days the the three days ended last friday as of the time of this recording they did not say that they were going to come in and buy more if need be they said you have three days that’s it we’re not going to be buying bonds because remember just like

The us the uk is trying to the uk the bank of england is trying to offload bonds off of their balance sheet to do quantitative tightening to fight inflation they’re not trying to be in a bond buying environment so janet yellen saw this who is the treasury secretary and she said that she’s now worried about the loss of adequate liquidity in in the u.s government

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Bond market especially as jerome powell is starting to offload bonds off of the balance sheet so she said that they’re considering buying back bonds in order to improve liquidity in the bond market obviously this goes against qt which jerome powell and the fed are trying to do the treasury and the fed are completely separate entities the treasury is part of the

Federal government the fed is a completely independent central bank so this is not you know not great news at all if you’re tracking the health of the economy and you know what in the economy could potentially send us into complete collapse 2008 style in 2008 you know minus a few people the hidden hidden leveraged risk in mortgage-backed securities nobody really

Saw it coming unless you were under you know you were in the weeds or somehow behind the curtain kind of like michael burry was you really would not have known that there was a problem brewing and there was that hidden leveraged risk in mortgage-backed securities that you know nobody could could really see until it actually blew over and in this case what happened

In the uk that the pension funds no one really paid attention to how the pension funds were over leveraging themselves in order to try to make as much money as possible by investing in these basically leveraged guilt derivatives and now the us is trying to get ahead of itself and say hey the bond market we actually need to improve liquidity because if we get into

A situation where bond yields rise rapidly and bond prices tank then something in our financial system could end up breaking this is an ongoing story and i don’t know how it’s going to be resolved and really nobody knows how the fed’s quantitative tightening is going to end you know whether it’s actually going to end in a hard landing or there is a chance for it

To actually go smoothly because it is unprecedented and the amount accounts that they are looking to unravel off of the balance sheet 95 billion dollars a month is unprecedented as well so to me it’s not unfounded here when michael burry is sounding the alarm on some of these underlying issues and when you hear real economists talk about the bond market it’s

Because they know that the bond market is a much better predictor of recessions than the stock market is the stock market is really meant as a speculation environment where you are giving companies high valuations based on what you think they’re going to do in the future bonds are risk off assets they are the lowest risk investments that we have in the u.s market

And so when bond investors themselves are not willing to buy bonds that is a bad sign that a potential collapse is underway now what really worries me is more so what’s going on in in the uk and not really the us because that hidden leveraged risk was already uncovered and i don’t think that you just sweep it under the rug so the bank of england coming in for

Three days to buy bonds and say hey we saved the day all right this problem no longer exists i don’t think that’s the case i think that that you can’t sweep something like this under the rug and it will continue to be a problem what that means for the us market it is you know if we do have a liquidity problem in bonds and you can see here the 10-year it closed the

Highest ever since 2008 you know we’re talking about a 14-year high here in in the 10-year treasury and it could keep going up because the fed is looking to raise rates in november and december as well because inflation is still coming in super hot the more that bond yields rise the worse it is for stocks also we’ve never seen a complete bear market bottom while

The fed was still hiking so i do not think that this is the bottom here the fed is going to have to come out and say okay we’ve done our job we’re not hiking anymore and i don’t think the fed can do that we are so far away from that if you look at the federal fund’s effective rate minus cpi i mean we’re still at negative four so the federal funds effective rate

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Has to get above cpi for inflation to really come down so in my view this is not the bottom now we could be on the cusp of a violent short-term rally i mean you already saw on thursday after cpi was released the market do a miraculous like six percent turnaround we’re talking about the s p 500 and the nasdaq and we are already getting a lot of oversold signs in

The short term however if i take a look at the vix the vix already showcases a golden cross here and a golden cross which is a cross between the 50 moving average and the 200 moving average i mean this right here is not a good sign the last time that this happened was in the end of 2021 the vix essentially went from 20 to 40 and then back in march 2020 the vix

Essentially went from 20 to 85 and we were seeing that golden cross again so we could be on the verge of a lot of volatility remember that we also have earnings coming up at the end of october and we’re talking about the mega cap earnings right apple microsoft amazon etc tesla so if earnings come in with bad guidance uh if earnings show that they are heavily

Affected by what’s going on in the economy then we could see the next drop in the stock market however if earnings come in in surprise we could see a short-term bounce here due to the fact that we have a lot of oversold technical indicators but the bigger picture until the fed funds rate is you know no longer going up in perpetuity or what seems like in perpetuity

Um we’re not going to find a bottom to this bear market now there are quite a few stocks here that do look like good pickups only because of the dividend yields that that they’re dishing out so you know in my view you definitely want to look at a company’s uh cash a you want to look at a company’s debt do they hold a lot of debt or not um and then you also want to

Look at their their dividend yield right and whether they are a blue chip or semi-blue chip company um because in this case if a company is in a good position financially at the moment they don’t hold a lot of debt they have very high margins and they also pay out a dividend yields that is comparable to what you see with bond yields or even higher to what you see

With bond yields then in my view those companies can you know start to be dollar cost averaged into because of the yield that they pay you are guaranteed to get those dividend yields if you invest in those companies and then you could do things like sell covered calls against your share to pick up even more money and let your shares work for you but right now the

One-year yields paying almost four and a half the two-year yields paying almost four and a half as well so if you can find companies whose balance sheets you like that are at a major discount that also have a good amount of cash generation and pay a yield that is higher than some of the treasuries that you can get at the moment then i think that those are okay in

My view to pick up if you are banking on the long term you don’t mind picking up the yield you don’t mind picking up the cheap stocks buying equity in those companies and also if you know what you’re doing you can then sell calls against your shares and make even more money from from your shares but that is it for this video leave a comment down below let me know

What you think of the us bond market let me know what you think if we are on the verge of collapse have you started buying etc again sign up if you want access to all of our analysis our alerts our day trades our swing trades options futures we do it all there are a few spots open for october so sign up hit that thumbs up if you get anything out of this video stay

Safe out there traders peace

Transcribed from video
This market is totally collapsing 🚨 (And it's not in stocks) By The Traveling Trader