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Non-Tech : The Woodshed
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To: bull_dozer who wrote (60500)9/20/2022 11:41:53 PM
From: bull_dozer  Read Replies (1) of 60903
 
Still on “Crash Watch”

Through the month of September, we've been on "Crash Watch" over concerns that a global equity market drop could lead to a liquidity-driven margin call across all asset classes. The watch continues through this week's FOMC meeting and then into October.

What are the conditions that prompted the watch? Here are just a few:

  • The Fed draining liquidity via QT
  • Sharply higher interest rates in the U.S. and globally
  • Concerns that selling in the U.S. treasury market could accelerate uncontrollably
  • The soaring U.S. dollar index
  • Commodity collateral issues in China and elsewhere
  • Yen and yuan plunging versus the dollar
  • Positive real interest rates when measured versus inflation expectations
  • The major driver of any liquidity-driven selloff will be the U.S. equity markets. The S&P 500 began the year at 4766 before trading down 3637 on June 17 for a drop of 23.7%. It has since rebounded, but those earlier lows loom large, and any break of them will lead to more substantial losses in Q4.

So, the primary question regarding Crash Watch is: Will the S&P 500 break down and begin to make new 2022 lows? If it does, the rush toward the exits will accelerate as margin calls lead to further selling and those forced liquidations extend to other assets classes.

sprottmoney.com
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