I hope you’re all having a wonderful weekend… let me catch you up on what you might have missed…
Happy Three-Day Weekend:
In about 15 minutes, I’ll be taking my daughter to the bowling alley. There, I’ll sit… and watch her play arcade games. I’m trying to give my wife another day to relax…
With that in mind, here are the things that you might have missed in the markets…
The VIX and VVIX are climbing like they’re racing to escape a sinking ship. The VIX is represented by the green line, and the VVIX is represented by the red line.
Source: Bloomberg and ZeroHedge
When volatility of volatility starts spiking, you know we’ve entered the “this is fine” dog meme territory. Keep a close eye on the Bank of Montreal MicroSectors FANG Index -3X Leverage (FNGD). If that breaks above its 20-day moving average… consider hedging and playing defense.
CEO Confidence vs. Nasdaq: The Ultimate Disconnect
CEOs are more pessimistic than a food critic at a gas station buffet, hitting near all-time lows, while the Nasdaq parties like it’s 1999.
Source: Zero Hedge
This divergence is so extreme that it makes the dot-com bubble look rational.
When executives lose faith but stocks continue to rise, someone is definitely wrong—and it’s probably not the people actually running companies. We will start looking at CEO and CFO insider buying every morning at Market Masters. We’re looking for any level of confidence… but it seems to be fleeting for now.
S&P 500 Concentration: Bubble 2.0, Electric Boogaloo
The top 10 stocks now control 37% of the S&P 500—10 percentage points higher than the dot-com peak. Their earnings share? A mere 30%.
Source: Goldman Sachs
So we’re paying premium prices for concentrated risk while pretending diversification still exists. It’s like buying a fruit basket that’s 90% apples and calling it variety.
This is a problem as I’ve said. The concentration of that amount of money in just a few stocks puts a lot of pressure on markets. This is why it’s so important to pay very close attention to the 20-day moving averages of the MAG 7 stocks. They are the primary driver of momentum in this market.
Growth vs. Value: The Great Divergence Continues
The other day, I noted that 40 energy stocks on the Russell 2000 now trade for less than their book value. This is an incredible misallocation of capital in U.S. finance.
Growth stocks are absolutely demolishing value stocks in what’s become the most lopsided financial boxing match in history.
Source: Koyfin
Value investors are getting body-slammed so hard they’re considering therapy. This gap is widening faster. This probably won’t end well…
But here’s where it gets wilder. Small-cap stocks are underperforming the S&P 500 by margins not seen since the dot-com bubble peak, approaching historic underperformance levels.
Treasury Auction Horror Show
Here’s where the problems are mounting. In the U.S. bond markets.
Source: CNBC
The 20-year Treasury auction was ugly. Lack of bidders sent yields rocketing to 5.1%, causing stocks to have an existential crisis.
When even government debt becomes toxic waste, you know we’ve entered uncharted financial territory where normal rules don’t apply. Now here’s the thing… an uptick in yields impacts collateral quality in the global lending markets. We have a serious problem pending… so follow our momentum signals.
You don’t want to be the guy without a chair when the music stops.
Treasury Reality Check: Debasement Olympics Begin
Trump and future administrations can’t cut spending enough to matter without triggering economic Armageddon.
They’ll choose currency debasement over fiscal responsibility every single time. You know this… I know this… I write about it every day.
Source: Google
Cash and bond holders are getting slowly cooked like frogs in gradually heating water.
What can you do now?
Spend now or forever hold your peace, buy capital efficient assets, or giddy up on gold and silver.
Foreign Treasury Participation: The Great Exodus
Foreign participation in 30-year Treasury auctions just hit its lowest level since 2020.
This is a serious problem. The Fed will have to step in at some point (and when they do – get ready for the S&P 500 to surge).
International investors are treating US debt like last week’s sushi.
Nobody wants to touch it. When your biggest customers stop showing up to the sale, prices are going to get ugly fast.
Japanese Bond Market Implosion
Japan’s 20-year bond auction got the weakest demand since 2012, with yields exploding to levels not seen since the Stone Age of finance. This is where the next crisis emerges… because it’s already where a major crisis happened last year. There was a four-sigma event last summer – and no one seems to talk about it anymore…
Japan’s central bank’s retreat from market manipulation is causing absolute chaos. When the world’s most controlled bond market starts having panic attacks, global contagion becomes inevitable.
Dollar Collapse Math: 40% Drop Needed
We wrap with this madness… if the U.S. wants to eliminate the trade deficit… it would need a collapse of its currency.
Deutsche Bank calculated that a 40% dollar decline would eliminate the US trade deficit entirely.
Source: DB
That’s not a prediction—it’s a mathematical reality check on how overvalued our currency has become. That’s all linked to the ongoing resource curse that is the dollar.
When major banks start publishing dollar collapse scenarios as policy solutions, maybe it’s time to diversify out of dollar-denominated everything.
I’ll be back on Tuesday with a reality check for the markets…
Can’t wait to see you at 8:45 ET when the market opens.
