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Last night I did something stupid. I sat down with a cup of coffee and tried to answer what should be a simple question: What would the S&P 500 be trading at without all this monetary support? |
After an hour of scribbling numbers, cross-referencing academic papers, and building models that kept spitting out nonsense, I gave up. |
Because the math doesn't work anymore. And that ought to worry every trader reading this. |
When Smart People Can't Do Math |
Here's what I was trying to figure out: If the Federal Reserve, Treasury Department, Bank of Japan, and Japan's Foreign Ministry weren't propping up markets, where would we be trading? |
I had research suggesting three to five percentage points per hundred billion in support. I built scenarios based on different liquidity withdrawal rates. I even dug up old QE impact studies from 2008-2015. |
My worst-case scenario put us 18% lower from current levels. But honestly? I have no clue if that's remotely accurate. |
The problem is we're so deep into artificial market support that there's no natural baseline left to measure against. |
The $650 Billion Life Support System |
While everyone's arguing whether we're bullish or bearish, they're missing the real story. We're not in a normal market. We're in intensive care, hooked up to the most sophisticated life support system ever created. |
Here's what's keeping this patient breathing: |
They cut quantitative tightening in August. That's $60 billion a month in bonds no longer hitting the market. They started "reserve management purchases" - not QE, they insist, just $55 billion in totally-not-QE bond buying. They uncapped the emergency lending window. Used to be $500 billion daily limit. Now? Sky's the limit. |
Three rate cuts later, they changed leverage ratios and freed up $219 billion at the eight biggest banks specifically to buy more Treasuries. |
Meanwhile, Japan's having their own crisis. Their 10-year yield broke above 1% for the first time in 40 years. $41 billion in bond values got destroyed in a single day. Their response? Cut long-term bond issuance to a 17-year low, rewrite accounting rules to hide $86 billion in losses, and inject another $117 billion in emergency spending. |
That's $650 billion in market support over six months. And here's what's crazy - the S&P is still range-bound, grinding sideways despite this massive intervention. |
The Question Nobody Wants to Ask |
Every support mechanism available is currently deployed. Emergency windows are uncapped. Japan is rewriting accounting rules to hide losses. China just cut their FX reserve ratio to zero. |
And we're still chopping around, barely holding near all-time highs. |
Fed liquidity is up 5% since January - that's 20% annualized. Cross-border capital flows show $525 billion in extra liquidity injected into money markets in just three months. They're not running monetary policy anymore; they're underwriting the entire debt market. |
So here's the question that kept me up: What if this isn't enough? |
What happens when $650 billion in support can only keep us treading water? What's the next level of intervention? And what does this market look like when they can't keep all these plates spinning? |
Why This Matters for Your Trading |
I'm trying my best to be bearish here. Every fundamental metric says we should be significantly lower. Private credit is cracking. Regional banks are under pressure. Software valuations are still insane despite the recent selloff. |
But you can't fight $650 billion in support with technical analysis and fundamental reasoning. |
This is why I keep hammering volume-weighted average price, momentum indicators, and support levels. In an artificial market, you trade the artificial patterns. You don't fight the machine - you figure out how the machine operates and position accordingly. |
Right now, that machine is rotating money into resources, energy, utilities, and consumer staples. Not because these sectors have suddenly become growth stories, but because when central banks flood the system with liquidity, money has to go somewhere that isn't completely insane on valuation. |
The Impossible Math |
The academic papers I was reading last night all make the same assumption: that there's some baseline "natural" market level we can calculate back to. But what if there isn't anymore? |
What if we've been on life support so long that nobody remembers what normal breathing looks like? |
I couldn't solve the equation because there might not be an equation to solve. We might be in a permanently artificial market where the only thing that matters is the size and duration of the next intervention. |
That's not bearish or bullish. That's just reality. And reality doesn't fit in any spreadsheet I know how to build. |
The S&P 500 is trading at 6,900. All-time highs are at 7,000. We're one good headline away from new records, supported by the largest coordinated monetary intervention in history. |
Your portfolio depends on $650 billion in life support that central bankers insist is totally normal and sustainable. |
I'm sure it'll be fine. |
And if you want to know exactly how I'm positioned, you can find me in the TheoTrade Chatroom. |
Stay Positive, |
Garrett Baldwin |
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