The Meme ReversionThe general idea is that the Fed let inflation get out of control because of the meme amounts of quantitative easing (QE).
This amount of QE would not have been a problem if the Stock Market Capitalization (SMC) to Gross Domestic Product (GDP), also known as the Buffet Indicator, wasn’t already at a meme incline prior to the pandemic, now over x2.
If you rewind 3 weeks ago I posted about using the Bond Yield Spread for 30y-20y to predict the FOMC (Hawkish or Dovish).
The inversion of 30y-20y was riding a more dovish fed outlook to restoring interest rate hikes for 2022.
Prior to Dec 15 FOMC, we saw a sharp correction in the 30y-20y yield spread as an indication that the FED would take a hawkish outlook to 2022.
What it indicates is that sentiment in long-term bond yields shifted positive meaning the bond market was confident that interest rates would return in the new year.
The problem is the fed dropped anchor on its policy for rate changes in 2022 as inflation is out of control ( USIRYY ) and as unemployment rates decrease ( UNRATE ) we will find ourselves diving towards inversion in the yield curve indicating the start of a recession (Phillips curve).
This tells us that we are at or near the top of the market in early 2022 of a very overbought stock market and would indicate the largest correction in recent history that I will refer to going forward as The Meme Reversion .
Strap In. 2022 is going to be more MEME X2 inverted!
