The Great Repricing

Despite the theory of reflexivity, the truth of the matter, when we get beyond all of the gaslighting and fudging of statistics, is that despite the market pricing in a perfect, soft landing, there never existed one in the real world in the first place.

Markets were the primary beneficiary of the liquidity pumped into the system by our beloved Treasury, at the expense of the overwhelming majority of Americans experiencing daily pain with virtually all forms of living costs. 

And now we have The Fed today finally admitting they cannot continue to cut rates into 2025 with inflation back on the upswing. While Fed Chair Powell did his best to nervously reassure markets at today's FOMC presser just how good he felt about the economy, markets were no longer buying it--We have a strong selloff taking place as I write this with rates spiking. 

As much as I have been wrong on the extent to which growth stocks/Mag7 names would continue to rally, I have been spot on, for the most part, with the bond market. 

On the TLT ETF monthly chart, updated below, Treasuries still risk a total wipeout lower in a strong bear market, which means rates risk a significant spike higher, as Treasury prices move inversely to rates. I suspect 5.0% on the 10-Year Note is not out of the question, for example. 

Volatility also remains laughably underpriced, even with today's pop. 

The bottom line is simple: Markets overshot in historic fashion to the upside thanks to endless liquidity and a soft Fed. But now The Fed is toughening up (for a variety of reasons, be it political, reputation, etc.) way too late, which means there is no guarantee that the unwind needs to be orderly. 

In fact, history is rich with examples on Wall Street of markets ruthlessly compensating for overshooting upside. 

The great repricing of risk looks to be underway, and it could not come any sooner.