Dear Reader,
Hope you enjoyed the crisis, because now we have a full-blown debt ceiling panic.
Just a few days ago, the S&P 500 Volatility Index (VIX) plunged to 16. Now, VIX is up to the highest level in three weeks - as concerns now emerge that a deal won't get done before June 1.
Markets are starting to tremble.
S&P 500 momentum is red - and momentum for the Russell 2000 is now starting to crater. This decline in the small-cap index comes just a day after JPMorgan Chase & Co (JPM) advised market participants to short small-cap stocks.
How interesting that it was just a week ago that JPMorgan's leadership was calling for short-sellers of banking stocks to be prosecuted. Good times.
It should be illegal to short banks... but not illegal to short small-caps, the engine of economic growth in this nation. What does that tell you about our system?
Now, Republicans are demanding that GOP leadership force the Senate to vote on a bill that they previously passed that called for a reduction in roughly $5 trillion. But the Senate is stalling this... and there is still an effort to either have President Biden do it unilaterally... or to force a vote on the Stop the Gridlock Act, which was a poison pill.
So, what are we doing now?
Make No Mistake: Cash Is a Position
This sudden reversal isn't stunning, but it's quickly setting off a race to cash. The Invesco DB US Dollar Index Bullish Fund (UUP) is now up to its highest levels since the start of March, and it's been on a steady climb all month.
Politicians and central bankers have broken these markets and confidence in their ability to navigate inflation. The White House doesn't want to budge on spending - because doing so could force the United States to balance its budget. However, such cuts would reduce government spending and force this economy into a much-needed recession.
Since a recession is a political doom for those in charge - we'll probably look at a situation where they would instead engage in punishment of American citizens - through a shutdown and cuts to Social Security - even though we have ample amounts of money to pay for entitlements.
Government spending has ballooned in recent years, and since there's so much money in government largesse, no one wants to rein it in except for a small pack of economic literates who understand the instability of massive deficits in the future.
It's not rocket science. Inflation is compounding - it's not going down. The rate might be slowing, but you must build inflation on previous years' numbers to get a real sense of how high prices are moving under government malfeasance. The failure to cut spending will only weigh on your money in the future... impact your budgets... eat into your wealth... and make it harder to climb out of debt.
Right now, I'm largely sitting in cash again - turning to money markets - and looking for any direction in this market. Forget the "gotta be in it to win it" orthodoxy of the past decade: cash is a position for these times.
For more aggressive traders, consider that a lot of alternative energy stocks wouldn't get their sweet sweet funding. That's why we're seeing names like ChargePoint Holdings Inc. (CHPT), SunRun Inc. (RUN), and Bloom Energy Corp. (BE) selling off fast.
Today's Momentum Reading
WORLD'S BIGGEST INDICATORS
Recap: The World's Biggest Indicator (Momentum) is Yellow
What a joke. Just a few days after momentum finally turned green, we now have a brutal catalyst selloff. Isn't it insane that the narrative turns bullish... and Wall Street dumps on cue? It's designed that way. Look at the media last week, and about how bullish so many people were. Look at the statements of people like Steve Cohen who said he was bullish on the market because of artificial intelligence (AI). And then, let's see what Wall Street has been selling over the last few days...
Long Shot Trade
There might be more pain ahead here. If no deal is reached, look for the Nasdaq 100 to take a bath because the reset of hurdle rates would be steep. Buy-to-open the SQQQ June 2, 2023 $29 call for the lowest price possible.
Here's What Chevron's Doing With All Its Cash
Chevron just poured rocket fuel underneath the huge oil buyout boom taking place in the Permian Basin.
They paid $7.6 billion to acquire PDC Energy...
Which is a massive deal - It freed up some of the $15.7 billion Chevron accumulated in Q1 of this year. And to my mind, it's GUARANTEED to kick-start another wave of money-spinning buyouts across the region...
Which is how you could get paid.
We're up to seven big M&A deals (and counting) in the last month or so. But when a household name like Chevron joins the party, it takes things to another level and it pretty much forces the hand of ALL of their major rivals to follow suit.
Mark my words...A buyout gusher is about to erupt in the Permian Basin.
I think these will be the next five firms to get bought out. And if you want to potentially make yourself a huge amount of money...
Cheers,
Garrett
The post The Debt Ceiling Crisis Just Spiked to 11 appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.