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The two charts killing shares and cryptos

June 13, 2022

If you want to know why share and crypto prices are falling it is all because of the two charts above. The top chart shows the rate of inflation going back for decades. Inflation in the US has exploded and is running at over eight per cent, levels not seen for 40 years or more. This is driving interest rates higher with US 10 year bond yields trading around 3.27pc, up from around 0.3pc in March 2020 when share prices peaked and Covid struck triggering an initial melt down and then a strong boom in US technology shares.

Looking at the interest rate chart (bond yields are long term interest rates and are set by the market but with a close eye on what the Fed is doing) it is hard not to feel that the Fed is behind the curve. Interest rates are back where they were three and a half years ago, inflation, as well as being nearly triple the latest bond yield, is back where it was 40 years ago,

Unfortunately there is no messing with inflation. You have got to stop it before it becomes entrenched with workers seeking pay rises to compensate for the effect of inflation on their pay packets generating a vicious circle of pay rises feeding on price rises.

When you see what is happening out there and match it up with what the charts are telling us share prices could still be facing a hammering. One of my go-to charts for monitoring the health of the stock market is OGIG (O’Shares Global Internet Giants). It is in free fall with nothing to indicate a reversal any time soon.

There is nothing on this chart to tell us where the OGIG share price is going to end up. We are getting into territory where the fall becomes self-feeding as investors on margin receive margin calls and have to sell. In emotional terms we are moving decisively from greed to fear.

Strategy

This is a market where it is lethal to buy anything. Remember my recent piece – ‘Don’t shoot until you see the whites of their eyes’. There are going to be some huge opportunities when this bloodbath is over – serious licence to print money stuff. But we are not there yet, maybe not by a long shot.

Bear markets often end with a massive bankruptcy. Given what interest rates are doing that could easily happen this time. I’ve been there before many times, into a world where cash is king.

Further reading

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