Mean Reversion Trading: Recent Episodes
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- The Fed confirmed that they are going to raise interest rates .75 percent.
- The 10-Year Note is trading below three-quarters of a point at 2.69, which makes the S&P and stocks undervalued.
- With higher interest rates, Third World debt is at grave risk, as is anyone who was heavily in debt to invest in stocks, commodities, real estate, or anything else.
- We are reaching a point where we are going to place real value on real assets, such as precious metals.
- Reuters reported on July 15, 2022, that a dozen countries are at risk of defaulting on their loans.
- Lebanon, Sri Lanka, Russia, Suriname, and Zambia are already in default.
- Many more are at risk as borrowing costs and inflation rise on top of record debt levels around the world.
- The entire developing world is at risk.
- The World Bank says that in the next year as many as a dozen countries will not be able to service their debt.
- For Latin America, the 1980s were a “Lost Decade.” Many Latin American countries failed to make the payments on their foreign debt.
- In the 1970s, oil spiked to record highs twice, which led to many Latin American countries experiencing current account deficits.
- Banks began to stop foreign lending as they tried to collect on their existing loans. The sudden cut-off of lending sent many Latin American economies into deep recessions.
- Despite evidence of the problem, most involved did not recognize the problem until it had become a crisis.
- The fundamentals usually lag the markets, and Main Street seems to be behind in relation to the fundamentals.
- We had another high inflation report as earnings season begins.
- Bond yields are falling as inflation fears swirl.
- Inflation talk is all over the news, the Internet, and Main Street.
- The talk is about how the Fed is going to control the record level of inflation, which is at a 40-year high, by increasing interest rates.
- Fundamentals always lag the market, so the market has already factored in more inflation and higher interest rates.
- The fundamentals appear to be out of sync with the technical landscape.
- We could see some tremendous volatility in the markets over the next few months.
- The 10-Year Note has been volatile recently as a consequence of the Fed's announcement to raise rates .75 percent.
- It is the biggest increase in 28 years.
- The Fed has been behind the curve since 2021.
- Now, interest rates have sharply reversed, contrary to the Fed’s expectation that inflation was going to be transitory.