Two analysts at once point to a deep shift in the financial system. Bull Theory warns that excess liquidity in the markets has turned negative for the first time since 2021, while Thierry Borgeat speaks of the end of a 40-year bond bull market. Both see in this the end of the previous era for investors.
Their views complement each other: Bull Theory looks at the near-term threat from draining liquidity, while Borgeat looks at the long-term reversal that changes the very rules of investing.
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Bull Theory: there is no money left in the system
According to Bull Theory, the gauge of excess liquidity in the financial system has turned negative for the first time since 2021. It is calculated as follows: inflation and economic growth are subtracted from the rate of money-supply growth. It is precisely this measure that usually flows into assets, but right now its increase is gone.
When the gauge goes into the red, money typically moves out of assets and into debt instruments. The yield curve flattens, and such a picture has historically preceded a weakening of equity returns over the following 3–6 months. At the same time the new Fed chair Kevin Warsh, in the analyst's view, is not creating this shift — the market was already pricing in tightening a year ago, and the Fed «is merely catching up to it».
Overheated valuations add to the alarm. Equities are now expensive relative to bonds in a way seen only at rare moments over the past century — the gauge has risen above the current level only in 5% of cases. Against this backdrop, smart investors keep actively buying up stocks: equity ETFs on US shares posted the second-largest atypical inflow in history. It turns out that the money that usually supported quotes is running out, and retail is coming in exactly when that support has vanished.
Source: BeInCrypto
