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ETF Tracker Newsletter For June 2, 2023

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Bulls Run Wild After Senate Unleashes Money Printing: How Long Can It Last?

[Chart courtesy of]

  1. Moving the markets

The market soared today after the Senate cleared the way for more money printing by suspending the debt ceiling until 2025. This means the Fed and the politicians can create trillions of new dollars out of thin air, which will eventually lead to runaway inflation. Ouch!

Some of this new money will flow into the stock market, boosting the bullish mood. But there is a catch: the US Treasury is broke and needs to borrow at least $1 trillion in the next few months, sucking out liquidity from the market. That is a big bearish risk.

The bulls also cheered the strong May jobs report, which showed a huge jump in payrolls and a slight increase in unemployment. Usually, this would be bad news for the market, as it would signal a tighter Fed policy. But today, the market shrugged off that possibility and focused on the positive side of a robust labor market.

But how reliable are these numbers? Economist Nick Bunker questioned the quality of the payroll data:

The unemployment rate rose for all the wrong reasons. More employed people moving into unemployment and fewer unemployed workers finding jobs.”

ZeroHedge pointed out a possible source of distortion:

The birth death model “added” 231K jobs in March. These are not actual jobs, but merely an assumption by the BLS as to how many new businesses were created and hired workers based on statistical assumptions. Again, these are not actual jobs.

Today’s rally was broad based, with our Domestic Trend Tracking Index (TTI-section 3), finally outperforming the S&P 500. That had not been the case for most of 2023, as only a small segment of the market drove the gains.

These drivers were, and still are, Artificial Intelligence (AI) and General Productivity Tools (GPT).

Without them, the rest of the market would be in negative territory for the year. It is debatable whether this is a bubble, or a genuine technological breakthrough based on fundamentals.

Of course, no rally is complete without a short squeeze. That happened today when yesterday’s squeeze continued in two stages. Regional bank stocks, as represented by KRE, rose for the third week in a row, despite losing deposits.

Bond yields climbed, the US dollar fell this week, despite a bounce today, and gold retreated after touching $2k mid-week.

On Wall Street, none of these worries mattered as optimism prevailed. Some traders called this a “Goldilocks” scenario, where inflation is cooling down and the Fed is easing up, creating a soft landing for the economy.

I wouldn’t bet on it.

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