As equity positioning sinks to underweight levels, the next move could set the stage for a major shift. If we’re simply going through a standard correction, we may be nearing the bottom. But if this is the start of a larger adjustment, any rally will be quickly sold off and positioning will be trimmed even further.
This could be the calm before the storm, especially with geopolitical dynamics shifting. Trump’s decision to cut off the tap to Ukraine has created ripples that could push the already fragile system to the breaking point. The global narrative is shifting, and Wall Street is quietly repositioning, even though the majority of investors are oblivious to what’s coming.
The economic game that America played for decades—print dollars, export inflation, import real goods—has reached its limits. For years, countries around the world accumulated U.S. debt as a reserve, while we fed them dollars in exchange for their goods. This system worked perfectly until 2008, when the first cracks began to show. Massive QE and market interventions might have temporarily soothed the wounds, but they didn’t solve the underlying issues. Instead, they just kicked the can down the road.
The real tipping point came with the COVID stimulus packages. The $5 trillion in new stimulus didn’t just keep the system afloat, it exposed a critical flaw: the bond market could no longer absorb all the new debt. Foreign buyers began questioning the viability of the U.S. model. We’re witnessing the slow unraveling of what seemed like an infallible system for decades.
The Treasury market is sending up red flags. Primary dealers, once at the heart of the U.S. bond market, are struggling to maintain liquidity. Bid-to-cover ratios are dropping, signaling a tightening in the market. The Federal Reserve is now the buyer of last resort, which is a clear sign of systemic weakness.
Perhaps the most telling sign of what’s coming is China’s decision to dump 25% of their U.S. Treasury holdings. The exodus is no accident. China’s exit is being replaced by purchases from tax havens—an echo of the financial shifts that precede major resets in history.
The parallels to the 1920s are eerie. Back then, credit expansion masked deeper economic weaknesses, and foreign creditors began pulling away quietly. As strange as it seems, today’s financial dynamics are beginning to mirror the events that set the stage for the Great Depression.
Sources:
https://x.com/LanceRoberts/status/1899061415539085787