Treasuries ONLY Do This Right Before a MARKET CRASH!

Key Concepts

• Bear Steepener: A yield curve phenomenon where long-term Treasury yields rise while short-term yields fall, signaling potential economic weakness and market downturns.
• Yield Curve: A line plotting the interest rates (yields) of bonds having equal credit quality but differing maturity dates.
• Liquidity Drying Up: A reduction in the availability of funds in the market, often leading to tighter financial conditions.
• Financial Conditions Tightening: A decrease in the ease of borrowing money, impacting economic activity.
• ADP Payrolls: A monthly report by ADP Research Institute estimating the number of jobs added in the private sector.
• BLS Jobs Report: The monthly employment situation report released by the Bureau of Labor Statistics.
• Backlogs: Accumulated orders that a company has not yet fulfilled, indicating demand exceeding current production capacity.
• PMI (Purchasing Managers' Index): An indicator of the economic health of the manufacturing and service sectors.

The Looming Market Crash: Signals from the Bond Market & Economic Weakness

The video focuses on the increasing probability of a stock market crash, driven by signals from the bond market, specifically a “bear steepener” in the yield curve, coupled with weakening economic indicators. The presenter argues this pattern has historically preceded major market downturns, including the dot-com bubble, the 2008 financial crisis, and the COVID-19 crash.

I. The Bear Steepener & Historical Precedent

The core argument centers around the current state of the yield curve. The difference between the 2-year and 10-year Treasury yields is currently around 69 basis points, approaching a four-year high of 74 basis points. This is occurring because 10-year yields are rising due to uncertainty surrounding debt sales and potential Fed policy changes (specifically Kevin Wash’s nomination and his inclination to reduce the Fed’s balance sheet), while 2-year Treasury yields are declining, reflecting concerns about financial conditions.

This divergence – a “bear steepener” – is historically bearish. The presenter demonstrates this by comparing the current situation to past market crashes:

• Dot-com Bubble (October 2000): 3-month bill yields began falling faster than 10-year yields, preceding a 47% drop in the S&P 500.
• Global Financial Crisis (January 2007): A similar pattern emerged, leading to a 56% decline in the S&P 500.
• COVID-19 Crash (May 2019): The same signal appeared, foreshadowing a 30% drop in the S&P 500.
• Current Situation (June 2024): 3-month bill yields have started falling faster than 10-year yields, suggesting a potential crash is imminent. Momentum in the stock market has stalled, and liquidity is drying up.

II. Weakening Labor Market & Services Sector

The presenter reinforces the bearish outlook by highlighting weaknesses in the labor market and services sector:

• Payroll Growth: ADP reported a private sector payroll increase of only 22,000, significantly below the 100,000 needed to account for population growth and retirements. Recent reports have been downwardly revised. The BLS annual revisions are expected to show negative job growth for 2025.
• Part-Time Employment: The number of employed part-time for economic reasons has risen to 5.34 million, the second highest since 2021, indicating a lack of full-time job opportunities.
• Services Sector Backlogs: While the ISM services employment index showed a temporary positive jump in December, it has since flatlined at 50.3. Crucially, the backlog of orders index has been in contraction for 11 consecutive months, suggesting that demand is waning and layoffs are likely once backlogs are cleared.
• Manufacturing PMI: Production growth is outpacing new orders to a degree not seen since the 2009 financial crisis, an unsustainable situation indicating a potential production slowdown.

III. Treasury Secretary Benton’s Response & Concerns

Treasury Secretary Scott Benton, recognizing the potential risks, is attempting to manage the situation by keeping auction sizes unchanged for nominal notes, bonds, and floating rate notes, aiming to keep short-term rates up without driving up long-term rates. This is interpreted as an attempt to prevent a further unwinding of the market. His understanding of the bond market, stemming from his background as a hedge fund manager, underscores the seriousness of the situation.

IV. Actionable Strategies & Recommendations

The presenter provides several recommendations for investors:

• Defensive Positioning: Diversify out of banks, technology, and cyclical stocks into defensive sectors like utilities and healthcare.
• Gold & Silver: Advise holding off on gold and silver until a market bottom is confirmed.
• Shorting the Market (For Experienced Traders): Tactically short the major indices, particularly big tech.
• Cash Allocation: Allocate at least 20% of your portfolio to cash, potentially increasing to 40% if a 40% drawdown occurs, to capitalize on buying opportunities.
• Short-Term Treasuries: Consider short-term Treasuries as a safe haven.
• Avoid Long Bonds (For Now): Hold off on long bonds until short-term rates peak.

V. CTA Timer Pro & Trading System Improvements

The presenter briefly promotes their CTA Timer Pro subscription service, highlighting a recent 26.23% gain in 25 days on a South Korean stock trade. They emphasize recent improvements to their trading system, resulting in higher win rates, increased returns, and smaller drawdowns, achieved through machine positioning analysis and optimized threshold levels. A 30-day free trial is offered.

Conclusion

The video presents a compelling case for an impending market crash, based on a historically reliable signal – the bear steepener – combined with weakening economic fundamentals. The presenter urges viewers to take proactive steps to protect their capital and potentially profit from the downturn, offering specific investment strategies and promoting their trading service as a means to navigate the challenging market conditions. The core message is that the bond market is sounding the alarm, and ignoring it could be costly.