Container Ships Filled with Darwin Awards Await Offshore

I can't predict the future. All I can do is estimate probabilities and potential outcomes. What I see now: if bonds keep falling, pretty much everyone who is still long "stocks" is going to look back and wonder why the hell they didn't "sell everything" when the 30-year bond futures chart already looks like this.

There is a point at which theory and possibility die, when the wave collapses. When the observer observes. The game is over, we just don't know the outcome yet. The lid is coming off Schrodinger's box while we know inflation is high and interest rates low. It's as if there's cyanide gas in the air and blood all over the box. Want to bet whether the cat is alive or dead? You still have a chance, on PredictIt there is a 90-percent probability of the cat being alive. Why? Don't people see the cyanide gas and blood? No, they see the odds at PredictIt are 90-percent. The cyanide and blood are priced in. The market says the cat is alive.

Bonds could rally if commodities and stocks tumble. That is a high probability scenario because there's more than one possible scenario for it. If commodities and inflation keep rising though, game over man. Game over. Investors have days to weeks to get out if inflation doesn't come down right now and bond yields don't reverse right now.

Here's a scenario for you: the Fed doesn't cut rates until the Fed funds rate exceeds the 10-year bond yield and both are at double-digits. The S&P 500 Index bottoms out at 700 with a yield of 8 percent. Not a forecast because I don't see that as a high probability scenario. I see disinflation as the most likely, second most likely being a deflationary crash once QT gets ramped up, but rising or sustained high inflation is a valid scenario. Do you think inflation will stay high or go higher? Then you should meditate on SPX 700 because that is where the markets will head towards if you are correct about inflation rising. Markets will probably abort the move long before getting there, but that will be the orientation.

My sense is markets have learned next to nothing over the past year. I'm as confident as I was in December. The rally pushed VIX back near the lows of December and it is still in the bottom half of the 4-month range. The setups aren't as juicy as they were back then, but given the deterioration in bonds and the macroeconomy, there's only two answers. The stock market is correct and everything is about to get much better, or equities have ignored most of the deterioration in fundamentals.