Net Liquidity: S&P 500 and Bitcoin

Hey everyone and thanks for jumping back Into the macroverse today we're going to Talk about net liquidity within the Context of the S P 500 if you guys like The content make sure you subscribe to The channel give the video a thumbs up And also check out the sale on into the Crypto various premium at into the let's go ahead and jump In I will remind you that we did a video On net liquidity a few weeks ago where We talked quite extensively about about Different versions of net liquidity and How you can come up with with net Liquidity I will link that video in the Description below in case you missed it And you want to go check it out Just to give a brief summary the way That we're calculating net liquidity Here is just simply adding up the Balance sheet of various central banks We're looking at the United States the ECB Canada the UK China Japan Australia And New Zealand and we're subtracting Out the TGA and the reverse repo and Then when we do that we get something That looks like this which is the yellow Line you see on the bottom half of the Screen now if we overlay this with the S P 500 at the top you can see that there There are at times Very strong correlations but then at Other times we see a Divergence where The Jaws open up I wanted to explore

This further than we did in the previous Video so we will be covering something That's a little bit new one thing you Should note is that in March we saw the Jaws open up between the S P 500 and net Liquidity and the question is as well Has this previously happened and of Course the answer is yes we can see that Back in 2018 we saw the Jaws opened up And it took them approximately 30 weeks Or so to clamp shut and in 2019 we saw The Jaws open up and it took really over Over a year for the clamp shot if I were To sort of take a date range here Um You can see this is about 30 weeks or so And then from from these levels back Over here it was about you know 60 weeks Before the Jaws clamp shot so it's not Different from what we've previously Seen and so far we could argue that the Jaws opened up about 16 17 weeks ago so One thing that history shows us is that Eventually the Jaws clamp shut it's just Hard to know exactly how long that will Take to achieve remember in pre-election Years we actually often see the s p Climb the wall of worry this is not Something that's that new Um it's something that we've Historically seen and maybe we can cover That a little bit later on in the video But if I remember but the interesting Thing is why not quantify this this

Relationship here rather than just sort Of overlay it why not take the S P 500 And divide it by net liquidity now I Also divided it by by a really large Number as well just to get numerical Values that that made a little bit more Sense but what you should look at is not The Y access but just the qualitative Trend just look at what's going on when You take the S P 500 and you divide it By net liquidity what you will in fact See is perhaps a fairly well-defined Parallel channel it's not perfect but I Mean it generally you can see generally Speaking that this this is as an upward Is an upward Trend and you'll also see That there have been times where we come Up to the top of this channel only to Get rejected for a while right you can See that occurred back in 2010 it Occurred back in 2015. we also Temporarily got rejected in 2019 but Then we saw an Excursion by this Relationship much higher up before it Crashed to the bottom of the channel you Can also see that we were in this sort Of the bottom of the channel back over Here during the financial crisis back in 2009 but I find what I find interesting In this case is that over the last 10 Years there's really only been one time Where we saw it diverge from this Somewhat well-defined parallel Channel And it was back over here in 2019 so

Then it got me thinking well what are Similarities today and in 2019 well it's A pre-election year right so we do have Elections next year We are watching the s p slowly go higher Which is what it typically does in Pre-election years However there are there are some Pre-electioneers or early phases of the Election year where we've seen a Recession kick in and there and then Therefore those gains can can get wiped Out as we saw back in 2020 when we had The pandemic and arguably you could say That it was a black swine and and that The inverted yield curve of 2019 had Nothing to do with it a Counterpoint is To say that an inverted yield curve Tells you that the economy is sick and That it only takes one more thing to Really you know to really make the s p Or or make the the economy go into a Recession of course by association the s P could drop in by association with that But when you look at this right there's One prior time here where we saw this Relationship go way up here and we're Now entering into that territory today And it was back in 2019 and what's Interesting right you can see we entered It in in late 2019. what's interesting Is if you look at say this treasure Yield spreads between the three months Of the 10-year yield we were also we saw

An inverted yield curve back in 29 teen Right I mean you can see we were Inverted in September of 2019 and August And July of 2019 again the pre-election Year just as it's inverted today and in The same way we saw this relationship Go all the way up to the top part of This channel now it hasn't reached yet And of course this does not make a trend Uh it's just a single data point if you Were to draw a horizontal line across You can see that the Divergence between The S P 500 today and net liquidity is Actually higher than it was back then Right I mean you can see this Relationship is all the way I mean just The numerical value that I have over Here is about 1700 and you can see the Highest one back over here was uh in Sort of the mid 1600s so the extension Has has increased the question is is you Know does it come all the way back up to The top of this which would represent Another let's see another uh four four Percent gain or so I should say that Historically in pre-election years there Is a trend around October or September To see some form of a correction in the S P 500 this also has historically Corresponded to bitcoin dropping below It's a 20-week moving average and it's Pre-having year so we'll see if that Manifests again again normally it Happens in that August September time

Frame again if you go look at yield Curve inversion you can see there are a Lot of similarities right 2019 Pre-election year 2023 pre-election year 2019 yield curve inversion 2023 yield Curve inversion 2019 We saw this parallel Channel sort of Break to the upside then we got a Recession and then we went to the bottom Of it here it's breaking to the upside Again back over here once it broke to The upside in November it took you know Four months or so for it to break back Down and this time we've only recently Broken back above it really like in the Last month or so so do remember that These things can take a long time to Play out even if there is some form of a Correction in August or September it Could just be back down here only then It bounced back up again and continue Going up if you don't necessarily buy The the the idea that the s p will often See a correction sometime in August or September of the pre-election year That's probably a fair uh a fair thing To sort of question and so rather than Just say that Um why don't we just go take a look okay So if we look up the S P 500 Year-to-date Roi this is what it looks Like right tells you everything you need To do of course I'm kidding right it's Hard to know what's going on here but if

You look at prior pre-election years let Me show you where we are 2023 there are Often times where we get a correction in The s p right around now right so maybe Not July right but like as you get into That August September time frame Um really August actually August and Maybe maybe early September we've seen a Correction now you might say well Ben This is just 2019 what are you talking About like what about what about 2015 2015 was of course a much more tempered Version right we it was we had a Recession scare back then and you can See over here right that the the s p Sort of dropped off uh in that time Frame and you can go back even further 2011 pre-election year you can see the s P dropped off around that time frame 2007. you can see that it dropped off Around this time frame 2003 A little bit of a drop off but not as Significant but rather than go through All of them individually why not take The average right so take the average of 2019 2015 2011 2007 2003 and Just For the Halibut we Can throw in 99 we can throw in 90 90 1995 We could throw in 1991 1987 1983 1979. 1975 and 1971. Okay that should give us a fairly decent

Approximation add that series to the Chart and let's see what's going on so When you look at 2023 within the context Of the last you know 10 to 15 Pre-election years it looks something Like this and if you zoom in it's Normally around this time where you do See some form of a correction when I say Normally around this time I mean it Typically doesn't actually occur until Like early August Um you can see the average here though Is of course occurring starting to sort Of roll over in July But Um sort of a more quicker move down Occurs sometime in that August September Time frame on average So I I do want people to be aware of That Trend that we have previously seen and The reason I talk about that is because If you follow this channel because You're interested in Bitcoin we know That oftentimes in the prehabbing year Bitcoin Falls below its bull market Support band in that August or September Time frame Now is it going to happen This time of course this is a of course A very big debate right now but if you Were to just look at at say the the bull Market sport band for Bitcoin we know That the prehabbing years which of Course happen to correspond to the

Pre-election years you will note that in 2019 we fell below the bull market sport Band in September in 2015 we fell below The bull market sport band in August and In 2011 we fell below the bulmark sport Band in August now why did we fall below It in August or September each of these Years Why do I think I think it's because I just I I took it off the screen but I Think it's because well now here it is I Think it's because We often see a correction in August or September by the S P 500 a five to ten Percent correction now remember Even though there's a correction by the S p typically in a pre-election year in August or September more typically also After that correction you see the s p Continue to go up in Q4 the reason that It typically doesn't go up is if people Get overly concerned about a recession Again so if layoffs start to pick up Then you could see tempered returns even Going into into Q4 and perhaps it could Go down uh just like it did in in say 2015. if you if you remember we were Looking at 2015 earlier and in 2015 you Know while it went down and we went a Little bit back up and a little back up In queue for it and more or less ended The year Um at one right I mean the the year Basically didn't accomplish anything and

That was because there was sort of a Recession scare not that a recession Materialized but there's just a scare of One and so that's one of the reasons why Returns were somewhat tempered but I Think this is an interesting way to look At the chart Bitcoin tends to drop below The bull market support ban in August or September of its prehabbing year Of its prehabbing here Because the SMP is typically having a Correction in August or September of the Pre-election year we also know that the S p likes to climb the wall of worry for The most part in the pre-election year And in fact it did the same exact thing In 2019 where the Divergence of the S P 500 and net liquidity were actually at Fairly extreme valuations just as they Are today and in fact today they're at More extreme valuations than they were Back then So it's interesting how we can tie all Of this together one more thing just to Throw one last thing in in case uh in Case this hasn't been enough if you were To take a look at the S P 500 divided by M2 You will see in fact that we are at Levels on par with what we saw as the Prior two tops for the S P 500 okay now This would go to show right that like we Are definitely at valuations that are Getting somewhat extended doesn't mean

That it has to you know see a massive Correction immediately but this is Previously where we turned back around Um in 2019 it's also where we turned Back around in in sort of that 2021 time Frame as well and we're currently at Those same valuations today now there's Another way to look at this as well we Could sort of Connect the Dots here and Say well technically maybe it's going a Little bit higher each time if that were The case that would correspond to Another move in the S P 500 to the tune Of approximately three percent if the s P went up another three percent Um and net liquidity were to stay the Same which it probably won't but you Know another three to four percent move Would actually get you to top of this Channel which is where it was back in uh February 2020 know that there could be a Path where the s p goes down in August And September Rallies back up in Q4 only that in Fall Again in q1 or Q2 of the of the election Year just like it did in the prior Election year now again I understand That the pandemic was Um was you know is is going to be called A block Swan but What if the yield curve inversion of 2019 told us the economy was sick we Didn't know you know we don't know what Was going to happen but something

Happened and then we we went into Recession and arguably the recession Could have been a lot worse had they not Printed a lot of money I'm guessing that they'll just print a Lot of money again when when things get Bad and when we are at least seeing Inflation come down so so when things do Take a turn uh perhaps the the FED will Start to print but I don't really think That's going to happen this year it Might it might happen sometime sometime Next year okay so that's where we are Hopefully this video is useful I think That net liquidity is a really Interesting metric for navigating Financial markets and you tie that in With seasonality with crypto and Seasonality with with equities and I Feel like it gives us a pretty good Picture of what's going on in the Markets if you guys like the content Make sure you subscribe to the channel Give the video a thumbs up and again Check out the sale on into the Cryptoverse premium at into the you'll get access to Charts like this one uh as well as many Other charts we have thousands of charts On the website not only for you know for Cryptocurrencies but also for equities We have macro charts as well and we're Currently building out more things thank You guys for tuning in I'll see you next

Time bye


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