Short
Liquidity Looks Fine — Until You Account for StressAt first glance, macro liquidity still looks supportive.
Fed net liquidity is around $5.81T, based on:
• Fed balance sheet (WALCL): $6.646T
• TGA: ~$838B
• RRP: ~$0.8B (basically drained)
This is not a liquidity shortage. On paper, conditions look stable.
But that view is incomplete.
Liquidity is not just about how much money exists. It’s about how much of it actually reaches markets. Once you factor in financial stress, the picture starts to change quite a bit.
Supply Is Stable — But Not Expanding
On the supply side:
• Global M2 has flattened after its earlier recovery
• Central bank balance sheets are no longer expanding in a meaningful way
• Fed net liquidity has improved, but only moderately
Even the recent uptick in WALCL, from $6.629T (Mar 4) to $6.646T (Mar 11), is relatively small.
This matters because markets react more to the change in liquidity, not just the level.
Right now, supply is stable. But it’s not strong enough to actively push markets higher. It feels more like support than fuel.
Stress Is Quietly Rising
At the same time, financial conditions are tightening:
• US 10Y yield: ~4.23% (Mar 16), recently as high as 4.28%
• Dollar index (broad): rising from 118.73 to 120.55 (Mar 10–13)
• HY credit spreads: widening from 3.06% to 3.27% (Mar 10–16)
• Rate volatility (MOVE): turning higher from low levels
None of these are extreme by themselves. But together, they are pointing in the same direction.
Financial conditions are no longer easing. That’s the key shift.
The Key Insight: Liquidity Is Being Offset
This is where I think most takes miss something.
If you only look at liquidity supply, things still look fine.
But once you include stress, the picture changes:
• Supply is flat
• Stress is rising
• So effective liquidity is deteriorating
In other words, liquidity still exists, but its impact is being offset.
A stronger dollar tightens global liquidity.
Higher yields increase the cost of capital.
Wider spreads raise risk premia.
All of this reduces how far liquidity can actually travel through the system. It doesn’t disappear, but it becomes less effective.
What the LRC Is Showing
My Liquidity Regime Composite (LRC) ( visit here ), which combines supply and stress, currently shows:
• Composite still above zero → liquidity is still there
• Composite below signal → conditions are no longer improving
• Momentum turning negative → deterioration has started
This is not a risk-off signal.
But it’s also not a clean risk-on setup anymore. It’s somewhere in between, and that tends to be tricky.
Implications
This type of regime, where liquidity is still positive but weakening, mostly changes how markets behave.
1. Trend Quality Weakens
With no liquidity acceleration:
• Trends become less efficient
• Breakouts fail more often
• Follow-through is weaker
Markets can still grind higher, but it feels less smooth. More effort, less reward.
2. Volatility Picks Up
With yields around 4.2%+, MOVE rising, and spreads widening:
• Intraday volatility increases
• Reversals get sharper
• Price action becomes more two-sided
Usually this happens before any clear risk-off phase.
3. Markets Become More Fragile
Without improving liquidity:
• Upside depends more on new buyers
• Positioning matters more
• Small negatives can trigger larger moves
You start seeing more failed momentum and quick pullbacks. Not panic, just less stability.
4. Cross-Asset Divergence Increases
• Equities may hold while credit weakens
• Crypto may start lagging
• Rates, dollar, and risk assets stop moving in sync
Liquidity is no longer the single dominant driver.
Bottom Line
Liquidity today is not as strong as it looks.
This is not risk-off. But it is no longer a clean risk-on environment either. Liquidity is still there, but rising stress is reducing its effectiveness. What we are seeing is a shift from liquidity expansion to liquidity deceleration.
That usually leads to a market that is:
• harder to trend
• more volatile
• and less forgiving
And historically, this is where things start to feel unstable. Not because liquidity disappears, but because it stops improving.
What do you think? Is The Housing Market Warning Us Stocks Have Topped?Trading Fam,
In 2006, the housing market here in the U.S. crossed what I call, "The Weakening Demand Zone" and entered into dangerous territory. This was critical data and a red flag that was warning us that something was not right. As the housing market grew weaker, it took the Fed two months to notice before it began to pause rates. It took 14 months before the Fed began to ease rates, through quantitative easing. But it took the retail market 17 whole months before they stopped buying stocks and began selling!
Fast forward to recent times. The housing market began to warn us via negative bearish divergence on the monthly RSI that the housing market was not all that it appeared. This was its first red flag.
Then the housing market began to cross below my critical threshold, "The Weakening Demand Zone," once again in September of 2022. This was the housing market raising its second red flag and signaling a warning.
Five months later, the Fed paused rates. Our third red flag.
Two years later, the Fed began to lower interest rates. Our fourth red flag.
All the while, retail continued to pile into stocks, creating new highs on all indexes. But it took the Fed 2.5 times longer to begin pausing rates after we dropped below my Weakening Demand Zone! If we multiply the time it took for the DJIA to top from the start of our housing market crash in 2006 (17 months) x 2.5, we end up with 42.5 months! 42.5 months from September of 2022 (where we crossed below my threshold) is mid-March of this year, NOW!
Is the housing market telling us our top is in? My bet is, yes. What is yours?
✌️Stew Short
1973 vs 2026: Is Stagflation Repeating?Let’s run an experiment. Read the following text twice: first, focus on the history (before the slash); then, focus on today’s reality (after the slash):
In 1965 / 2022 , the US attempted the impossible: funding the Vietnam War / Ukraine & Israel conflicts , while maintaining the "Great Society" / COVID stimulus & "Green Deal" programs without raising taxes. The result: an explosion in money supply and the first inflation wave.
In 1971 / 2025 , the second blow landed – the end of Bretton Woods / the rise of BRICS+ and de-dollarization . The dollar-gold link was severed, and silver staged a 215% / 325% parabolic jump in less than a year.
Two years later, after the US backed Israel in the Yom Kippur War / Iran escalation , the East hit back with an oil embargo / closure of the Strait of Hormuz . Energy prices quadrupled, the economy locked into stagflation, and gold began its historic ascent.
Oops... The last sentence is a SPOILER. It happened back then, but it's different now, right? Or is it?
Take a look at the chart I’m working on. The blue line is US inflation; the green line is the Gold/SPX ratio. The mathematical precision is frightening:
Inflation:
> 1957 – 1968: Sideways movement with peaks around 4%, followed by a sharp increase. The period from trough to trough is 5 years.
> 2011 – 2021: Sideways movement with peaks around 4%, followed by the current spike. The period from trough to present is exactly 5 years.
GOLD/SPX Ratio:
> 1960 – 1972: Formation of a bottom with 4 touches of the trendline before the massive breakout.
> 2015 – 2025: Identical bottom with 4 touches before the breakout (the fractal is repeating with a phase 2 years shorter).
The Stagflation Thesis
With the Strait of Hormuz closed and resource shocks, the three inflationary peaks of the 70s are no longer a forecast—they are a repetition of history. We are currently at the bottom following the first peak, but with one critical difference: the world is at record-high debt levels today. In this context, stagflation is not just a crisis; it is a mechanism by which debt is devalued at the expense of savings.
You can print dollars, but you cannot print barrels of oil, copper, or nickel.
Closing the Strait of Hormuz is the "short line" (as described by Luke Gromen) that is rewriting the global balance. If energy is life, its scarcity is the economic death of the old model. The parabolic jump in gold and silver is just the beginning of this "liberation" from paper assets.
When the mathematics of debt meets the geopolitics of resources, real assets stop being just an investment—they become a sanctuary. The question isn't whether you believe in $150 or $250 oil, but whether your portfolio will be prepared when these prices become reality. Long 
$CNIRYY ECONOMICS:CNIRYY +1.3%
February/2026 +0.9%
source: National Bureau of Statistics of China
- China’s annual inflation jumped to 1.3% in February 2026 from 0.2% in January, marking the highest print since January 2023 and topping market expectations of 0.8%.
The increase largely reflected the impact of the Lunar New Year, which fell in mid-February this year.
Food prices logged the sharpest rise since October 2024, rebounding from a prior decline (1.7% vs -0.7% in January), boosted by an acceleration in the cost of fresh vegetables and a softer drop in pork prices.
Non-food inflation picked up strongly (1.3% vs 0.4%), with upward price pressures coming from clothing (1.9% vs 1.9%), healthcare (1.9% vs 1.7%), and education (2.0% vs flat reading).
Meantime, transport costs fell much more slowly (-0.7% vs -3.4%), even as a drop in housing prices accelerated a bit (-0.2% vs -0.1%).
Core inflation, excluding food and energy, rose 1.8% yoy, the strongest since March 2019. Monthly, the CPI rose 1.0%, up from 0.2% in January and pointing to the largest monthly gain since February 2024. $EUIRYY - Europe CPI (February/2026)
ECONOMICS:EUIRYY
February/2026
source: EUROSTAT
- Annual inflation in the Euro Area rose to 1.9% in February 2026, up from January’s 16-month low of 1.7% and above market expectations of 1.7%, according to a preliminary estimate.
Price pressures strengthened notably in services, where inflation accelerated to 3.4% from 3.2%, while non-energy industrial goods inflation picked up to 0.7% from 0.4%.
Energy prices continued to decline, but at a slower pace, falling 3.2% compared with a 4.0% drop in January.
Food, alcohol and tobacco inflation held steady at 2.6%.
Core inflation, which excludes energy, food, alcohol and tobacco, rose to 2.4%, rebounding from January’s more than four-year low of 2.2%.
Among the bloc’s largest economies, the Harmonised Index of Consumer Prices (HICP) accelerated in France (1.1% vs. 0.4%), Spain (2.5% vs. 2.4%) and Italy (1.6% vs. 1.0%), while easing slightly in Germany (2.0% vs. 2.1%). $JPIRYY - Japan CPI (January/2026)ECONOMICS:JPIRYY 1.5%
January/2026 -0.6%
source: Ministry of Internal Affairs & Communications
- Japan’s annual inflation eased to 1.5% in January 2026 from 2.1% in the prior month, the lowest since March 2022. Food inflation fell to a 15-month low (3.9% vs 5.1% in December), driven by the slowest rise in rice prices in 18 months. Price growth also eased for transport (0.8% vs 1.9%), healthcare (0.4% vs 0.7%), household items (0.8% vs 1.6%), recreation (2.1% vs 2.3%), and miscellaneous goods (0.6% vs 0.8%). Energy costs stayed negative, with electricity (-1.7% vs -2.3%) and gas (-2.0% vs -2.1%) falling for the second straight month, reflecting subsidy effects. At the same time, education costs declined further (-5.6% vs -5.6%). In contrast, inflation held steady for housing (at 1.0%) while accelerating for clothing (2.4% vs 2.0%) and communications (6.7% vs 6.2% ). Core inflation slipped to 2.0% from 2.4%, the lowest since January 2024, within the central bank’s 2% target. Monthly, CPI fell 0.2%, following a 0.1% drop in December.
Will US CPI fall like Truflation?The very latest updates on US inflation according to the CPI price index deliver a clear message: disinflation has resumed in the United States after a plateau phase that lasted several months. However, the inflation target of the Federal Reserve is still not reached and remains at 2%.
The January figures for US inflation according to CPI are not far from the target:
• 2.4% for headline inflation
• 2.5% for core inflation, the lowest level since March 2021
But there is another inflation data point that is even more remarkable. It is the drop observed in real-time inflation measures since the end of last year. According to Truflation, a real-time inflation measurement service increasingly respected by high finance and which uses blockchain technology as a data integrity ledger, real-time inflation — the “true” inflation — has fallen below the 1% threshold.
It is widely accepted that, due to its construction, Truflation leads official inflation as measured by CPI and PCE by several months. Under these conditions, can we envisage that the official CPI will also fall below the 2% threshold during 2026? The answer is probably yes — let’s examine why.
The first explanation lies in the structural lag of the housing component within CPI. Housing represents about one third of the CPI basket, and its key component, owners’ equivalent rent, reacts with a delay of several quarters to turning points in the real housing market. However, private rent data show clear disinflation since the end of 2025, with effective rents stagnating or even slightly declining in many US metropolitan areas. This dynamic is already captured by Truflation, while the official CPI continues to reflect past increases.
Second factor: the full normalization of supply chains and increased competitive pressure in goods markets. Prices of durable goods, electronics, furniture, and many everyday consumer products are now trending lower or rising only very slightly. Once again, Truflation captures these adjustments almost in real time, while CPI, based on monthly surveys and rolling averages, smooths these movements significantly.
Third, domestic demand shows clear signs of moderation. The slowdown in credit, the fatigue of discretionary consumption, and the rise in precautionary savings are exerting disinflationary pressure on services excluding housing. This trend is consistent with the pullback observed on Truflation since the end of 2025.
Historically, during phases of rapid disinflation, the Truflation indicator has led CPI by 6 to 12 months. If this pattern repeats, the official CPI should continue to move gradually toward the 2% area in the first half of 2026, with a non-negligible risk of a temporary dip below this threshold in the second half, particularly if housing disinflation fully materializes in official statistics.
In summary, the current divergence does not signal a “mistake” in CPI, but rather a lag in statistical transmission. Truflation acts as a leading indicator of price dynamics, while CPI remains a slower institutional thermometer. If the real-time trend is confirmed, the probability of CPI flirting with, or even falling below, 2% in 2026 is high, which would allow the Federal Reserve to resume interest rate cuts.
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