FCI: Overheat is the Risk

The last few days have been very difficult to trade, with erratic price action driven by headlines and some misreads of the data. From an FCI perspective, the price action has led to a substantial easing of conditions to once again outright easy territory, and this is dangerous. I am the most worried about a potential overheating as I have been since September.

For some background information on the concepts discussed below, see the following notes:

The Loop was my introduction to the FCI framework.

The Market's Line in the Sand described how to quantify the framework via the economy’s sensitivity to the 10y yield.

Manic Monday - New Paradigm describes how the dynamics have changed due to the jumbo rate cuts and the election.

Week Ahead - Jan 21-24 provided evidence of that change in dynamics.

Morning Thoughts on Equilibrium describes how I look at the interplay between markets.