How a money drain in 2023 could upset the banks again and cause another market meltdown, investor warns

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Our call of the day from Thomas Kee Jr. says investors need to start paying attention to liquidity in the financial system, or a big lack thereof that could...

Wall Street is pointing to a weak open ahead of Tuesday’s earnings from Microsoft and other big names. That’s a day after soft-economic landing hopes fueled fresh 2023 highs for the S&P 500 SPX and Nasdaq Composite COMP.

In a recent report to clients, Kee noted similarities between current markets and 2019, when big banks started questioning levels of liquidity due to a Fed drain, and ultimately pushed overnight lending rates to over 8.5%. The Fed got things under control in a short space of time via massive liquidity injections.

Kee’s proprietary Evitar Corte crash indicator, which gauges Fed monetary policy to try to avoid market meltdowns, signaled a crash warning in 2019. He flagged budding liquidity issues to MarketWatch last November. “There is also enough volatility in the market for some investors to improve cost basis, but everyone needs to be in nimble strategies. Our CORE Portfolio Strategy has been long all year, up about 8.5% YTD vs 4.4% for SP 500,” he said in emailed comments. . “CORE also has the ability to neutralize market risk on a dime if the conditions call for it.”

The buzz Earnings are rolling out from 3M MMM , whose outlook missed expectations, while GE GE also gave a downbeat outlook. Johnson & Johnson JNJ is getting a lift from its results. Verizon VZ and Lockheed Martin LMT are still to come, with Microsoft MSFT and Texas Instruments TXN headlining after hours.

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