Lesson 3
2022-2023: The Rate Shock
2023 proved that you must watch actual liquidity flows, not headlines. 'Fed is tightening' was true but incomplete. RRP (RRPONTSYD) drain was providing liquidity. The framework worked; consensus didn't.
📊 Indicators mentioned in this lesson (click for details):
2022 was the worst bond market in history and a severe equity bear market. 2023 was the recovery that 'shouldn't have happened.'
2022 — The Tightening:
- Fed: 0% to 5.25% in 15 months (fastest ever)
- QT: $95B/month balance sheet reduction
- Real yields: -1% to +2% (massive shock)
- DXY: 96 to 114 (dollar wrecking ball)
What Broke:
- UK gilts (pension fund LDI crisis)
- Crypto (LUNA/FTX collapse, 75% BTC (BTCUSD) drawdown)
- Growth stocks (-35%)
- EM currencies (lira, peso, real)
2023 — The 'Impossible' Rally:
What consensus got wrong:
- 'Recession imminent' (didn't happen)
- 'Fed will break something' (mostly didn't)
- 'Earnings will collapse' (mostly didn't)
What actually happened:
- RRP (RRPONTSYD) drained (liquidity injection despite QT)
- TGA (WTREGEN) was low (debt ceiling, then gradual rebuild)
- Global liquidity stabilized (PBoC easing)
- Labor market stayed strong
The Lesson:
Liquidity matters more than 'fundamentals' in 6-12 month windows. The 5-Basket Framework correctly identified supportive conditions when consensus was bearish.
Check your understanding
Lesson Quiz
Quiz Check
In 2022, the Fed is raising rates fast and doing QT. Consensus says 'recession imminent.' But you check: DXY is peaking, MOVE is falling, positioning is light. What do you expect?