The Rally Is Real — But... What's Behind It?

You get three guesses and the first two don't count.

Dear Fellow Traveler:

The market is now back within reach of all-time highs…

Not because companies are making more money or the economy is booming.

It’s all about the Money Printer…

The U.S. government owes a metric ton of money and needs to refinance it at higher rates (think: refinancing your mortgage when rates just doubled).

Treasury Secretary Scott Bessent saw this coming months ago.

His solution? Do what his predecessor, Janet Yellen, did…

Flood the market with short-term IOUs instead of long-term ones.

Instead of taking out a 30-year mortgage, the government uses its credit card.

Over and over.

And Wall Street loves it.

Why?

These short-term Treasury bills (T-bills) are like rocket fuel for the financial system.

Hedge funds gobble them up, not just for the interest, but to use as collateral…

It's like using your house to get a loan, except they’re using government IOUs to borrow even more money and buy more stocks.

Rinse. Repeat.

Lever up.

That’s where we’re heading…

The Fed Is Playing Games With Your Money

The Federal Reserve is supposed to be "tightening" in this environment. That would make the credit in the system leaner. It would make it harder to borrow.

The Fed says it’s reducing its balance sheet through QT (quantitative tightening).

Sounds serious, right?

Well, it turns out they’re secretly pumping money back in through the back door.

Smart guys like Joseph Wang (ex-Fed trader who knows where the bodies are buried), Michael Howell, and Andreas Steno Larsen have caught them red-handed:

• The Bank Term Funding Program (BTFP) is still handing out cash like candy — banks just need to wave some collateral.

• The Fed's foreign repo facility (FIMA) is quietly bailing out overseas banks — because that's our job now.

• And the Fed’s balance sheet? Supposed to be shrinking. Instead, it’s been flatlining — and even growing some weeks.

The Fed is tightening with one hand, but expanding on the other side…

It's like your spouse saying they’re on a diet… while secretly hitting the Taco Bell drive-thru at midnight.

Look at the Charts

Below is the S&P 500 (aka "the market") since January 2020:

Now here’s what the real economy’s been doing — measured by the Chicago Fed National Activity Index (CFNAI). It tracks things like jobs, production, and spending.

Now flip the economic chart upside down…

See something strange? It starts looking a lot like the stock market.

The market is supposed to predict growth over the next six to 12 months. But it doesn’t seem to be predicting the economy anymore.

It’s reacting to liquidity flows in real time.

Since 2020, stock prices have stopped caring about silly things like "profits" or "growth." Here’s what moves markets now:

• Fed money printing (or pretending not to print)

• The kind of debt the Treasury issues (short-term = party, long-term = hangover)

• How much collateral does Wall Street have to gamble with

• Momentum traders chasing whatever’s fast and popular

• Liquidity events (aka “when the global financial system is under stress”)

I spent years reading CFA books, studying Greek-letter models, and chasing “fundamentals.” But I’m sensing that markets don’t trade on fundamentals anymore.

They trade on liquidity flows.

Since the Fed started printing like a drunk sailor in 2010, stocks have become a gauge of how much cash is sloshing around the system.

Not earnings. Not GDP. Not “fundamentals.”

Markets used to predict where the economy was heading.

Now? They follow the money… wherever it flows, whenever it flows.

And guess what’s coming next?

The Treasury will continue to issue lots of short-term debt to keep the music playing...

This isn’t technically called “money printing.” It’s just debt management. But functionally, it’s collateral creation, which becomes leverage and risk asset fuel.

This rebound rally isn’t happening because American companies suddenly got smarter, leaner, or more productive.

It’s happening because Washington found a way to juice the system and turn on that money printer without calling it QE.

Stay positive,

Garrett Baldwin

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The Receipts (Sources)

• Joseph Wang (FedGuy.com)

• Michael Howell (CrossBorder Capital):

• Andreas Steno Larsen (Steno Signals):

• U.S. Treasury Refunding Announcement – May 2025: