Apocalypse Soon: The Fed Is Risking A Global Financial Crisis

Apocalypse Soon: The Fed Is Risking A Global Financial Crisis

How many times have I talked about a "breaking point" for markets in September? A lot. The answer to that question is "a lot." In fact, I even used those two words, by themselves, as a title on September 16. The "breaking point" talking point (if you will) is more than a recurring theme. And it's not lazy shorthand for "something's gotta give," that most trite and nebulous of clichés. Rather, it's the lens through which almost all market coverage should be contextualized when the dollar's risi
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19 thoughts on “Apocalypse Soon: The Fed Is Risking A Global Financial Crisis

  1. “Modern market structure was built atop stable correlations, low inflation and ever easier developed market monetary policy, and built around generally subdued cross-asset volatility.”

    To this list I would add opaque derivatives and ridiculous levels of leverage. Unconstrained speculation made a lot of people very, very rich. Now it looks poised to take down the global economy — and, perhaps, democracy with it.

    1. Actually, I think we still are importing plenty of cheap stuff and it certainly won’t tamp down prices if we decide to bring everything onshore. Not enough workers, nominal wages rising, and input costs rising. Got to go cheap.

  2. My fear is that VaR shocks trigger “political” actions. I’m less worried about the Fed, far more worried by politicians. That makes the Dollar a potential “shock”. And, hey. We ain’t talking about that one…

  3. H, your note could be taken as hyperbole during a period in which the usual bear suspects have been given the microphone while the perma-bulls are somewhat sidelined. Or the note can represent a scolding to those that have not bothered to take steps to limit losses — basically with cash. The cadence of the your negativity has definitely picked up over the last few weeks as you have interjected more of you own thoughts as compared to the thoughts of the various banks’ analysts.

    I appreciate your thoughts and directness. But I must admit, your fear of a global financial crisis (of some sort) has given me a bit more pause. Anyone that has moved to essentially cash months ago worries about when to get back into the market. But, like you, I just don’t feel that this is the time even with the massive drops in bonds/treasuries and more than a pedestrian drop in equities. Therefore, my thought is, “Wait for the Feds to reverse course due to stuff breaking badly…” It might be a while.

    1. I’m not “the usual bear suspects.” I write what I happen to be thinking at any given time. People often ask how I can write multiple articles every, single day with no “days off” in over six years, and the answer is because it’s like a conversation for me. Marooned as I am (both figuratively and literally), this is where I talk to people. So what you’re getting here is what I’d be talking to people about in person if I had anyone to talk to. It’s not an editorial agenda, which is why it can be bearish, bullish, noncommittal or anywhere in-between.

      1. Your are not in the camp of “the usual bear suspects” in my mind.

        The point I did not make very well, is that when a bear market displays itself, the perma-bears get the microphone and during a bull-market, the perma-bulls are handed it instead. You on the other hand, do not camp in either. Therefore, I respect your musing/opinions more so. And because of that respect, I am given more pause relative to the current state of markets.

        I believe I have been reading your notes since the beginning (2016). During that time, I cannot think of a period where you have been this explicit in about being careful.

      2. As a longtime leader and first time comment, I would say this is the problem. You have no one to talk to. We read what you write but we cannot engage you in a conversation. Therefore we cannot truly vet or learn from your insights.

        This is the path that you have chosen. But please know, this is not “talking to people.“

        Maybe, after several years of isolation, it is time to engage in real conversation. It would certainly benefit those of us who read your thoughts, And maybe, just maybe you would find some benefit in it as well.

        1. You can’t learn anything from me because you can’t engage me in a personal conversation? That seems to rule out learning from anyone who’s died. Which is unfortunate, because I’ve learned a lot from dead philosophers, novelists, political thinkers and economists. If I’d known not being able to talk to them was a prerequisite for learning from them, I could’ve saved a lot of time!

          Jokes aside, the fact that I’ve been here every, single day for almost seven years, the fact that I share all manner of personal anecdotes within my macro, market and geopolitical musings, and the fact that I engage with subscribers over email literally every day whenever they have run-of-the-mill questions about the site (e.g., “How do I find your latest article on XYZ” or “How do I change my display name in the comments?”) should be all you need. What I promise readers is precisely what I deliver. Also, I’d note that I’m not a “mystery” to everyone. There are dozens of people (on Wall Street and in the mainstream financial media) who read this site every, single day who know exactly who I am.

  4. Here is a solution to an overvalued strong dollar. Keep hiking rates until the USA experiences a brutal recession. Inflation comes down and the fomc has to stop qt and cut rates. Falling economic outcomes trash the dollar. It’s all good! (Sarcasm)

  5. The fed are between a rock and a hard place. If they continue raising interest rates at the current pace the dollar soars and the world burns. If they back off and take a break the US stock market and inflation soar. So IMHO they need to find common ground. Maybe the next raise will be much less say 40 basis points (I assume that’s possible) and the fed will monitor what happens. I also think the war will end soon with Putin having a heart attack or falling down the stairs lol.

    1. “If they back off and take a break the US stock market and inflation soar”

      The stock market, sure, it’s a bit stupid but mechanical. Inflation? Not sure at all. Inflation isn’t a magic thing. It has to come from somewhere… What do you think are the drivers of current inflation? Do you see them persisting in the future?

      1. If we switched back to risk on? Yes. Housing could again become a problem instead of a solution, commodities would likely swing the ‘wrong’ direction. You could quickly find yourself staring down significant inflation once again.

        The supply side has not been fixed when it comes to… essentially everything. If the demand side were to cease being hammered down we’d be right back where we were.

  6. OK. Risk, uncertainty and ignorance. If you prefer, the known, the unknown and the unknowable. In 2019, we had an in inverted yield curve, in early fall the overnight market went into complete disfunction, and late in the year the smartest technicians I know told me the stock market was about to decline 30%. Three strikes and you’re out? Did the market forecast covid? Here we’re slowly coming out of a 3 year global pandemic which wreaked havoc on supply and the supply chain, We’re looking at a new philosophy on the supply chain of national security instead of deflation, China is experiencing serious economic problems and is riding the tiger of nationalism and racism and facism at home….Need more? Climate change- reaching critical mass. Right wing populism reaching critical mass. I’ve saved the best for last- the US, UK and Nato are at war with theSoviet Union’s malignant stepchild. Unraveling empires are incredibly dangerous. 1916-the Turks murder 3 million Christians , of which half are Armenian. I don’t think the market has any pricing response to this clear and present danger. Not frightened? On September 15, Cramer revealed he bought the US 2 yr in his personal account. Now, these are facts- the markets are more of a psychology play than a scientific argument. But the markets are never wrong- people are…….

  7. Globally, too many workers left the workforce at the same time. This is a huge shock to our system.
    This seems to have happened for a variety of reasons and which are taking a lot longer to (hopefully) resolve/digest than anyone expected. We might have gone too far in the direction of money printing; handing out unprecedented amounts of cash; providing excessive amounts of credit – with the unanticipated result that workers now demand to work far less (or not at all) than they did pre-covid. This shift in workforce expectations would have been much less difficult to manage if that change had occurred slowly instead of all at once- for example, we could have gotten to 4day work week and UI in a transitional manner without the chaos.
    The goal of monetary and fiscal policy should be to incentivize people to return to the workforce before, globally, we permanently have even more people than we actually need. Corporations might end up automating even more of what previously used to be done by people. What to do with all of the non-contributing people who just want cash handouts?
    The “rules” and manner in which we function are changing- and the market does not know if we are going back to “the way we were” or if seismic changes are occurring- and, if so, what they might mean.

  8. Don’t forget, not only are higher interest rates restrictive, so are higher prices. Jim Rogers constantly says the cure for high prices is high prices. I’m watching to see how traders with less than ten years experience deal with this market. I’m also amazed at the lack of patience shown by the leaders of the world financial system.

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