‘Danger Zone’ Markets Need Fed To ‘Print Dollars’: Wilson
Last month was especially cruel to equities. September lived up to its nefarious seasonal reputation.
As Morgan Stanley's Mike Wilson wrote Sunday, stocks' dastardly performance this year meant the bar to clear for a "bad" month was pretty high. In that context, the S&P's 9.2% drubbing (the worst September in 20 years) was "impressive" indeed.
"Given how bad this year has been, that wasn't an easy call when we doubled down on our bearish view for stocks four weeks ago," he said.
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The light at the end of the tunnel is a fast approaching train.
Wilson is most certainly correct about the likelihood of spillover and the trajectory of markets going forward, but his analysis begs the question: How much longer will ordinary, tax-paying citizens of developed economies stand by as the BSDs of leveraged, market-based finance push the global economy closer to the point of no return?
After the BoE “pivoted” to emergency QE last week to save highly leveraged, derivative-exposed UK pension funds, I opined along the lines of, “Yeah, okay, sure, the CBankers had no choice in this circumstance. But in the future we need to know who is being bailed out, and why.”
In his latest, economic historian Adam Tooze states it more eloquently:
“Talk of markets at that point become euphemistic and we must ask, beyond the need for ‘systemic stability,’ who are the principal and immediate beneficiaries of these interventions? Who exactly is being bailed out when the Bank of England steps in? The answer is not clear cut. Is it pension policy holders? The economy at large that is spared a catastrophic financial crisis? Or is it BlackRock Inc., Legal & General Group Plc, and Schroders Plc who manage LDI funds on behalf of pension clients? The very fact that we cannot give a confident answer to these questions suggests that we are dealing with a system riven with conflicts of interest. And this poses the question of reform. Does it really make sense to perpetuate a system in which disastrous financial risks are built into the profit-driven provision of basic financial products like pensions and mortgages?”
Short answer: No.
Shadowstats.com shows M2 YoY growth as simply flat. They use their M2 to create a “what-if” M3 chart. They ask and answer the question “What if the FED were still publishing M3?” I’m not smart enough to know if this is an instance of “We have our own facts” type of argument.
Will inflation be reigned in at pivot time, or will we end up with stagflation?
H-Man, no pivot for the time being until something on the inflation scorecard goes green. Any news on inflation abating will open the door for a pivot resulting in a falling dollar. The Fed will rush to that open door but it needs some help from inflation. So far the door remains closed.
OPEC talking about cutting back oil production… which will prevent energy costs from going down any further. And SPR releases coming to a screeching halt very soon. Yet any further tightening of US monetary policy risks further illiquidity in credit and currency markets. Meanwhile EU staring into the energy abyss without any hope now that pipeline in Baltic Sea blown up. The shortage of dollars motivating further selling of US Treasuries by other countries forced to protect their own currencies. War and energy crisis are inherently inflationary. Stagflation appears inevitable.
the immediate effect of fed pivot is severe loss of confidence in the (value of) dollar, and eventual debasement of the dollar system, fed simply cant afford that.
So, do we buy gold, cryptos, LME copper warehouse receipts or what?