Submitted by QTR’s Fringe Finance
“It is a shit storm out here. You have no idea the kind of crap people are pulling, and everyone’s walking around like they’re in a goddamn Enya video.” – Mark Baum
Even if the stock market holds up, something is going to have to break in a big way.
This is about the simplest way I can try and explain how I feel about the state of the economy and markets, delivered to you honestly and devoid of detail, as someone who truly neither has the patience nor the attention span to dive into the intricacies of the Eurodollar system or the path printed money takes during QE or QT.
The fact is that I just don’t care about how the bowels of the system works. I don’t need to care. All I need to know is that money creation as a method of “solving” recessions can’t continue in perpetuity: the dollar amounts necessary for bailouts become astronomical, too quickly, and inflation becomes a pressing issue. Then, as we are now, Central Bankers get stuck between an “inflation vs. recession” rock and hard place. It’s a flawed system that once exploited a loophole (money printing) to slap band-aids on problems. We then thought we could do it in perpetuity to keep ourselves and voters consistently comfortable by presenting the illusion that everything had done “back to normal” – and now we’re finally going to have to deal with very uncomfortable consequences of our actions.
How’s that for a book report from someone who didn’t actually read the book? And I didn’t even need to mention “swaps” or “interest rate futures” to fake sounding smart.
Putting aside what bureaucrats are saying about deposit insurance and Fed policy in the midst of the banking crisis we are having, underneath it all people seem to be forgetting that the economy has just tapped into a large pool of chaos and unrest in the form of 4% interest rates we’re supposedly using to fight inflation.
CNBC.com
And just as was the case with Covid, the headlines today don’t seem to match the reality of what’s happening in markets. Are we to honestly believe that, in the face of a cascade of bank failures that has now encompassed Silicon Valley Bank and Credit Suisse, with names like Charles Schwab and Deutsche Bank also being tossed around, that a real “flight to safety” is people pouring their money into the Nasdaq QQQ ETF at 27x earnings? Because that’s what’s happening.
Of course this is simply the residual effect of too much liquidity in the system, behavioral incentives that have reversed free market poles over the last 30 years and a stock market that has been coddled, babied, micromanaged and manipulated to the point of no longer making any sense.
The further we stray off the path, the closer we get to something having to give.
Powell and Yellen
I think the key point I am trying to make today is that I strongly continue to believe we have not seen the last – or even the beginning, really – of the volatility we’re in store for as a result of rate hikes.
In addition to bank failures, headlines like this one about hedge funds taking on huge losses thanks to the plunge in bond prices are going to become more common place.
When there’s over $1 trillion still floating around in the crypto ecosystem and tech stocks are the “risk off” trade, you know we haven’t experienced even a modicum of fear or capitulation yet. It’s the same hubris and arrogance we had during QE infinity.
And we’ll keep this “plan” until, in the parlance of Mike Tyson, we are eventually “punched in the mouth” by something we didn’t see coming.
The question is: what is going to break, and when?
The answer I have for you today: who the hell knows?
We’re already starting to see a flight into gold and silver, probably as a hedge against the system and inflation at once, as well as a response to the idea that the Fed is likely to pause, then pivot, soon. In the last 6 months, gold is pushing a 20% rise:
This move in the metals has taken place before Jerome Powell has alluded to rate cuts.
In fact, last week he said that rate cuts were not a part of the Fed’s base case. As I have been saying for months, I still expect the market to tank at some point, which will then cause the Fed to hurriedly step in with rate cuts. Not only have we not seen a sell off yet, we haven’t even seen the suggestion of a sell off.
When I try to visualize the Fed’s priorities, based on their spineless action over the last couple decades, all I can think about is that they’re going to want to protect the price of stocks at any cost.
In other words, soaring inflation by more money printing is okay with them, as long as the nominal price of assets keeps going up. Rising nominal asset prices always seems to trump letting the economy crash for the Fed. Why? Because the former “solution” widens the inequality gap and protects those with assets (the rich), while the latter would actually contract the inequality gap and disproportionately harm those with assets (the rich).
In a scenario where the Fed lets the economy crash instead of surrendering to inflation, the rich would be most susceptible to taking real losses. And we can’t have that, can we?
Now say, instead, that the Fed tries to walk a thin line…(READ THIS ENTIRE ARTICLE, 100% FREE, HERE).
