Headline:
Free-Falling Markets In Full Fear Mode.
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Global Financial Markets Have Recently Been Slammed…
Especially Equities…As Beta Dominates + Dispersion Is Generally Non-Existent.
The SPY Has Cratered Almost 16% In The Past Month…
Longs Have Nowhere To Hide…Other Than Than A Well Bid $US…
And An Increasingly Spooked Volatility Complex…
Contributing To A Brutal Fixed Income Rout…
In All Likelihood…These 1-Way Price Movements Are Turbo Charged By Margin Calls + Counter-Party Settlement Concerns.
Meanwhile…Investor Sentiment Is Dismal…Probing Spring ’20 COVID Lows.
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“If It Bleeds It Leads”…Captures Global Market Headlines
1. Terminal Fed Funds Rate Expectations Ramp Toward 4.5%.
2. U.S. Quantitative Tightening Amplifies Rate Increases.
3. U.S. Financial Conditions Constrict To Contain Inflation.
4. Europe Is Natural Gas “Boxed” By Nuclear Russia.
5. British Politicians Panic With Absurd Budget Proposals.
6. Japanese Yield Curve Control Is Fortified…Despite Inflation’s Bite.
7. China COVID Lockdowns Perpetuate…Stifling Supply Chains.
8. Taiwan Braces For China Aggression.
And…No Doubt…It ALL Contributes To Much Market Angst.
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However…The Primary Culprit For Current Financial Market Volatility =
The Federal Reserve’s Bloated Balance Sheet…
BECAUSE 12 YEARS OF RIDICULOUSLY EXCESSIVE DOLLAR PRINTING + ZIRP PROVIDED THE FOUNDATION FOR TODAY’S INFLATION CONUNDRUM…
And Was Compounded Globally…As Domestic Debt Monetization Policies Were Intellectually + Practically Exported To Almost All Developed Economies.
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Since ’09…QE/ZIRP Proponents Frequently Articulated There Was Little Legacy Based Inflation Risk…Confirmed By Very Soft Traditional Price Metrics…
1. CPI +
2. PCE +
3. PPI
…Despite Stunningly Sharp Increases In The Money Supply.
Further, They Also Argued That A More Legitimate Longer Term Price Concern Was…Deflation/Dis-Inflation…Especially Due To Globalization Trends…
Thus…Validating Their Money Printing + ZIRP Strategies.
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However, There Was Plenty Of High Flying Inflation…Initiated By Their Monetary Policies…
IN PLAIN SIGHT…
That Central Bankers Elected To Simply Ignore…Defined As…
GLOBAL FINANCIAL ASSET INFLATION …Comprising…
1. Equities = Private + Public
2. Fixed Income = Private + Sovereign
3. Real Estate = Commercial + Residential
…AND ALL DRAMATICALLY
1. Ascended +
2. Distorted +
3. Inflated
…Which…Finally…Post COVID…
Transmitted To John Q. Public’s Real Economy…
…With Increased + Persistent Momentum…During Calendars ’21/’22.
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Then Suddenly…After 12 Months Of Consistent Denial…About The Durability Of Heightened Legacy Based Inflation Measures…
THE FED GOT REAL SMART…REAL FAST…
As The Monetary Baton Seamlessly Flipped…
From…Powerful Stimulus…
To…Bold Contraction…
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Fed Officials Broadly Articulated It Was Wise To “Front-End” Load Hefty 75 Basis Point Rate Hikes Combined With An Aggressive Balance Sheet Reduction Schedule.
In Actuality…With Headline Inflation Already Stampeding For 1+ Year…
During Which Time…The Fed Continued With Robust Monetary Stimulus…
Their Policy Tightening Is/Was As “Back-End” Loaded As The Caboose On A Freight Train.
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Recently…The Fed’s Hawkish Chatter Ratcheted Up…Especially After Last Month’s CPI Data…Which Was Just A Bit Firmer/Wider Than Market Expectations.
Then…Chair Powell Jawboned…At Last Week’s Fed “Presser”…That Real Interest Rates Ought To Be Positive Across The Entire Yield Curve…And That Did It.
Subsequently…Already Heavy Fixed Income Markets Tanked Again…The Dollar Received Another Adrenaline Boost + Fatigued Equity Markets Collapsed From A Further Lack Of Any Bullish Oxygen.
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So…Global Dollar Liquidity Is Currently Being Withdrawn…
At A Frenzied + Record Pace.
Financial Markets Now Price-In Dire Economic Consequences…And Risk Premiums Naturally Skew To The Downside…
As Borrowing Costs Quickly + Very Steeply Escalate.
Asset Managers…Dizzied By The Rapidly Changing Macro-Dynamics…Are Selling First + Asking Questions Later.
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So…When Will This Period Of Financial Market Dislocation…At Least…Begin To Subdue?
ONLY WHEN EXPECTATIONS OF U.S. INTEREST RATE INCREASES INITIALLY SLOW…AND THEN PEAK…
ALLOWING THE US DOLLAR TO WEAKEN…AND FINANCIAL CONDITIONS TO RELAX…
Of Which…We Are Likely…Closer Than Many May Conceive…
As Post COVID’s Incredibly Dramatic “Bull-Whip” Economic Impact Normalizes.
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Contact The Author: Dominate@GlobalSlant.com