Very few financial fiduciaries are set up for rising interest rates. Many of them are using leverage to bet that interest rates will stay stable or decline, which makes it quite painful when they go up. From Bill Bonner at bonnerprivateresearch.com:
BlackRock’s liabilities, the Bank of England’s pivot and the folly of fake rates…
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Bill Bonner, reckoning today from Baltimore, Maryland…
And it’s the first time for most of them. No chance to practice. No opportunity to learn.
And so, the mood was glum at the end of last week. The jobs report on Thursday showed a stronger employment market than expected. Investors figured the odds of a Fed U-turn had gone down. They sold stocks. MarketWatch:
While markets have not yet morphed into an actual state of alarm, an increasingly dark sentiment is starting to brew behind the scenes.
Nikko Asset Management’s John Vail said a “short but scary” global recession is likely to be ahead. Ben Emons of Medley Global Advisors said Wednesday’s decision by major oil producers to cut production, starting next month, has the potential to turn into a prolonged stretch of higher inflation and big market swings. And volatility expert Harley Bassman said stocks could drop as much as 20% from where they are now — a magnitude similar to the single-day decline that took place during 1987’s “Black Monday” scare.
As the Fed raises rates, they become more ‘normal’ than they’ve been for many years. But ‘normal’ terrifies investors. It makes them realize how weird things have gotten and that they may have to back up before they can go forward. That is, they may have to give up their Bubble Era profits and admit that much of what they believed was either a lie or a delusion.