Category Archives: Financial markets

Markets Are Expecting the Federal Reserve to Save Them – It’s Not Going to Happen, by Brandon Smith

Posted on October 21, 2022 | Leave a comment

The Federal Reserve is intentionally trying to destroy the economy and take down financial markets. From Brandon Smith at birchgold.com:

Markets Are Expecting the Federal Reserve to Save Them and It Is Not Going to Happen

Image © Steeve Roche

I have said it many times in the past but I’ll say it here again: Stock markets are a trailing indicator of economic health, not a leading indicator. Rising stock prices are not a signal of future economic stability. When stocks fall, it’s usually after years of declines in other sectors of the financial system.

Collapsing stocks are not the “cause” of an economic crisis, they are just the delayed symptom of a crisis that was already there.

Anyone who started investing after the crash of 2008 probably has no understanding of how markets are supposed to behave, and what they represent to the rest of the economy. They’ve never seen markets operating without interference and stock prices moving freely. Central bank meddling, which started as a “last ditch effort” to save the global financial system at any price has now become business-as-usual. Worldwide, stocks surge when investment banks anticipate Federal Reserve easing, the so-called and often-forecast “pivot” from its current monetary-tightening program back to the good old days of endless free money. And stocks plunge every time a member of the Federal Open Market Committee (FOMC) announces that inflation is still too high, and the Fed has to keep fighting it.

Most market participants no longer have any understanding of fundamentals. Robinhood day-traders and Redditors don’t see stocks as a fractional claim on the future profits of a business – they think they’re just buying poker chips in the great Stock Market Casino where everybody always wins.

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Operation Break Stuff, by MN Gordon

Posted on October 21, 2022 | Leave a comment

Is the Federal Reserve going to keep raising interest rates until something—the bond or stock market, bank runs, currency crises—breaks? From MN Gordon at economicprism.com:

Stagflation, sinking labor productivity, severe levels of public and private debt, a splintered real estate market…  You name it.  The economy’s crashing and burning like an old Cutlass Supreme.

There’s nothing the central planners can do to fix it.  No plans or schemes will get the tired jalopy to fire on all cylinders.  A blown head gasket is replaced and the very next day the spark plugs are fried.  Replace those and a piston ring blows.

At some point, it’s beyond salvage.  The only sensible choice left is to scrap the old buggy at the junk yard.

Similarly, scrapping the central planners that are responsible for this economic mess is the right thing to do.  They’ve created a very disagreeable situation.  One that will take several generations – or more – to reconcile.

In this vein, the time has come to purge the rot.  To reckon the mistakes of the past.  To burn off the many distortions that have piled up like dead forest wood.  We’ll have more on this in just a moment.  But first some context is in order.

The past 40 years have been an era of heavy handed central economic planning by way of interventionist monetary policies.  The past 14 years, ever since Ben Shalom Bernanke let the QE genie out of the bottle, has taken this intervention to the extreme.

From the death of Lehman, and through the Great Recession, repo madness, and the coronavirus panic, the Federal Reserve’s created upwards of $8 trillion in credit out of thin air.  The economy and financial markets have come to depend on it.

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How an Illiquid Dollar Ruins the World, by Matthew Piepenburg

Posted on October 20, 2022 | Leave a comment

There is a lot of dollar denominated debt throughout the world, which poses two problems. Higher interest rates are making it more difficult to service debt, and the dollar has been strong against foreign currencies. From Matthew Piepenburg at goldswitzerland.com:

One can’t emphasize enough how dangerous the current macro setting is in the wake of a deliberately strong and illiquid Dollar.

Biden, of course, says not to worry. We say otherwise.

The Illiquid Dollar: We Showed You So

Over the years, we have written and reported a great deal about the US Dollar and the ironic mix (as well as danger) of its over-creation yet simultaneous lack of liquidity.

This illiquid Dollar, as argued since the first repo crisis of late 2019, combined with a now weaponized US Dollar on the backs of intentionally rising rates by a cornered and Volcker-wannabe Fed, all converge to spell short-term power for the Greenback and longer-term misery for just about every other asset class and economy in a now openly fractured global financial system.

As to the stark reality/risk of this illiquid Dollar, rather than just say “we told you so,” it would be better to “re-show-you so” by making specific reference to a prior report published in December of 2021.

“Dollar Illiquidity—The Ironic Yet Ignored Spark of the Next Crisis”

Since penning that report just over 10 months ago, it’s worth revisiting the implications of an illiquid Dollar and the financial crisis of which we warned then and now find ourselves today.

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Return of the Bond Vigilantes Sent Shockwaves Around the Globe, by Wolf Richter

Posted on October 19, 2022 | Leave a comment

Once upon a time, the bond vigilantes kept governments sort of honest. That was long ago. From Wolf Richter at wolfstreet.com:

Deficits didn’t matter – until raging inflation brought the bond vigilantes back to life.

Over the past three weeks or so, we had some spectacular chaos in the United Kingdom’s bond market that then threatened to topple big pension funds that then threatened to spread the damage further into the financial system. In the process, the British pound got hammered to record lows against the US dollar.

This was triggered by the brand-new government’s announcement of the biggest tax cuts since the 1970s, tax cuts for the rich and for corporations, and some extra spending, all of which would have to be funded by selling even more new bonds into a bond market that is already getting eaten alive by 10% inflation combined with way-too-low interest rates, and by a government that is already over-indebted just as economic growth is stalling. And that’s when we saw them for the first time in many many years: the bond vigilantes.

The bond vigilantes can be brutal, and they can be fast-moving, and they can come out of nowhere, and suddenly they’re here, and chaos ensues, and bond prices plunge, and yields spike, and liquidity vanishes, to the point that it threatens the functioning of the bond market, and therefore the functioning of the economy, and it forces politicians and governments to change policies.

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Fed Watch: When They Call For the Bailiff You Know You’re Winning, by Tom Luongo

Posted on October 18, 2022 | 1 comment

Tom Luongo with more on his hypothesis that the Fed is taking on the Davos crowd. From Tom Luongo at tomluongo.com:

You may ask yourself, “What is that beautiful house?”
You may ask yourself, “Where does that highway go to?”
And you may ask yourself, “Am I right, am I wrong?”
And you may say to yourself, “My God, what have I done?”
— Talking Heads, “Once in a Lifetime”

In the face of the Fed’s intransigent hawkishness we are now on the verge of exposing the worst lies of two generations of people in power.  I’ve maintained for more than a year now that the global oligarchy known here as The Davos Crowd thought they’d run the table on the US and the UK with COVID-19.

The various bailout packages, Pelosi’s CARES Act and pending legislation — Build Back Better, etc. — were supposed to destroy the fiscal position of the US once and for all. These were political blackmail to force the Fed not to raise rates when it clearly needed to.

That Pelosi et.al. were only able to pass neutered versions of these bills is a sign that powerful forces behind the scenes are not down with this plan.

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Posted in Banking, Civil Liberties, Currencies, Debt, Financial markets, Government, Governments, History

Noland: “Dominoes Are Aligning For A Major Synchronized Global Crisis”

Posted on October 17, 2022 | Leave a comment

It’s a when, not an if. Credit and debt are going to blow up; there’s simply too much of them. From Doug Noland at Doug Noland’s Credit Bubble Bulletin via zerohedge.com:

It would have been a nonevent; inconsequential. Confirming New Cycle Dynamics, the Truss government’s “mini budget” has unleashed absolute mayhem. Pension funds blowing up. Emergency central bank rescue operations. Global market instability. UK’s Treasury Secretary sacrificed after a mere 38 days, while an entire government hangs in the balance.

Friday evening Financial Times headlines: “Gilts in Fresh Slide as Investors Say Truss U-turn Did Not Go Far Enough.” “Can Liz Truss Survive as UK Prime Minister?”; “Austerity Beckons as Truss Seeks to Restore Britain’s Reputation with Investors.” And “UK Debacle Shows Central Bank ‘Tough Love’ is Here to Stay.”

The world has changed right before our eyes.

It has been one of my favored rhetorical questions for the past couple decades: Is “money” (monetary inflation) the solution or the problem? The answer is obvious – has been for some time, and I’ll assume central bankers have accepted the harsh reality.

Years of unprecedented monetary inflation created false realities. The perception of endless cheap (free) “money” distorted how our market, economic, financial, political and social systems function. The long-overdue adjustment period has commenced, and there’s every reason to expect it to be especially brutal. So quickly, so many things are different. There were this week more tremors and that nagging feeling the ground was about to give way.

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Tesla Shares Get Halved, by Wolf Richter

Posted on October 15, 2022 | 1 comment

Easy come, easy go for Elon Musk and fans. From Wolf Richter at wolfstreet.com:

But It’s Not a Stock Split.

Elon Musk, the CEO who walks on water, has been busy recently with his other interests and pranks, such as wanting to buy Twitter for $44 billion, and then, after having signed the binding merger agreement, it’s like forget it LOL, and then after he realized that the courts could embarrassingly force him to buy Twitter for $44 billion, it’s like, no problem, I’m going to buy it voluntarily and turn it into the next big thing, LOL, similar to the tweet, “Am considering taking Tesla private at $420. Funding secured,” which was weed joke, and no one held his feet to the fire.  Or his tweet last year, “Am thinking of starting new university: Texas Institute of Technology & Sciences”: not MIT but TITS, get it?

And then, in addition to Twitter and tweets, there are SpaceX with its fancy rockets and Starlink satellite service, and his Burned Hair perfume, and what not. So the richest man in the world can afford to be funny with this stuff.

But he’s a lot less rich than he was in November last year. Because the one thing he hasn’t been able to do is keep Tesla’s stock [TSLA] levitated in the ionosphere. TSLA dropped 7.6% today, to close at $204.99.

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Cue Dollar Squeeze Panic: Fed Sends A Record $6.3 Billion To Switzerland Via Swap Line, by Tyler Durden

Posted on October 15, 2022 | 1 comment

We could be looking at a globe-engulfing financial crisis that emanates from Europe in a matter of a few weeks. From Tyler Durden at zerohedge.com:

BofA Chief Investment Strategist Michael Hartnett (whose latest weekly note we will dissect shortly) has a favorite saying for when critical phase (to avoid the most hated word in the world “paradigm”) shifts take place in the market, one which may be the only word a trader in this day and age needs (or rather hopes for): “Markets stop panicking when central banks start panicking.”

So in what may be the best news to shellshocked bulls after the worst September and worst Q3 in generations, in a harrowing year for markets, and on a Friday which is set to reverse much of yesterday’s historic intraday reversal, the 5th biggest on record, central banks are starting to panic more with every passing day. First it was the BOJ, then the BOE and now, for the second week in a row, it’s Switzerland’s turn.

Recall that three weeks ago after the (first) panicked pivot by the BOE, when global markets were in freefall, we said that markets desperately needed some words of encouragement from the Fed, or failing that – and with the dollar soaring to new all time highs every day – the Fed had to make some pre-emptive announcement on USD Fx swap lines, if only to reassure global markets that amid this historic, US dollar short squeeze, at least someone can and will print as many as are needed to avoid systemic collapse.

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Banking crisis — the Great Unwind, by Alasdair Macleod

Posted on October 14, 2022 | Leave a comment

Europe will be the epicenter of the banking crisis, which has already begun and which will engulf the world. From Alasdair Macleod at goldmoney.com:

There is a growing feeling in markets that a financial crisis of some sort is now on the cards. Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking.

This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify:

  • It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come.
  • Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe.
  • Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment. 

The Credit Suisse wake-up call

In the last fortnight, it has become obvious that Credit Suisse, one of Switzerland’s two major banking institutions, faces a radical restructuring. That’s probably a polite way of saying the bank needs rescuing.

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Debt Markets Get Trampled, by MN Gordon

Posted on October 14, 2022 | Leave a comment

Equity markets are ants compared to debt market elephants. From MN Gordon at economicprism.com:

Anyone with half a brain knew there would be hell to pay for locking down the economy and simultaneously printing and spewing out trillions of dollars of confetti money.  The bill has finally come due.

Did you see the latest consumer price index (CPI) report?

According to the government bean counters consumer price inflation, as measured by the CPI, increased in September at an annual rate of 8.2 percent.  While this is down slightly from several months ago, the year-over-year increase in prices is still near a 40-year high.

Stock market investors celebrated the news like mindless idiots.  On Thursday, after the CPI report was released, the S&P 500 rallied more than 2.5 percent.  Perhaps stock market investors were elated the CPI wasn’t even higher.

More important than the stock market is the debt market.  Following the CPI release, Treasury yields spiked up.  Bond investors know what’s coming.  Specifically, more rate hikes from the Federal Reserve.  They sold accordingly.

Because as interest rates rise, bond prices fall.  This inverse relationship, which has been in existence since financial markets were invented, is wreaking havoc on debt investors.  The value of the paper they’re holding is vaporizing in their hands.

What to do?

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