Monday, October 17, 2022


No one knows what will happen next, we only know that it will be somewhere in the range of extremely bad to cataclysmic. The less you know the more confidence you can have in happily ever after. No amount of impending risk could break this rampant mass complacency. The heroes of our time are those who make all risk disappear with the stroke of a keyboard...

Have you noticed no pundit ever mentions the Fed balance sheet? It's always only about interest rates being still too low. Fed Funds futures predict that by the end of this year, the Fed rate will be TRIPLE what it was pre-pandemic. And the 30 year mortgage is already higher than it was in 2008. Today's financial observers are eminently corrupt to believe that interest rates are the problem, when the real problem is that today's ultra wealthy have far too much fake wealth which is driving inflation higher and imploding the middle class. In other words, this meltdown merely punctuates forty+ years of failed Supply Side economics.

What we are witnessing is an ultra regressive policy error, meaning it favors the wealthy over the middle class. The Fed is compounding their regressive policy error from last year with an even bigger error this year. Back during the pandemic, the Fed lowered rates a mere 1.5% while growing their balance sheet an astronomical $5 trillion. In the process they created RECORD new billionaires. Now on the tightening path they are making minimal reductions to their balance sheet and instead focusing solely on raising interest rates and crushing the middle class while leaving the wealthy generally unscathed.

It's asinine policy beyond any idiocy we've seen in our lifetimes. 

We are to believe this biblical policy error has a happy ending. The time bomb is now ticking down to "common prosperity", which is the policy being used in China right now. They are no longer concerned with bailing out the wealthy anymore. Their belief is let the losses fall where they may. It's a major departure from their policy over the past decade. And it's due to a sea change in social mood towards the wealthy. 

"Chinese President Xi Jinping signaled no change in direction for two main risk factors dragging down China’s economy -- strict Covid rules and housing market policies -- providing little lift to a worsening growth outlook"

Here in the U.S., real yields are warning that the Fed is making another epic policy error on the scale of 2008. Back then, the CPI collapsed in a matter of months along with the stock market. In other words, it wasn't tied to wages as is commonly believed today, it was tied to asset values. With 100% correlation.

When stocks bottomed in March 2009, the CPI was -2%. Problem solved. 

What this all means is that whereas in March 2020 everyone got bailed out, this time no one is going to get bailed out. The list of asset classes that have fallen below the March 2020 lows is growing by the day. 

The consensus among investors remains that the U.S. is the ONLY global safe haven:

October 17th, 2022:

"Investors are looking beyond a looming global recession and they see one country – and its financial markets – emerging strongest on the other side"

86% of investors expect US markets to recover first, with respondents slightly favoring stocks over bonds"

One caveat to think about: inequality. The (unspoken) downside risk for the US if the survey’s outcomes come to pass could be a widening of income and wealth gaps"

Unspoken for a reason. 

The article assiduously ignores the fact that the U.S. has already been the beneficiary of massive global inflows. The U.S. "TINA" trade is already the most crowded trade of 2022.  

In summary, AFTER bulls implode, the Fed will arrange their long awaited bailout. It won't be pretty and contrary to popular belief, anyone who is front running it will not emerge "stronger on the other side". 

They will ALL learn the historical lesson of common prosperity at the zero bound.