Tuesday, March 7, 2023

FOMC: Fear Of Missing Crash

We are witnessing the largest monetary/economic policy disaster in world history taking place in real-time. And not one media pundit is bright enough to question it...

Go back three years to the start of the pandemic. Global central banks panicked in unison and expanded monetary policy the most in history. However, what they DIDN'T do is lower interest rates. Only the Fed lowered interest rates a mere 1.5%. The ECB was already at 0%. Japan 0%. BOE 0% etc. So instead they used their balance sheets to inflate asset markets in order to create the virtual simulation of prosperity using Quantitative Easing. 

Sadly, in the meantime, the middle class got trapped in the asset bubble. They bought Bitcoins, junk IPOs, over-priced cars, and of course over-priced homes. Everything is over-valued. And of course they borrowed record amounts of money to buy record amounts of over-valued assets.

Now, on the other side of the pandemic, these central banks are keeping their balance sheets and asset prices near all time highs while raising the cost of borrowing far beyond what it was pre-pandemic. 

Anyone can clearly see that inflation is 100% correlated to the balance sheet and has nothing to do with interest rates. Interest rates are now a staggering 3x higher than they were in the months prior to the pandemic. 

What's all the more shocking is that there isn't one media pundit or "expert" who is questioning this strategy. They are all largely onboard with the idea of ever-larger interest rate hikes. 

The middle class is now trapped by this moronic policy error. Soon their asset values will collapse and they will be underwater on every liability while job losses sky-rocket. The net effect of this colossal policy error will of course be global mass deleveraging and a middle class that is dead on arrival. The Fed won't be able to use their magic powers to bring them back from mass bankruptcy. Global central banks will be caught in a global liquidity trap. Meaning interest rates will collapse but no one will be able to borrow. Under those conditions, no bank will be deemed "too big to fail" this time around. 

Not only will corporate profits collapse, but real yields will sky-rocket, the combination of which will leave stocks bidless.

Which gets us back to the Casino. 

With today's Senate testimony, Powell just put large-scale rate hikes back on the table. Recall that the entire global RISK ON rally since October was premised upon the idea that the Fed would soon be done raising rates. They "stepped down" from .75% in November, to .5% in December and .25% in January. The theory was no more rate hikes by summer. 

As of today, Fed futures now see a .70% probability of a .5% rate hike two weeks from now. 

In other words, the entire premise for this four month global rally was 100% false. Which means that investors are incorrectly positioned for what comes next. We've seen this movie three times - 2015, 2018, and now. However, we've never seen it wherein the Fed accelerates rate hikes after global markets implode. 

Soon, Powell will be juggling ten pies while falling down stairs as everyone realizes too late that this was a colossal policy error with no way out. 

His credibility will be destroyed along with the Fed and all of the other global central banks. And then people will finally realize they can't trust the Wall Street captured financial media either. 

Something the sheeple should have figured out the last time THIS happened:

In summary, this entire global rally since October was a MASSIVE bull trap predicated upon a 100% false narrative.

And most people are not getting out intact.

The exits are already closing: