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I didn’t think it would come to this but we might be on the verge of a systemic collapse because investors and consumers still do not realize the gravity of the inflationary nightmare we’re facing if the FED’s actions continue to produce zero results!
As you know, inflation beat expectations to the upside again this past week both on a monthly and annual basis, and that is totally insane when you think about how entire countries are teetering on the edge of collapse, including Great Britain, one of the icons of Western civilization, yet inflation won’t budge.
Worst of all, everybody knows that the CPI numbers and the PCE data grossly understate the true level of inflation.
This past week, the market’s fixation with this false notion that the FED will magically U-turn just because of these falling stock prices has gotten even stronger.
This must be the most erroneous consensus I’ve seen!
The FED couldn’t care less about the falling prices of stocks… what it considers to be a systemic failure is a credit freeze, and we’re still not there.
If and when we get to panic levels on the overnight lending market, we’ll see what the FED does, but for now, markets have signaled a terrible omen with the VIX on the verge of a golden cross. It’s the same one we saw right before the Lehman weekend in 2008 and in December 2021 when all indices peaked and never looked back!
Courtesy: Zerohedge.com, Bloomberg
You can see how the markets are starting to let it sink that in order to really get inflation at bay, interest rates must go higher than what the FED expects because if you haven’t noticed… the FED is ALWAYS WRONG!
Predicting economic outcomes is hard, especially when you’re talking about the future. I’ve always loved this quote because it showcases the futility of trying to forecast things when the present is all you have.
All we have to work with are statistics, probability, and historical precedence, and what we see is that bubbles burst. The 2021 bubble looks eerily similar to the 2008 one:
To me, it all goes back to Ray Dalio’s one golden nugget that he uttered a year ago. Now, don’t get me wrong, Dalio has been wrong on many things and timed the markets poorly in the past decade, with the fund having its worst-performing years in the 2010s, but there was one thing that stuck with me. It was when he said: “The whole world is LONG.”
I found that truly shocking when I really gave it some thought because I remember that in 2020 and 2021, investors fought over which stock or company had more upside.
I never heard anything about the downside; the risk was gone, and the only danger investors thought about was that of missing out!
Today, investors are hedged!
More than ever before, investors realize that if the FED is against them, attempting to curtail their appetite, they don’t stand a chance, but the sentiment on Wall Street is still that the game is rigged in their favor and that the FED won’t allow things to deteriorate too long…
We believe that investors still don’t get it, so the markets are not done selling down assets.
The bloodbath continues…
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