.
@zerohedge
recently wrote up my key thoughts for 2022. People won’t be too surprised that I focus on the ‘Dark Side’. If you want an upbeat outlook, the other 99% of broker 2022 Outlooks will provide those.
Michael Wilson of Morgan Stanley warns of a big eps shock
"Our work shows further erosion in earnings, with the gap between our model and the forward estimates as wide as it's ever been. The last two times our model was this far below consensus, the S&P 500 fell by 34% and 49%."
Personally having been at my desk through the 1987 and 2000 crashes I'm surprised that anyone thinks this AI induced bubble is NOT going to end with M7/tech crashing back to earth. And when I say crash, I mean >50%.
The Fed engages in the four pillars of QE 1/2/3 and 4 and resurrects a moribund equity market, lifting it into the air with forked tongue or indeed just a fork!
Long-term Dow support at 6,000. Ties up with my expectation that the S&P tests the Mar 2009 low of 666. A 80% decline from the highs might seem far-fetched - for now! H/T for chart
@RaoulGMI
Presenting the maddest chart I have seen for a long time
Normally in a tightening cycle, corporates (huge net borrower) suffer a big rise in net interest payments.
But not this time which has boosted profits and also helps explain the delayed recession
Let me translate - We at The Fed have to pretend that we might one day stop QE, but we know in truth that that we can’t. The last time we tried tapping our foot lightly on the brake we blew up the markets. We are trapped. We know it. You know it. But we need to pretend otherwise.
FOMC weasel words (minutes): “A number of participants suggested that IF the economy continued to make rapid progress toward the committee’s goals, it MIGHT be appropriate AT SOME POINT in upcoming meetings to BEGIN DISCUSSING a plan for adjusting the pace of asset purchases,”
It's clear what Mr Bond Market is saying. He's screaming at the top of his voice 'help'! Meanwhile Mr Equity Market is finishing his all day bender in the pub where his mate Jay Powell is buying shots. Mr Equity Market will emerge from the pub soon only to step in front a truck!
What does Mr. Market want to tell us? US 30y Treasury bond yield fell to its lowest level on record after US business activity shrank in Feb for 1st time since 2013 and amid renewed concern over the coronavirus.
I'm sure FinTwit macro would want to show their support to
@AndreasSteno
in his moment of difficulties. I haven't read the note which is now deleted, but this could happen to any of us who try and write research that is actually interesting and readable.
As you know I love a contrarian call, so huge congrats to my Soc Gen analyst colleague Simon Baker (who sits near me) on being proven right on his Sell rating on Facebook! He was one of only 2 brokers out of 64 with a Sell rating (53 Buy/Outperform, 9 Hold, 2 Sell).
I was working at Bank America IM in 1987. I remember the run-up to the Oct 19 crash. Rising bond yields and Fed rates squeezed a overvalued equity market. But it was currencies that broke the dam - a row with Germany. Watch the dollar and especially dollar/yen - reapproaching 125
As I said a few weeks back most people who now work in the markets have never experienced a 'proper' market melt-down. The bears will now force an intra-meeting Fed Funds cut, but that won't end the rout if the economy slides into recession. This has been a long time coming.
Personally having been at my desk through the 1987 and 2000 crashes I'm surprised that anyone thinks this AI induced bubble is NOT going to end with M7/tech crashing back to earth. And when I say crash, I mean >50%.
One of things people refused to believe was that equities could collapse despite the Fed accelerating their money printing in the event of recession. But liquidity is not compelled to flow into risk assets. It only does in the absence of recession. Gov Bonds are where it will go
Central Bankers claimed the 2008 Global Financial Crisis wasn't their fault. It was.
And they shifting the blame for their latest screw-up. ECB Lagarde saying higher inflation, "came from nowhere"!!
Powell, Lagarde and Bailey should all be fired imo.
No politician dares say they would borrow more in the wake of what happened to Liz Truss which as I say below had little to do with her budget. The FT were at the forefront of the establishment coup to depose her but are now quite relaxed about Labour borrowing more. Funny that!
@elerianm
@FT
The chart shows Gilts were stable for a week before the budget as 90% of the measures were already factored in. Gilts started their collapse the day BEFORE the budget as the BoE reaffirmed aggressive QT. We have no idea how much of the collapse was due to QT, LDI or the budget.
I am genuinely appalled at Powell in Q&A saying The Fed is wilfully ignoring the financial bubbles they are creating. I thought after the 2001 NASDAQ and 2008 housing debacle they would have learnt that when these bubbles burst it makes the recession much worse. Utter morons
The Fed chairman has decided to take the risk of going down in history as another great bubble-blower: do we get to party like it's 1999? via
@bopinion
I liked this reminder from David Rosenberg
@EconguyRosie
that the current 2y-Fed Funds 150bp inversion is exactly the same as it was in Nov 2007, just as the official (NBER) recession started - a recession the Fed had absolutely no idea was coming.
Do people really think the tech rout is over? US tech peaked end 2021 at just over 30% of market cap, just shy of the 2000 nutty peak. Most of the recent re-rating came AFTER the 2018 Powell Pivot. This grotesque bubble blown by QE policies (like property) has a long way to fall
Bill White was one of the few Economists, working for a big organisation (the BIS), who gave clear warning of the 2008 crisis. He is still spot on. Central Bank interventions cause financial Boom/Bust cycles. But still these bozos persist, learning nothing from each disaster.
Another indicator that the tech party might be nearing its end. Credit spreads are giving the same warning as before the 2001 Nasdaq crash. They say a fish rots from the head down and with Tech now 30%+ of the S&P, it's going to get very smelly from hereon-in. HT
@dailychartbook
Hang onto your hats! The Goldman Sachs point out equities usually enter a bear market when their Bull/Bear Market Indicator is this elevated. But maybe this time is different!
H/T
@dailychartbook
Possibly the most robust indicator of an impending recrssion is when the Fed dismisses the inverting yield curve as a predictor of impending recession.
Just a cheerful reminder of my interview last year with Barrons. People are now accepting the US 10y negative yields argument. They will also soon embrace the consequences for equities. via
@BarronsOnline
The US Employment Report is getting silly
Jan Establishment Survey NFP +353k
Jan Household Survey -31k
last 3m av monthly rise (see chart)
Establishment NFP +289k
Household Survey -43k
It's a bit like the unbelievable divergence between GDP and GDI !
I’m not sure if central banks will ever realise not only do their QE polices increase inequality and fan the embers of popularism, but after having done that, rocketing food prices ignite that discontent into raging infernos as occurred during the Arab Spring a decade ago.
These Central Bank bozos have created another bubble with their idiocy, exacerbating still further intergenerational tensions by making owning your own home impossible for young families. Let’s hope unlike 2008, when this bubble bursts the Fed is held to account.
Interesting how central bankers are so quick to call Bitcoin a “speculative mania” (which it may well be), but seem wholly incapable to using the same words to describe the equity bubble. Funny that!
It seems that Central bankers don't like
#Bitcoin
. Crypto boom is 'speculative mania,' Bank of Canada’s Lane says. In speech on “payments innovation,” he said costly verification methods & unstable purchasing power makes Bitcoin flawed method of payment.
Druck Index: As hope of a soft-landing soar, the recession is just arriving
I follow Simon White, Bloomberg Macro Strategist's work on
@zerohedge
eg below. His work really is first rate imo
H/T Simon White Bloomberg Macro Strategist, via
@dailychartbook
Payrolls alert: Some think the pop in July's U3 unemployment rate to 4.3% was a one off due to Hurricane Beryl. But yesterday's Consumer Conf data showed another sharp rise in the "jobs hard to get minus plentiful" balance. This is wholly consistent with a recession & rising U3%
The answer seems pretty obvious to me. The bond markets are telling us that the cycle is ending with the central banks having failed to drive core CPI inflation higher. So Japanese-style outright deflation lies ahead at a time when western economies have piled debt sky high.
10-Year Bund yield record low of -0.61% is not only negative to a level unknown and incredulous, but the curve is near complete inversion.
Oftentimes, the bond market is a foreteller of doom or downfall, so what is this market trying so desperately to tell us?
This chart is the UK, but similar for most G7 economies. Something broke during the 2008 GFC. It seems central banks stupidly loose monetary policies in the 2000s ended up wrecking the global economy. And they still are at it, causing chaos! When will they be held accountable?
These people are furious that we people point out that ever more creative monetary interventions to lengthen the economic cycle and keep the bubbles inflated have a habit of ending in disaster when the assoc bubbles blow up. The longer the party, the bigger the crash. Simple.
These people are furious the Fed didn’t hike us into a recession then refuse to supply liquidity and muck up the financial system in the process. It’s incredibly misanthropic, a desire for human misery in support of their weird ideology.
People ridiculing this below because the market clearly can't predict pandemics. But the curve showed the economy was on the cusp of recession anyway, with CB suppressed vol coiled like a spring ready to explode higher. The CBs set us up for a much bigger collapse than warrented.
Great chart: With
#Gold
making repeated attempts to break above 2050 into clear blue water, there is no tailwind at all from ETF investors. I'd call that a high quality rally. If (when?) it breaks higher, only then will ETFs pile in, driving prices much higher
@dailychartbook
After years of QE and free money, Central Banks are now hostages to the valuation monster they have created. They even probably also have have Stockholm Syndrome where they actually believe that economic prosperity is predicated on high asset prices. What utter fools.
Central banks are prisoners of the markets. The more stocks rise, the less Central Banks can normalize. Great chart in this week's
@Quillintel
by
@DiMartinoBooth
.
Step away from current market turbulence and back to its origins - the risk of recession. I thought this chart was significant. Are we at Sept 2007 where a very slow burn slide into recession suddenly became clear to all? Smaller companies are screaming in pain.
H/T
@SoberLook
Social distancing being enforced in a Paris Cafe, French style.
Either that or the bears are out celebrating after having forced the S&P 500 back down to its 200d mav on Friday, and are getting ready to drive the index below this critical support level next week.
This was a chart I put in my last Global Strategy Weekly published last Thursday. After events over the last few days, I think the answer for most equity investors is, “I hope not”!
The author was a Japanese investor in the late 1980s. The implausibility of current valuations and narratives to justify those extreme valuations are strikingly similar... and so too will the result. Solely counting on the Fed will ultimately fail.
Yuk! I am sure many, like me, will feel physically sick reading this announcement.
My view has long been that Bernanke (and Greenspan) should be prosecuted as economic criminals for actively inflating one of the biggest credit bubbles in history that destroyed the US economy.
BREAKING NEWS:
The Royal Swedish Academy of Sciences has decided to award the 2022 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig “for research on banks and financial crises.”
#NobelPrize
Morons!
'Help-To-Buy' (votes) is back on the agenda in the UK despite being an idiotic economic policy. As I explained in the attached Guardian article 9 years ago it just pushes up unaffordable house prices even further and subsidises housebuilders profits...
The equity bear market when it returns will feel like a controlled descent at first. After the first 30% you think it’s all done. But before you reach bottom you have to negotiate the stairs. That’s when it gets really bumpy!
Negative yields and a currency was always what the next phase of The Ice Age will look like. The final phase will see US yields converge with the Eurozone below zero accompanied by a huge decline in the equity market as global economy plunges into a deep, deflationary recession
Good morning from
#Germany
, where the performance chart of 30y Bund looks like that of a hot Tech stock. The value of 30y govt bond has gained 25% ytd, far more than twice as much as with the German benchmark index Dax. Now you also know why investors buy bonds w/negative rates.
This shows Fed Chair Powell ‘fixing’ the broken financial markets which a ‘quick’ blast of liquidity. The markets now have Powell and the Fed exactly where they want him. Trapped.
The financial world has gone mad. The FT reports, sub-1% Greek and Italian 10y bond yields are now considered safe havens! We’ve seen yield convergence within Europe like this before and that ended badly. But maybe this time is different!
I felt nauseous reading this article. This is what active Fed intervention to prop up markets and zombie companies actually means. Already grotesquely over-leveraged companies dunk their heads even deeper into punch bowl to finance owner dividends. Yuk!
Going into recession, the equity market collapse comes AFTER the Fed starts cutting rates as profits collapse
Gerard Minack on the equity market anticipating a Fed pivot:
"Obsessing about a pivot is like obsessing about what the band will play after the ship hits the iceberg".
The strong payrolls report is often cited as evidence that the US economy can't possibly in recession.
It depends though which 'jobs report' you look at. The Household Survey measure, which is more sensitive to turning points, is certainly ALREADY consistent with recession.
Strong jobs report? Are you kidding!
The Household Survey measure of jobs growth always turns quicker than the payroll data from the Establishment Survey (which gets revised years later).
@zerohedge
points out we're had no jobs growth in 3 months now!
All is not well. Real 10y yields are plunging in Germany (now -2.1%) and especially UK (-3.5%). Incredible!
We're getting a misleading impression of real yield stability in recent weeks watching the US market.
And who would have thought Japan would end up the high yield market
What made the Fed pivot so suddenly leaving Fed watchers perplexed? Dress it up however you want, but I'm inclined to agree with
@zerohedge
analysis here that Biden's slump in the polls is the key factor.
This picture is better than 1000 words: Ever since the Greenspan Put, the Fed has protected the equity bull (market). As profits collapse and anger boils over about, among other things, inequality caused by Fed policies, the police have also been drafted in to protect the bull.
My already low opinion of Central Bankers has just fallen to new lows.
“Mary Daly, president of the Federal Reserve Bank of San Francisco, this week told reporters that she did not see much connection between loose monetary policy and financial risks”
Amazing! A few people now realise the end game is governments FORCING central banks to engage in YCC so outsized and unsustainable fiscal deficits are 'affordable', in terms of interest expense. The end game of monetary subservience is much higher inflation.
H/t
@SoberLook
In a 38 year career in finance I’ve come to expect almost anything can happen. But the collapse in the oil price into deep negative territory on expiry in April has to be one of the most bizarre financial events of 2020, if not ever!
Call me stupid (and many people do - regularly), but I'm not sure how
@OxfordEconomics
can say that their Beige Book Activity Index going negative is not recessionary when, looking at the chart, every time it has done it before there has been a recession!
H/T
@SoberLook
The unusual divergence in the chart tells me that that the sales cycle has decisively turned downwards in the last quarter (aka recession) but that companies have used the cover of rapidly falling raw material input costs to boost margins even further - aka Greedflation.
Maybe this is nothing. But maybe it is something.
Early stage bear market rallies from the initial lows are almost designed to suck in flaky retail investors - only to be crushed as the bear market resumes.
H/T
@sentimentrader
Many are looking at 25% M2 growth and forecast higher inflation. But the main M2 counterparty is state backed bank lending to corporates allowing Zombie companies to multiply like your worst horror movie - just like 1990s Japan. Inflation could hence collapse despite surging M2!
Grotesque. Central Banks printing money has driven an explosion of wealth of the 1%, but CBs now demand workers take big real wage cuts as that same QE helps cause surging headline inflation. And these elites wonder why popularism has been been gaining ground in recent years!?
Catch-up: Bank of England Governor Andrew Bailey has urged workers not to ask for big pay rises this year, despite warning that rampant inflation will sting households with the worst squeeze on living standards for at least three decades
So reminiscent of the 2000 Nasdaq bubble... "from a valuation perspective, the Magnificent 7 trade at a large P/E premium vs. the rest of the market, but relative valuations stand in line with recent averages after accounting for expected growth.” (aka hope)
H/T
@dailychartbook
When companies start referencing soft-landing as frequently as they are now, it is usually a triumph of hope over reality and a hard landing is just around the corner. But maybe this time will be different!
H/T Jeffrey Schulze, strategist at
@Clear_Bridge
via
@johnauthers
Incredible. What planet do these guys live on? Before each and every bubble bursting policy makers deny 1) there is a bubble and 2) after it bursts that they bear no responsibility for the mess. I thought Bernanke was the worst offender but....
Bloomberg's Simon White is one of the best financial writers imo. He makes the point Powell's pivot has led to super easy aggregate monetary conditions despite high Fed Funds. He doesn't say that maybe this is about getting Biden re-elected. I will though.
I’m often asked how bad the next recession will be. People argue it will be shallow. I, like
@TheBubbleBubble
, think it will be catastrophically deep as a consequence of the ‘everything-and-everywhere’ bubble bursting. Unlike 2008, this time Central Banks will be held to account
@Macropsychology
No, I firmly disagree with that (and I've been told that many times). The fact is that central banks like the Fed have created a false boom by inflating new bubbles and taking on even more debt. It's not organic. This is undeniable.
See my explanation:
The equity market's behaviour is particularly 'ODD' at the moment reflecting a market having sprinted to a record altitude and now it's gasping for 'breadth'. Next step is for it to become disorientated, giddy & then finally to vomit profusely
@jasongoepfert
via
@dailychartbook
Soft-landing? Are you kidding me. 1) Fed tightening cycles overwhelmingly end in hard landings and 2) the labor market is one of the most lagging indications and by the time things get this bad, it's too late to avert recession.
H/T
@TheStalwart
via
@dailychartbook
Payroll preview: markets don't focus too much on data revisions having reacted to the initial estimate. But when you get an avalanche of consecutive downward revisions as we have had recently with JOLTS, this is telling us the wind has DECISIVELY changed direction
H/T
@SoberLook
@elerianm
@FT
The chart shows Gilts were stable for a week before the budget as 90% of the measures were already factored in. Gilts started their collapse the day BEFORE the budget as the BoE reaffirmed aggressive QT. We have no idea how much of the collapse was due to QT, LDI or the budget.
Is the Fed getting ready for their Bastille moment (like a Minsky Moment)? Do they fear that Joe Public will identify them as responsible for the cost of living crisis and storm the building? CBs conned us all after the 2008 financial crisis that they weren’t to blame. They were.
“With the Fed’s announcement of unlimited QE and its “will buy or support almost anything,”...this is the end of the capital markets as we have known them. We have now entered unlimited QE and MMT where there is no escape.”
Economists are poor at forecasting recessions. After all who wants to be bring bad news?! This is where Leading Indicators (LI) are useful and the Conf Board LI preferred 6m% ch, is down at -3.2%. Historically at this low LI level, a recession is already here, today.
The days of the Nifty 50 are over! This chart emphasises just how unusually concentrated the bubble is in only top 10 stocks verses the 11-50th largest stocks in previous periods of high concentration. H/T
@dailychartbook
Interesting article. This also applies to well-meaning but misguided policy intervention to prevent equity bear markets and moderate recessions. Without allowing regular fires, eventually you end up with a mega-fire (or financial and economic collapse).
?
Apocolyse Now.
This Barclays chart via
@SoberLook
shows that a recession is not just guaranteed (although nothing is 100%) but those who say it is still some way off are wrong. We are already in a recession. Prepare for the kitchen sinking of profit warnings as equities collapse
Stunning disconnect. Either the economy is about to roar into action almost immediately or there's going to be one hell of a sector rotation away from cyclicals to defensives.
H/T
@SoberLook
In Bernanke's Nobel Prize winning analysis of the Great Depression, what was wholly absence was any analysis of the role of the credit bubble in the late 1920s in causing the bust. No wonder then that he was negligent in allowing the credit bubble preceding the 2008 GFC. Hopeless
Ben Bernanke – awarded the 2022 prize in economic sciences – analysed the Great Depression of the 1930s, the worst economic crisis in modern history. Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged.
#NobelPrize
January's data has come in strong for US payrolls and retail sales, raising questions about dodgy seasonal adjustment. Less focus though on the January surge in bankruptcies, which has no seasonal adj issues.
Is this what a soft-landing looks like? I don't think so
@SoberLook
Value added stuff here on the origins of the word “hungover”. These sad forms resemble retail investors currently intoxicated by the elixir of Fed liquidity but soon to be hungover in the aftermath of the coming collapse - hung out to dry.
Brilliant idea of the BoE. Let's hire the principle architect of the 2008 Global Financial Crisis who screwed up even more catastrophically than us. The man who denied there was a housing bubble and who said even in retrospect, he wouldn't have done anything different! Genius.
Is this signal like insider selling? When CEOs and senior managenent see that the party's over and they are no longer get rich quick by trashing the balance sheet to buy back shares and boost the value of their share options, they might as well cash out and say goodbye!
Never before now have 4 major public comp CEOs announced their departure on the same day. Yet that's what happened on Tue, at height of mkt panic over coronavirus. CEO departures were record 219 in Jan. 36.5% of departing CEOs stepped down into a board pos
You see lots of Financial Conditions FCIs charts suggesting policy is loose. Less often do you see the "Credit Impulse", the change in credit growth - which drives GDP growth. The buoyant FCIs merely tell us financial markets are a bubble and heading for trouble!
H/T
@SoberLook
This chart from the excellent Simon White of Bloomberg sums up how nuts the fiscal situation is. To be fair this pro-cyclical fiscal dysentery started under Trump but Biden has taken it to a new level. It's a cross-party road to fiscal oblivion.
H/T
@dailychartbook
@zerohedge
I have been listening out for a huge sucking sound as retail investors dumped their corporate bond mutual funds and ETFs.
If you think this is bad, wait until the first fund gates.
Then we will really test the frequent reassurances of these funds about their liquidity mismatch
This is always a clear sign that the bust is close! I remember hearing similar “end of the business cycle” declarations about ‘The Great Moderation’. Actually didn’t Chancellor Gordon Brown claim that New Labour had ended Boom and Bust. Sadly these claims are always wrong.
The Coppock Indicator has a long history of picking the bottom of equity bear markets. Almost without fail, this momentum indicator sinks below zero and then turns up giving a bull signal. This did not occur in March. Far from it. But maybe "this time is different" - or maybe not