If the Fed and global central bankers relax with inflation in the five to six percent range, it will likely spike back toward double-digits during the next inflationary shock. This is no time for Inflation Complacency.
Bull market expectations are deeply ingrained. The Crowd will buy the dips and commit more financial resources to the market all the way down – until the shock.
Issue 2023: High probability of global market accidents.
This year’s key dynamic was a momentous shift in inflation dynamics, from years of asset market-centric price inflation to broad-based consumer, commodities and employment pricing pressures. Inflation dynamics are complex. But a confluence of developments conspired to alter the global inflation backdrop.
Bubble inflection points are typically marked by a reversal of speculative flows out of an asset class.
$65 trillion is the value of hidden dollar debt unrecorded on the balance sheets of non-US banks and shadow banks as of June this year, also according to the BIS
While a Federal Reserve Chairman communicating in a balanced way seems appropriate, the problem lies in the fact the financial markets today are not balanced. The Market only hears what it wants to hear and that is that the Fed is about to save it once again.
With about a month to go, markets sense there’s a good shot at a decent year-end rally. And a solid December would be expected to presage a strong start to 2023. But that would not change my “countertrend” rally view. This market recovery, especially if it gets legs, is problematic.
As fate would have it, the Federal Reserve would restart QE a few months after FTX began operations. The cryptocurrency Bubble was then bestowed with the greatest windfall in the long history of manias and speculative excess: Covid-19.
Powell’s a straight-shooter. He probably planned on a balanced approach, though the more Powell earnestly answered questions, the more his inner Volcker came through.