Doug Noland

TSP Smart: Time to Join Us

Today, there’s a massive “periphery” loaded with “subprime” junk bonds, leveraged loans, buy-now-pay-later, auto, credit card, housing, and solar securitizations, franchise loans, private Credit, crypto Credit, DeFi, and on and on. The “periphery” has become systemic like never before. And things have started to Break.

TSP Smart: Good News in Bad News

For the last decade, bad economic news sent the stock market higher. Why? It meant more stimulus for the financial economy. As long as the economy was not strong & the stimulus was directed to wall street, life was great. Now the situation is reversed. The strong economy combined with high inflation has the wall street CEOs talking about hurricanes approaching… but they are talking about THEIR economy – the financial economy. Don’t confuse the two.

Not Volcker… Inflation Acquiescence

Fed policy has certainly not been speeding hurriedly to pull us from the wreckage wrought by runaway inflation. Good grief, they’re afraid to even approach a conventional speed limit, content to yield to pedestrians waiting at crosswalks and keen to slow down at intersections in anticipation of traffic lights turning amber.

TSP Smart: The Fed Lost Control

Esther George could not have been much clearer. Inflation is too high and must come down. Financial conditions must tighten, and securities markets are a key monetary policy transmission mechanism. And the Fed today has little clarity on how far this tightening process will need to go.

TSP Smart: Global Financial Quagmire

Our system faces a serious inflation problem. At the same time, Market Structure and systemic fragilities simply cannot tolerate a significant tightening cycle. It is a Quagmire. The writing’s on the wall: faltering markets will spur a major tightening of financial conditions, while consumer inflation remains elevated.

TSP Smart: Collision Course

Everything points to powerful inflationary dynamics and a Federal Reserve hopelessly “behind the curve.” The market is now pricing in a 2.86% Fed funds rate at the FOMC’s December 14th meeting. Moreover, the Fed is expected to soon commence its $95 billion monthly balance sheet reduction (“QT”).