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Inflation – Cassandra Speaks

February 17, 2022

Inflation – Cassandra Speaks

Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

“The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation.”

This Morning: Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

Contrary to expectations, World War Last didn’t break out yesterday. Either the Russians are stepping back or they are retreating in a forward direction while adding thousands of new troops… Who knows..? Who to believe? In the absence of evidence or a credible reason for Putin pressing the auto-destruct button while he’s winning, (er, yes, he probably is as the West discomboffulates around the issue, beset by leadership crises, division, energy prices and distrust), can we now look forward to Spring?

And get back to worrying about real stuff. Like inflation?

The news this morning is UK inflation hitting a 30-year high, home price rises in the US and UK earning more than the average working wage, and the Fed Minutes – yawn. Put these together and it looks torrid. Yet the market seems unbovvered…  There is a strong likelihood the Fed will hike 50 bp in March and up to 10 times in the next (whatever length of time) years/months/minutes… Whateva… Expectations of aggressive moves in rates have doubled in recent weeks.

Commentary in the bond market ranges from the risks of over-aggressive policy mistakes, arguments about how long “transitory” inflation might last, and the risks of further supply and wage driven inflation hikes…

…click on the above link to read the rest of the article…

The US Corporate Debt Bomb, Europe’s Recession, and Systemic Risk in China

February 15, 2019

The US Corporate Debt Bomb, Europe’s Recession, and Systemic Risk in China

Yesterday’s note caught a lot of attention.

In it, we argued that investing in stocks today based on the Fed getting dovish is like buying stocks after the Bear Stearns deal: you’re buying based on a development that reveals the financial system is in serious trouble.

Remember, the Fed didn’t become dovish for no reason… it because dovish because it sees systemic risk on the horizon.

Corporate America is perched atop a debt bomb of $10 trillion, of which roughly 1/3rd is junk… meaning unlikely to be paid back.

Rather than issuing debt to build factories or expand operations, these companies have been issuing debt to buy back shares, resulting in the system being MORE leveraged today than it was in 2007.

Over $700 billion of this debt comes due this year… at a time when 60% of US companies already have NEGATIVE cash flow.

Put another way, the debt is coming due at a time when most companies don’t have the money to pay it back.

Outside of the US, Europe is teetering on the brink of recession, with the latest industrial production numbers showing a year over year decline of 4.2%. This is the largest collapse since 2009, at the depth of the Great Financial Crisis.

Then there’s China, where despite claims to the contrary, the entire system is collapsing. The Central Bank of China just engaged in the largest liquidity pump of all time last month… meaning it spent MORE money propping up the system in January 2019 than it did at any point in 2008.

If things are fine in China, why is it doing this?

Again, structurally the global financial system is in SERIOUS trouble. Buying stocks today based on the idea that the Fed is not as hawkish as before is like buying stocks because of the Bear Stearns deal.

And deep down, the market knows it.

 …click on the above link to read the rest of the article…

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