According to Fasanara Capital, which has long argued that the market’s systemic fragility is approaching its breaking point, markets stand at a critical juncture, ready to snap, as the following note from Fasanara’s Francesco Filia lays out.
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The Market System Is Tight In All Directions
The Four Pillars Holding Markets Up Are Strained, All At The Same Time
Viewed as a combination of intertwined components, each component is showing growing signs of pressure and seem to be running out of road for further advancing. The synchronicity of them, more than any single component taken independently, is what should draw attention, as it compounds systemic risk.
Here are the four components, characterizing the basin of chaotic attraction for markets nowadays:
What happens when the system is tight in its key possible directions of expansion? That it expands no more. Stochastically, on one of the components a tipping point is reached, which jumpstarts the autolytic effect, spreading back through the vectors of the complex system, and snapping the unstable equilibrium into an alternative stable state. That is our thesis.
In this recent interview, we discuss the impending tipping points for markets due to a synchronicity of excess valuations, excess indebtedness, excessively low cash balances and a drawback in excessive public flows.
Let’s give a cursory look across the four components. Again, the list is by no means exhaustive, but rather a work-in-progress (seemingly endless) collecting of data points, following on to our previous work of ‘a long list of anomalies’ here and here.
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