When financial panics begin, they play out in similar ways. First, one asset class has a surprise drop. The leveraged investors sell the sinking asset, but soon the asset is unwanted by anyone. Margin calls roll in. Investors then sell good assets to raise cash to meet the margin calls. This spreads the panic
Regular readers are familiar with my “ice-nine” thesis on how the next financial crisis will play out. Ice-nine is a phrase invented by Kurt Vonnegut Jr. in his novel Cat’s Cradle. In the novel, ice-nine is a doomsday device involving a molecule that freezes any water it comes in contact with and converts that water
In 2017, every prominent economic forecasting entity was shouting from the rooftops about “synchronized global growth.” This was a reference to the fact that not only were certain economies growing, but they were all growing at the same time. Chinese GDP growth had come down but was still substantial at 6.85%. U.S. GDP growth was posting solid
Fed Chair Jay Powell just sent the most powerful signal from the Fed since March 2015. He has pretty much taken a March 2019 rate hike off the table until further notice. At a forum hosted by the American Economic Association in Atlanta last Friday, Powell used the word “patient” to describe the Fed’s approach
Remember the “tea party” revolt in 2009–2010 against government bailouts and government spending? Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown? Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending? Well,
We’ve been saying for over a year that Chinese growth figures are misleading and a debt-related market crash is just a matter of time. Now the data have confirmed this view, and even the Chinese government can’t cover up the decline any longer. China is between a rock and a hard place. If
The Fed is so confused it’s beginning to confuse the markets too. The basic Fed model set up by Janet Yellen and continued by Jay Powell was that the Fed would raise rates four times per year (March, June, September and December), by 0.25% each time, until the fed funds target rate hit 3.75%,
There’s an old saying in poker: If you’re in a three-sided game and you don’t know who the sucker is, you’re the sucker. This refers to the fact that two players in a poker game can implicitly coordinate their efforts to clean out the third party (the “sucker”). Once that is accomplished, the two
Wall Street and China can’t seem to grasp the fact that the U.S.-China trade war is real and the clock is ticking on massive new tariffs. The wishful thinking since last January is that the trade war is mostly for show, both sides are posturing and a “deal” will soon be worked out that
Intelligence agencies from the CIA to MI6 are practiced in the arts of deception and denial. No one trusts anyone. That tradecraft is useful when you’re outwitting the enemy. But how do you engage in honest exchanges of information with friends? A solution to this conundrum is called the “Five Eyes.” This term refers
