Is it again a zero sum game?
For some time now markets have been ignoring gravity and operating on some kind of non-zero-sum game that everyone could get rich.
When everyone who wants to buy has bought a market, the very same people do not realise it, but they have all become nothing but a sea of potential sellers. This is how crashes happen.
Market crashes do not happen because something goes wrong. The going wrong is just the catalyst, markets crash because there is no one left to buy and the state is one of nothing but potential sellers.
It gets even more dangerous when the selling becomes forced in a downward spiral of events. This is the world now. The global investment community’s cult-like following of markets always going up has been scary for many of us for a few years now.
We were indeed among the first in the world to forecast inflation would not be transitory, the Federal Reserve would fall well behind, and then as a result begin a panicked hiking cycle.
We laid out this exact script in June/July of last year. The writing is on the wall. And now several Fed Presidents and finally Fed Chair Powell yesterday, have confirmed they are emphatically embarking upon yet another economically catastrophic error.
The first is to miss the inflation boat entirely and let it get out of control.
The second is to now aggressively chase inflation, war inflation, that will not be tamed by interest rate hikes. Leaving US consumers and businesses weary from the weight of stubbornly extreme inflation and aggressive rate settings all at the same time.
The saving grace is that even with higher rates it will be several months before they get back to neutral.
Nonetheless, already plummeting crisis level consumer confidence will break at the knees on the announcement of the next Fed Funds rate hike. Which will certainly be 50 points.
My forecast is three hikes in a row of 50 points. Then another three 25-point hikes. By then, the US economy will be more clearly heading into recession and this will belatedly, again, give the Fed cause for caution.
It is quite the mess. As much of the Federal Reserve’s own making as it is a war in Ukraine.
Under the weight of war, global energy and food risk, equity markets may well begin to buckle, unfortunately in a rather spectacular manner.
We have been saying for some time that the only way to protect your investment portfolio is to be cautious on equities and buying Gold, Oil and the US dollar.
These pillars of portfolio balance will see you through this worsting crisis of a rapidly slowing global economy.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
