Below, we look at debt forces alongside supply and demand forces to help investors see (and prepare for) the darker forces within a Fed-rigged end game and a shifting financial backdrop.
As usual, the end game will boil down to yield curve controls and more money printing, which means more currency debasement and a central bank system that secretly (and historically) favors inflation over truth and markets over Main Street.
2018: A Template for 2023
Throughout the entire year 2018, as the Fed forward-guided rate hikes at 25 bps a pop, I warned investors of a massive year-end correction and to prepare their portfolios accordingly.
This required no tarot cards or market-timing hype.
So, how did I know?
Easy: The Fed told me so in October of 2017. That’s when they publicly announced a tapering of Treasury purchases and progressive rate hikes for 2018.
In short: They were putting a match to a can of gasoline.
Given that liquidity and low rates were the sole winds beneath the debt-driven market bubble which began under Bernanke following the 2008 crisis, it didn’t require exceptional genius in 2017 to see that reduced liquidity and rising rates in 2018 would immediately have the opposite effect—namely, send bloated markets tanking.
By Christmas of 2018, markets were gyrating at 10% swings per day, and by New Year’s Eve, panic was everywhere as I watched the fireworks from Cannes with that annoying “I told you so” expression.
Rolling into 2019, the Fed then did precisely what any addict would do. When markets tanked, the Fed stopped the rate hikes and re-ignited more addictive money printing liquidity—literally unlimited QE.
My book, Rigged to Fail, came out that same year; the timing as well as title was spot on. The Fed’s mandate was the market, not the economy. Debt, and the future be damned—just prop risk assets and let the next generation swallow the bill.
Today, we see a similar “2018 move” from hyper-liquidity to drying-liquidity by a desperate Fed tapering UST purchases into a market bubble and seeking to raise rates despite a debt bubble.
Why are they repeating this insanity yet again?
Simple: They see a market implosion ahead and need rates to go up now so that they will have something to cut when the next recession and market slide–which they alone created rears its head yet again.
Get Ready for Convulsions in 2023
So let me be perfectly clear again: When the current QT liquidity spigot starts to dry up during a “taper,” the liquidity-addicted markets will go into withdrawal convulsions.
In other words, expect some serious volatility in 2023.
To grasp this, it is essential to recognize the illusion of Fed power in general and to embrace the tragic fragility in what was otherwise the most liquid (i.e., doped and artificial) market in the world.
And if you want to see what fragility looks like, keep reading…
Boring Stuff Like Treasury Volumes
For the last two decades, outstanding Treasuries (i.e., Uncle Sam’s IOUs) have risen by 7-fold while cash volumes for the same period rose by less than 2-fold from $370B to $620B.