Writing On The Wall. for AMEX:SPY by WorldEconomics

Where to begin. I think it’s about time investors started thinking more seriously at the immensity of the financial problems sitting at the door step, and the worst part is that it isn’t going away if we ignore it.

The Fed has created the largest bubble in US history. In 2008, when the banks gambled and lost, the Fed stepped in with new measures to “stop” the crisis. We all know the story, that they created a new financial tool called Quantitative Easing or QE for short. In addition, they slashed interest rates to 0.25%.

What did they achieve?

They created a spending spree like no other. Loans were cheap and we saw rapid growth in cheap credit. This cheap money hit housing, autos, and bank loans. It was a spending spree. You can see this rapid recovery in US Credit Impulse Index. Retail grew and discretionary spending rose.

How much did it cost?

It cost the US over $9 trillion, but globally the cost of QE is north of $25 trillion.

What’s the issue?

The issue is that the house of cards is collapsing, and central banks can no longer hide the inflation caused by printing. Don’t be fooled, this inflation is NOT caused by supply and demand . Demand has collapsed for over a year, and inflation remains rampant. You can confirm this with numerous metrics from retail, discretionary spending, durable goods orders, wholesale inventory and more.

The next issue is that the Fed is tightening faster than it has in the last 40-years. The shock of this has begun hitting the economy, starting with auto and housing markets taking the first of the brunt, and they have only begun suffering. Next we will see corporations taking the hit, bonds, banking system, and jobs. Remember folks, it takes about 14-18 months for rates to fully hit the economy

Is there a solution?

No. Anyway you cut it, there is trouble. If central banks ease again, inflation will rise again. If central banks continue to tighten. it will cause more pain in other sectors. Banking was the first shoe to drop.

Bulls hope for easing

Often you see bulls getting very giddy on the thoughts of the Fed cutting rates and restarting QE . I often shake my head in disbelief that they can be so naive and foolish. Even IF the Fed did so, the consumer is spent. You have record high personal debt and record low savings which means retail will NOT come back and neither will discretionary spending. Don’t expect a magic turn around in corporate earnings because it won’t happen.

How to prepare

Diversify. Safe havens like treasuries will turn sour as the unsustainable debt and spending will finally be realized and trust in these “safe havens” will quickly disappear. The safest bet has always been metals. Hence why banks stock metals like silver and gold and not paper or cryptocurrency. People want quality. Get out of debt quick, and start with small debts and move up.

Op-ed

I believe we are on the cusp on some serious financial turmoil and the markets will confirm this. We’re on the verge of another wave down of this massive bear market. This crash seems more like a slow decent to the bottom rather than a March 2020 crash. We should easily slice through 3300 of the S&P (338 SPY ) and start heading down to the next lows. The economic data supports this. Just remember, we’ve only now begun to taste the effects of rate hikes fully. 2023-24 will be tough for the financial system.

Even the Feds Chairman stated that there is still a possibility of a soft landing. This means the odds are against a soft landing and I believe they know it. The next financial system is being setup now, it’ll be a digital currency and in the mean time, this crash will reset debts and clear out all the bad debts. I’ve been a bear ever since March 2020, when they started pumping everything again. I knew it would be short lived because it was unsustainable.

Markets are heading back to actual values that reflect a company’s earnings . Some stocks are trading well over 25x earnings . It’s absolute bogus, especially looking at this economic situation. It makes no sense. They’ll keep trying to keep markets afloat to make everything look good but it really isn’t and all the toxicity will overwhelm to deception.