Pro Perspectives 10/7/22

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October 7, 2022
 
As we discussed yesterday, the Fed has been verbally attacking demand. And the mechanism they are targeting to bring demand down, as they've explicitly stated, is jobs.
 
With that, the September jobs report came in this morning.
 
Unemployment ticked down.  The Fed wants unemployment up. 
 
So the Fed's rate path and jawboning (about the rate path) didn't raise the number of unemployed.  And that leaves the gap between job openings and potential workers at 1.7 to one.  The Fed's alleged target is one to one.
 
But as we also discussed yesterday, the objective of the Fed, in targeting jobs, is to reduce the leverage workers have in negotiating higher wages. 
 
On that note, wage growth in this mornings report came in tame, for the second consecutive month.  At a 0.3% monthly change, that's 3.7% annualized wage growth.   That's just a touch above the monthly annualized wage growth for the nine-month period prior to the pandemic.
 
Meanwhile, with headline inflation running over 8%, employees are experiencing negative real wage growth (losing 5% in buying power over the past twelve months).  
 
Of course, that's against a broad basket of goods (CPI).  But if we look at the basics of food, shelter and energy.  It's double-digit losses in buying power.  This equates to a lower standard of living. 
 
Now, is the Fed trying to suppress wages because they think prices will eventually fall, closing the gap between the change in the level of wages over the past two years, and the change in the level of prices (i.e. restoring the standard of living)?
 
No.  An IMF report, published two days ago, lays out the policymaker rational for pinning wages down. 
 
It says, "real wages (after the effect of inflation) tend to go down initially as inflation outstrips wage growth."  That limits the ability of consumers to maintain the level of demand.  They can't afford to pay up for goods.  With that, businesses do worse, and are less likely to hire and give raises.  That process, they think, stops a self-reinforcing upward spiral in prices, where wages feed into higher prices, which feed into higher wages …    
 
But it only works, according to the IMF report, if businesses and consumers expect future inflation to be tame.  On that note, the Fed has talked down the stock market, and has continuously threatened to crush jobs and threatened a "whatever it takes" type of approach to crushing inflation — for the primary intent of managing down this chart …
As you can see, it has worked. Inflation expectations are 15 basis points lower today, from the September Fed meeting.  And lower than the levels of the July Fed meeting, when the Fed signaled a pause in tightening cycle.
 
So, again, the Fed's tough talk has worked.
 
But remember, bringing down the rate-of-change in prices, is different than bringing down the level of prices.  
 
The level of prices, thanks to this chart, is here to stay…   
Wages will ultimately go higher, but the closing of the wage-price gap will be slow and painful. 
 

Pro Perspectives 10/6/22

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October 6, 2022
 
Back in March, when the Fed made its first rate hike, Jerome Powell launched a verbal attack on demand.
 
In his press conference, he was asked what mechanisms he would use to reduce demand? 
 
He said this:  "If you look at today's labor market, what you have is 1.7-plus job openings for every unemployed person.  So that's a very, very tight labor market — tight to an unhealthy level…. We're trying to better align demand and supply, let's just say in the labor market.  So, if you were just moving down the number of job openings so that they were more like one to one, you would have less upward pressure on wages [and] you would have a lot less of a labor shortage" … "and that, over time, should bring inflation down."
 
So the case the Fed has made for attacking jobs, has been to reduce the leverage that workers have in commanding higher wages.  Higher wages are inflationary (but also a requirement to maintain a standard of living in a world where the level of prices has been reset higher). 
 
This is the chart of the jobs opening data Powell was referencing.  
Against about 6 million people unemployed, the job openings peaked in April at nearly 12 million openings.  That's two jobs for every one unemployed worker, and the Fed has been using that data point throughout the five months to justify tough talk about the rate path.
 
But as we know, the rate path already has created a shock to the global financial system:  enough to bring two major central banks off of the sidelines and back into the game of emergency policies (i.e. both the Bank of England and the European Central Bank: backstopping sovereign bond markets).
 
This destabilization in the financial system creates a conundrum for a Fed that's threatening bigger and bolder rate moves, as the job gap they've been touting, as their objective, has shown little signs of change.  
 
On Monday, they were thrown a life-line.  The August report on job openings, from the U.S. Bureau of Labor Statistics, magically collapsed by 1.1 million jobs.  Over a million jobs vanished in a month. 
 
To put that in perspective, that was the biggest change on record (by far), only slightly behind the April 2020 collapse in job openings (when the economy was practically shut down).  
 
That brings the job openings to workers ratio down to about 1.6 to 1.
 
And as you can see in the next chart, wage growth is tame, within the range of pre-pandemic, and running around 3.6% annualized in August (monthly change).  
We get the September jobs report tomorrow.  The Fed needs the cover of an uptick in unemployment, and soft wages. 

Pro Perspectives 10/5/22

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October 5, 2022
 
Yesterday, we discussed the big two-day move in stocks.  And we looked at this chart …
As you can see in the chart, a two-day return of over 5% is rare, and every time since 2006, it has been fueled by policymaker intervention, to respond to a significant risk to, or destabilization of, the global financial system.  
 
Today, let's step through the history in this chart, and talk about the event, the response, and the outcome. 
 
Most recently (the far right of the chart), as we know the Bank of England stepped in last week to buy UK government bonds.  That reversed the aggressive rise in UK market interest rates, which were beginning to reveal an impending shock to the UK financial system, which (if history is our guide) would become contagious, globally. 
 
What was revealed?  Fourteen years of global QE and zero rates has left the global financial system unable to sustain higher interest rates and shrinking liquidity. 
 
Evidence: As rates were rising in the UK last week, UK pension funds were getting margin calls, where they were forced to sell UK government bonds.  When they sold bonds, yields went higher, which forced more margin calls, which required them to sell more bonds (and a self-reinforcing global sovereign debt spiral was underway).
 
The pain point on policy tightening was revealed to global central bankers.  The Bank of England responded, buying bonds, and reversing the rising tide of interest rates.  Markets calmed.  Global stocks rallied.
 
This move in stocks was the biggest two-day move since 2020. 
 
Of course, this was driven by both fiscal and monetary policy intervention.  The early April spike on the chart came with the rollout of the Payroll Protection Program (backstopping business and jobs).   And the big spike in March of 2020, came as the Fed finally resolved a crisis in the bond market (a threat to the entire financial system) by vowing to outright buy corporate bonds and bond ETFs. 
 
That was the covid-lockdown driven bottom for stocks.  The stock market went on to double, over the next 18 months, following that intervention. 
 
Continuing to move left on the chart …
 
In December 2018, by Christmas the stock market was on pace to have the worst decline since the Great Depression.  The Fed had hiked rates three times that year, into a slow economy.  They had systematically hiked seven times since the 2016 election.  And it was when the 10-year yield surged through 3%, that stocks began a calamitous fall (falling 18% over 23 calendar days).  Here's a look at the chart on yields (notice where we are now, in relation)…
Stocks were signaling fear in the markets that the Fed had already gone too far (i.e. was choking-off economic momentum).  The Fed ignored the signals and mechanically raised rates again at their December meeting.
 
The bottom fell out in stocks.  By December 26th, the S&P 500 was down 18% for the month of December.   That led to a response from the U.S. Treasury (i.e. intervention).  Mnuchin (Treasury Secretary) called out to major banks and the President's Working Group on Financial Markets (which includes the Fed) to "coordinate efforts to assure normal market operations." 

That was the turning point.  That put a bottom in stocks. 

Within days of that, the three most powerful central bankers of the past ten years (Bernanke, Yellen and Powell) were backtracking on the Fed's rate path — signaling a pause.  Stocks rose 47% over the next 15 months. 
 
Let's continue moving left on my S&P returns chart above …
 
In 2015, once again, it was the Fed. By mid August, China's stock market had boomed and crashed, all in 2015.  The Chinese economy was slowing and in August they surprised the world with a currency devaluation. 
 
Meanwhile, the Fed had ended QE a little less than a year earlier, and the Fed had well telegraphed its first post-Great Financial Crisis rate hike for the following month (September), however there was plenty of global angst surrounding the removal of liquidity by the Fed.
 
In August, U.S. stocks crashed 13% in six days (including a 7% flash crash). 
 
The Fed responded two days later (August 26).  The New York Fed governor spoke at Jackson Hole and cited the market turbulence for marking a September rate hike unlikely.  From the lows that day, stocks bounced 9% in fifteen days, and ultimately 14% from those lows.
 
If we continue moving left on the S&P returns chart (above) we see the other rare 5%+ two-day moves in the S&P futures. 
 
They come (far left on the chart) surrounding massive monetary and fiscal policy intervention to avert disaster from the Lehman failure/Global Financial Crisis.
 
It was the Fed launching QE, and G20 global central banks vowing to coordinate policy, that solidified the bottom for stocks (in March of 2009).
 
With all of the above in mind, as we've discussed this week, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment). 
 
We can see it in the examples above.  And based on this history, it's fair to say that we are at a significant moment, seeing significant vulnerabilities in the financial system (driven by rising rates), and we've seen a significant response (by the Bank of England).
 
Will there be more intervention?  Maybe.  But we know that interest rate markets have reached the "uncle point," and central banks are on high alert, and will do whatever it takes to preserve financial stability. And these moments are, historically, turning points for markets.
 
Best, 
Bryan  
 
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Pro Perspectives 10/4/22

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October 4, 2022
 
As we discussed yesterday, if we look back through history, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment).
 
We had intervention last week.  The Bank of England stepped in to calm the global interest rate markets, by intervening in the UK sovereign debt market.
 
That reversed the tide of rising global market interest rates, which were threatening global financial stability.
 
Adding to that, the Reserve Bank of Australia balked overnight and raised rates just 25 basis points (vs. an expected 50 bps).  That was another signal to markets, that central banks are acknowledging that rising rates (albeit at low levels, relative to inflation) have created a threat to the global financial system.
 
With the release of that (rate) pressure valve, U.S. stocks (the proxy for global economic health, stability and risk) had the biggest two-day return since 2020. In fact, it was a two-day return for the record books. 
 
Let’s take a look …
 
S&P futures were up 5.8% the past two days. 
 
With that, I've gone through all of the two-day returns on the S&P 500 futures, dating back to 2006, and as you can see in the chart above, a two-day return of this magnitude is rare, and it comes, every time, at significant moments (vulnerabilities), and fueled by a significant intervention. 
 
PS:  If you aren't a member already, I want to invite you to join us in my premium subscription service, The Billionaire's Portfolio. 
 
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It's the highest conviction position in the portfolio of one of the best biotech investors in the world. And also involved in the stock, is the best activist investor in the world.  Both are very influential billionaire investors, with large stakes in the company, and are already pushing company leadership to unlock value in the stock.  Wall Street has a high 12-month price target on the stock more than 60% higher than current levels. 
 
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Best,
Bryan   

Pro Perspectives 10/3/22

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October 3, 2022
 
If you're a hedge fund, or trader, and you're leveraged 10, 20, 50, 100 times, avoiding corrections or trend changes is critical to your survival.
 
Getting it wrong, can mean your portfolio blows up and maybe goes to zero. That's the mentality the media is speaking to, and frankly much of Wall Street, when addressing any market decline.
 
The bottom line: 99.9% of investors aren’t leveraged and shouldn't be overly concerned with U.S. stock market declines, other than saying to themselves: “Do I have cash I can put to work at these cheaper prices? And, where should I put that cash to work?”
 
So, for the average investor, dips are an opportunity to buy stocks at a discount.
 

On that note, Warren Buffett has made a career out of "being greedy, while others are fearful."

 
And there is certainly a lot of fear in the air.  
 
With that, Buffett's successor, Greg Abel, was in buying Berkshire Hathaway shares last Thursday.  He bought 168 shares, at an average price of around $406,000 a share.  That's over $68 million worth of stock.
 
Based on Forbes' estimate of Abel's wealth, that's about 15% of his net worth. 
 
This purchase came the day after the Bank of England intervened to calm the UK bond market.
 
If we look back through history, major turning points in markets have often been the result of some form of intervention (i.e. policy action or adjustment).
 
For the vulnerable government bond market, the action taken by the BOE has done the trick, thus far.
 
Yields on 10-year UK gilts are down 65 basis points from Wednesday's high, back under 4%.  
 
U.S. yields are down 38 basis points.  And here's a look at what has been the most imminently dangerous major global government bond market, Italian yields (down 73 basis points from Wednesday's high) … 
This calming in the global sovereign debt markets has translated into higher stocks.  Today we get another very strong reversal in stocks, after making new lows on the year (and another technical reversal signal signal, this time in S&P 500 futures, Dow futures and Nasdaq futures).
 
That said, let's get back to the overhang of "fear" in markets…
 
There were rumors going around all weekend that a major global bank was on the verge of failing.  It's Credit Suisse.  And the CEO wrote a memo to staff on Friday, assuring the liquidity and strong capital base of the bank — although they are restructuring.  Still, the market has been placing bets on its failure, and another "Lehman moment" for the world — where the failure of a major global trading bank can quickly result in a freeze of global credit.
 
Keep in mind, the effects of the global financial crisis have left a bias in market participants.  They see crashes everywhere.  And they have for the past fourteen years. 
 
And while the fundamentals may justify the view, at times, there is a big difference between now (into perpetuity) and 2008. 
 
The difference:  There is no question what central banks can and will do. 
 
To avert disaster in the global financial crisis, they ripped up the rule books.  There are no longer rules of engagement for central banks.  They will do "whatever it takes" to maintain financial stability, and to manufacture their desired outcome.  This comes with one very important condition:  The "no rules" era of central banking requires coordination of the major global central banks.  And they are coordinating. 

 

Pro Perspectives 9/30/22

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September 30, 2022
 
As we end the third quarter, let's take a look at year-to-date major asset class performance. 
 
Stocks are down 24% (S&P 500).
 
Government bonds are down 14% (the 10-year U.S. Treasury note).
 
Corporate bonds are down 18% (Bloomberg Baa Index)  
 
Real Estate is up 8.5% (existing home median sales price).
 
Commodities are up 4% (S&P GSCI equal weighted index).
 
Cash is up just less than 1% (money market fund).
 
After adjusted for inflation, it's all negative (exception real estate, which is flattish).
 
The performance in asset prices has less to do with whether or not the economy can withstand a 3% interest rate, and more to do with a Fed that has explicitly and continually (over the past six months) threatened to destroy demand, and jobs.  
 
With that, the Fed has manufactured the desired slowdown in economic activity (again, with just a 3% interest rate, which is still below the long-term average). 
 
The first two quarters have already been booked as negative GDP growth.  So the recession is not questionable.  It is here.
 
And we now have the valuation on stocks at 15 times next year's earnings (less than the long-term average P/E on the S&P 500, of 16x).  That's on earnings growth expectations that have been dialed down to 3%.  That would be negative real earnings growth (after the effect of inflation).  
 
So the Fed has manufactured a recession, without taking rates above the rate of inflation (not even close).  They've killed the wealth effect of rising asset prices.  And they've cut the valuation on stocks from very overvalued to slightly undervalued (relative to long-term historical valuation).   
 
And this week, the Fed has pushed the limits to the point of destabilizing the financial system (given the events in the UK this past week). With midterm elections six weeks away, this seems like a time for the Fed to step back.     
 

Pro Perspectives 9/29/22

 

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September 29, 2022

Just in case we thought the Bank of England’s intervention yesterday in their government bond market, signaled a course correction for the Fed, we were disabused of that thought this morning.  

The Fed lined up three speakers today, all affirming the draconian rate outlook (hawkish).  And they put two on the calendar for tomorrow, which undoubtedly will have the same message.  Moreover, the European Central Bank is following the same playbook, having lined up media for numerous ECB governing council members to promote the narrative of steadfast loyalty to the inflation fight (i.e. telling us that tough rate hikes will persist).  

Meanwhile, they all support the Bank of England’s flip-flop on bond buying yesterday (a monetary “easing” tool that is a counterforce to the Bank of England’s own interest rate hikes).  And of course, as we know, the European Central Bank did a similar flip-flop over the summer.  They are outright buying government bonds of vulnerable euro zone countries, while also raising interest rates.    

How does this make sense?  

As we know, since the Great Financial Crisis, the major global central banks have done nearly everything in coordination.  They continue to coordinate.  In fact, Jerome Powell subtly said in his last press conference, that he had just returned from Basel, Switzerland, where he was meeting with other central banks.  

It seems that they are focused, in coordination, on crushing inflation expectations, and therefore demand. Meanwhile, as their policies destabilize the financial system, they unapologetically intervene to absorb the shock.  

That brings us back to an image from one of my April notes, as we were discussing the plans of the central banks to exit QE.   

The problem:  we’ve yet to see an example of a successful exit of QE.  

Here we are again.  The attempted exits have only led to more control and more intervention by central banks over markets – to plug new leaks in the global economic system. 

The question now is, have the central banks lost credibility, and will the markets, this time, test them (i.e. continue to put pressure on currency and government bond markets)?  

We seem to be at that point.   

That said, when the biggest most powerful central banks in the world are coordinating (the Fed, ECB, BOJ, BOE, SNB, BOC), they can’t be beat.  In their own words, they will “do whatever it takes” to maintain stability in the financial system. They will keep plugging holes, in coordination.  

So what’s the end game?   

As we’ve discussed often here in my daily notes, this all continues to progress toward an eventuality of a  coordinated reset of global debt, and a new monetary system. 

 

Pro Perspectives 9/28/22

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September 28, 2022
 
In my note yesterday, we talked about the pivotal moment for global markets and economies.  And it was manifested in the price of the global benchmarks for stocks and interest rates — which is the S&P 500 and the U.S. 10-year Treasury yield.
 
A revisit of June lows in U.S. stocks, and the rise to 4% in the U.S. ten-year government bond yield appeared to be the pain tolerance for the global financial system stability. 
 
That pain, in this case, is the effect of increasing debt servicing costs on bloated global government debt, and the related capital flight from around the world, and into the United States (relative safety).
 
As of yesterday afternoon, it looked like the breaking point.  
 
And with that, we suggested that we may (should) get a response from the Fed today.  We didn't.  But early this morning, the pain was relieved (for the moment) by another major central bank:  the Bank of England. 
 
After a doubling of the government bond yields in England over the past month, and a collapsing currency, the Bank of England was forced to restart QE this morning.  
 
Sound familiar?  
 
The European Central Bank did the same back in June, after watching yields in the fiscally fragile euro zone countries spike to over 4%. Just after they ended QE, they were forced to restart it. 
 
By the way, that decision by the ECB back in June, in addition to the subsequent commitment to QE by the Bank of Japan, put a bottom in for global stocks and lead to a sharp 19% rebound).     
 
So, this is central banks coming to the rescue (again), to (in this case) avert a global sovereign debt crisis.  They are going back to the well, of printing money/intervening to maintain stability in markets. 
 
This continues to support the point we've discussed all along the way: The financial system is too fragile to extract global liquidity, and sovereign debt is too bloated to endure higher interest rates (i.e. higher debt servicing costs).  
 
With that in mind, as we've also discussed along the way, QE and low rates are like Hotel California.  "You can check out, but you can never leave."  We have another confirming data point now, in the Bank of England response.
 
How did markets respond to today's intervention …
 
Yields on UK government bond yields collapsed 50 basis points!
 
Yields on Italian 10-year bonds were sniffing around 5%, before dropping back to 4.58% (still above the June highs).
 
And U.S. yields dropped back to 3.70% after trading above 4% overnight. 
 
Is 4% in the global bond benchmark the "uncle point" for markets?
 
Maybe. 
 
Lower yields (less pain) equals higher stocks.
 
With that, the S&P 500 was up big on the day, first breaching the June lows, and then reversing 3% higher. 
We now have a technical reversal signal in stocks (an outside day) – into the June lows.
 
This is a bullish technical signal.  But we will still likely need the support from the Fed, walking back on the overly aggressive rate path they've projected.

Pro Perspectives 9/27/22

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September 27, 2022
 
The S&P 500 traded just below the June lows today.  The U.S. 10-year yield traded just shy of 4%.
 
These two markets are global benchmarks for stocks and interest rates, and, importantly, proxies for global economic health, stability and risk appetite.
 
With that, I would say we are at a pivotal moment.
 
As we've discussed, bond and currency markets in Europe may already be in a currency and sovereign debt crisis.
 
Again, this is all triggered by the Fed (the defacto global interest rate setter), by:  1) ignoring the obvious (and intentional) inflationary formula in the pandemic response, and then ignoring the subsequent evidence of that inflation last year, and then 2) finally acknowledging the inflation problem, while continuing to fuel the inflationar through zero rates and QE, up to the point they flipped the switch — and only after six months of crawling rates higher, did they reach a somewhat historically normal level for interest rates, to address near record levels of inflation. 
 
With that, the Fed Chair is on the calendar again tomorrow for a prepared speech (a pre-recorded speech) for a community banking conference.  Will he try to calm markets by walking back on the aggressive rate path that is being priced into markets? 
 
We had a couple of Fed speakers today, that may have opened the door to some softening of the tone.  Both Kashkari and Evans said rates are now "tight" or "restrictive," which is where they say they want to be.  Kashkari admitted there is "risk of overdoing it."  And Evans admitted he's nervous about the pace of hikes.
 
We will see if Powell has something to add. 
 
What else can play into this pivotal moment for global markets?  Today the Nord Stream 2 pipeline, developed to carry Russian natural gas to Germany, leaked into the Baltic Sea.  This could be a global war flashpoint, as fingers are being pointed in a lot of directions (most consequentially, at the U.S.), claiming an attack.  
 
What would come with a full-blown World War?  Among many things, a lot more government spending, and an economic boom.   
 
 

Pro Perspectives 9/26/22

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September 26, 2022
 
I want to revisit an excerpt from my July 14 note (blue font), and then talk about how it's playing out. 

 
Pro Perspectives, July 14, 2022: 
 
The Fed doesn't have the appetite for big rate hikes. 
 
If they did, they would have acted bigger, and more aggressively already. High inflation environments, historically, have only been resolved when short term rates (the rates the Fed sets) are raised above the rate of inflation.  The Fed is currently almost eight percentage points behind.  We can only assume, at this point, that it's intentional.  
 
Also, when asked about the inflationary risks of QE, back in 2010, the former Fed Chair (Ben Bernanke) said dealing with inflation is no problem.  "We could raise rates in 15 minutes." 
 
They haven't [done that, i.e. a big one-off emergency rate hike]. 
 
Add to this:  The current Fed Chair has told us that they were going to aggressively attack inflation, by "expeditiously" raising interest rates, and "significantly" reducing the Fed's balance sheet.  They have done neither.
 
So they have the tools.  They understand the formula for resolving inflation.  But they aren't acting. 
 
Why? 
 
Even if the U.S. economy (including our government's ability to service its debt) could withstand the pain of nearly double-digit interest rates, the rest of the world can't.  That's it.  End of story. 
 
Capital is already flying out of all parts of the world, and into the dollar.  Is it because U.S. bonds are finally paying interest?  Partly.  Mostly, it's because the U.S. is pulling global interest rates higher, which makes sovereign debt more expensive (more likely, unsustainable), particularly in the more economically fragile emerging market countries.  Rising U.S. rates accelerate global sovereign bond markets toward default/ sovereign bankruptcy. 
 
And historically, sovereign debt crises tend to be contagious (i.e. you get a cascading effect around the world).  So far, we've seen defaults by Sri Lanka and Russia. 
 
This is why the Fed is talking a big game, but doing very little with rates.

Okay, let's fast forward to today.  The Fed has now raised the effective Fed Funds rate to 3.08%.  The balance sheet?  At this point, the Fed has scheduled to have reduced the size by $237.5 billion.  They done just $100 billion.  Inflation, of course, remains much higher than the Fed Funds rate.  So the Fed still hasn't delivered on the tough talk.  

As we've discussed, they haven't because they can't.  Still, as we discussed on Friday, they now may have even gone to far with the tough talk.

Projecting another 125 basis points of tightening in the U.S. over the next three months has destabilized global markets.  

U.S. stocks have traded to June lows.  More importantly, the vulnerabilities in Europe have become amplified.

We've talked about the vulnerabilities in Europe, specifically Italian debt. 

Yields on Italian government debt are spiking, now 40 basis points above the June levels – levels that prompted an emergency meeting by the ECB …
As we've discussed, this should trigger the ECB's new bond buying program, to curtail the rise in these yields, and protect the solvency of Italy.  But it will come at the expense of the euro. 
With that, the euro continues to trade to new 20-year lows.  Sovereign debt yields in the UK are also spiking, and the British pound is collapsing (down as much as 8% in the past two trading days, falling to 37 year lows).  And as we discussed on Friday, rapidly declining currencies tend to come with (ultimately) debt defaults (even with central banks putting up a fight). 
 
Where is the money going, that's leaving Europe?  The U.S. — into the dollar/dollar denominated assets.  It's a (global) flight to safety (somewhat positive for U.S. assets, very negative for global assets).    
 
So, this all heading in the direction that we discussed back in July (i.e. the excerpt copied in above). 
 
And to be sure, it has been triggered by the Fed.  They have miscalculated — even at the (still) relatively low levels on interest rates. 
 
Remember, back in 2019, after a shallow rate hiking campaign and attempts to "normalize" the balance sheet (from the Global Financial Crisis response), the Fed was forced to stop and reverse (to cut rates and go back to QE). 
 
The reason: Things started breaking in the financial system.  To be specific, we had this 300 basis point spike in the overnight lending market.
What's happening now?  Things are beginning to break in the financial system (this time sovereign debt markets). 

 
With that, the market will continue to look for the Fed chair to walk back on the hawkish rhetoric and projections from last week's meeting.  He had a chance on Friday, at the "Fed Listens" conference.  He said nothing. Powell is on the calendar for a prepared speech again this week — on Wednesday.