Okay, it's me saying we're all going to die. Regarding some minor ailment, I once facetiously asked one of my doctors if I was going to die and he said yes. I must have looked alarmed because this far-too-literal man hurried to reassure me that "We are all going to die but we will delay it as long as possible."
Sort of like the way the powers-that-be have decided the financial reckoning from kicking far too many cans down far too many roads is going to arrive, but they will try to delay it as long as they can. Or until they retire.
From MarketWatch, Oct. 3, 2022 at 2:58 p.m. ET :
Stock markets will drop another 40% as a severe stagflationary debt crisis hits an overleveraged global economy
The debt crisis is here, Nouriel Roubini says. Expect central banks to wimp out in their fight against inflation as financial distress deepens
By Nouriel Roubini
NEW YORK (Project Syndicate)—For a year now, I have argued that the increase in inflation would be persistent, that its causes include not only bad policies but also negative supply shocks, and that central banks’ attempt to fight it would cause a hard economic landing. When the recession comes, I warned, it will be severe and protracted, with widespread financial distress and debt crises. Notwithstanding their hawkish talk, central bankers, caught in a debt trap, may still wimp out and settle for above-target inflation. Any portfolio of risky equities and less risky fixed-income bonds will lose money on the bonds, owing to higher inflation and inflation expectations. Roubini’s predictions
How do these predictions stack up? First, Team Transitory clearly lost to Team Persistent in the inflation debate. On top of excessively loose monetary, fiscal, and credit policies, negative supply shocks caused price growth to surge. COVID-19 lockdowns led to supply bottlenecks, including for labor. China’s “zero-COVID” policy created even more problems for global supply chains. Russia’s invasion of Ukraine sent shock waves through energy and other commodity markets.
Central banks, regardless of their tough talk, will feel immense pressure to reverse their tightening once the scenario of a hard economic landing and a financial crash materializes.
And the broader sanctions regime—not least the weaponization of the dollar BUXX, -0.60% DXY, -0.38% and other currencies—has further balkanized the global economy, with “friend-shoring” and trade and immigration restrictions accelerating the trend toward deglobalization. Everyone now recognizes that these persistent negative supply shocks have contributed to inflation, and the European Central Bank, the Bank of England, and the Federal Reserve have begun to acknowledge that a soft landing will be exceedingly difficult to pull off. Fed Chair Jerome Powell now speaks of a “softish landing” with at least “some pain.” Meanwhile, a hard-landing scenario is becoming the consensus among market analysts, economists, and investors.
It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%). And if a hard landing is the baseline for the United States, it is even more likely in Europe, owing to the Russian energy shock, China’s slowdown, and the ECB falling even further behind the curve relative to the Fed. The recession will be severe and protracted
Are we already in a recession? Not yet, but the U.S. did report negative growth in the first half of the year, and most forward-looking indicators of economic activity in advanced economies point to a sharp slowdown that will grow even worse with monetary-policy tightening. A hard landing by year’s end should be regarded as the baseline scenario....
....MUCH MORE
I don't know about 40% from here, S&P 3,678.43 up 92.81(+2.59%) but 20% is eminently doable. The timing is a bit tricky, what with the mid-term elections in five weeks but just as recession has been our baseline for most of the year,* so we think market decline phase III will kick in sometime this quarter.
If interested in more Nouriel see yesterday's "The Roubini Cascade: Are we heading for a Greater Depression?".
*March 30, 2022: Convexity Maven: "Square Pegs":
For what it is worth we are betting that recession is the end result of all the Fed and Treasury and Congressional machinations of the last 2 1/4 years. The timing can be manipulated to suit the designs of the Fed's political masters but the alternative, let inflation run its course and burn itself out will result in riots like the U.S. has never seen. For reasons we will attempt to tease out over the coming months the Fed and the puppet masters behind the politicians wanted inflation to run this hot. So it has....
