Booth goes after the Fed and disputes the soft landing theory and discusses global financial debt.
Both Booth and Wang have a focus on the corporate bond markets.
Dilemma of the Fed’s Own Making
https://www.youtube.com/watch?v=mDR_I7p4bdI
“We have so many zombies in our midst at this point, one in five corporations, they have to roll their debt over. It’s not an option, it’s not an A or a B. They have to roll the debt. People talk about the demise of the dollar, blah blah blah, but there’s a trillion dollars of global nonfinancial debt that has to be refinanced in 2022. Companies right now are focused on getting their dollar-denominated debt refinanced this year” commented Booth.
The strength of the US dollar is blasting emerging markets that have much of the debt.
The pair discussed emerging markets in detail and that is one place where a credit event might strike.
The housing market and mortgages is another area of concern.
Mortgage Spreads Widest Since Great Financial Crisis
If the chart looks familiar it’s because I posted a similar one this morning that I created last night.
30-Year Mortgage Rate vs 10-Year Treasury Yield
Here’s a bonus chart courtesy of Zelman & Associates discussed in the video.
Sequential Change in Mortgage Related Employee Headcount
Towards the end of the interview, Wang commented “My base case is something breaks and the Fed will go back growing the balance sheet.“
Danielle smiled and nodded. My lead image is from that snapshot.
Disinflation Anyone?
She added “Look, I get it. We’ve got inflation, but if and when something breaks we could have a massive wave of disinflation. And I think we are actually seeing that now.”
How about deflation which is what happens in a credit bust.
They also discussed the ISM and inventories. I like it when I see things the same way as someone I highly respect, arrived independently.
For my take, please see Rate of Growth in the ISM Manufacturing PMI Dramatically Slows
For her take, do yourself a favor and watch the video.
At the end, Farley did his best to goad them into how high the Fed will hike asking “What’s your terminal rate?”
Without providing a specific answer Booth replied “I don’t think we see 3.4%. I don’t. I don’t know that we see 2.4%. Just look at his [Powell’s] track record. Look at what the market bears. I think it’s more than credit can bear.“
Buckle Up
My take, and we will have a better idea tomorrow, is the Fed will do a pair of 50 basis point hikes in May and June.
By then things may very well be broken, assuming they aren’t already. Buckle up. A recession is coming and lower stock prices with it.
History is on the side of those who believe the Fed will back down for one reason or another.
This post originated on MishTalk.Com.
Thanks for Tuning In!
Please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
