I speak with a lot of people. I do. I like asking questions and engaging in thoughtful conversation. You’d hardly find me talking about the weather or things that don’t matter. When I meet with anyone, be it in a social setting or for business, I immediately think of a topic about which this person can enlighten me and take the conversation to that end of the spectrum.
My next-door neighbor, for example, brokers large steel transactions. He mediates between producers, shippers and end-users.
When I saw him a few days ago, he said he was going to escort his 2nd-grader to an electronics lesson, so I offered to accompany him and asked him about the various aspects of the steel business.
He told me it looks bad. He used the number… you know what I’m talking about… He said it looks worse than in 2008!
I said, “2008?”
He replied: “Yes, 2008 and today feel very similar and I would argue that it’s going to get even worse.”
In today’s world, the comparisons with 2008 are lost on me, to be honest:
The big banks are reporting record earnings and have more cash than they know what to do with. In 2008, the banks were over-leveraged, dealt with risky housing loans and exotic products.
In 2008, inflation wasn’t an issue and the central banks didn’t sound grim or concerned. Today, inflation is a major issue and the central banks took unprecedented action to stop it. In other words, they acted hawkish, more than anyone could envision just two years ago.
When Jamie Dimon said rates will go up to 2.25%, the media thought he was mad, but in less than two weeks, rates are going to be 5.00%!
I pushed back on his statements and said that, indeed, the mood and consensus in the financial markets is very similar. In other words, I claimed people do feel that a big recession is coming, but that the catalysts aren’t alike whatsoever.
Could it be because inflation is much more a social issue than housing is (65% of Americans own a home, but all Americans shop in the grocery store and fill gas), or is it because it’s clear that the global system, led by the United States and China, has truly fallen apart and is now openly challenged by the Russians?
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We did agree on one thing, and it’s something I didn’t think I’d ever get to see: America’s credit rating and ability to project worthiness has never been this elevated:
Courtesy: Zerohedge.com, Bloomberg
That’s why I’m really amazed at the current financial situation around the world, and because my primary objective, as I write this, is not to disqualify any theory or outlook, but to consistently remain open-minded as to what can happen next, I want to end today’s publication with my assessment of the global economy:
- Inflation is moderating, but to put the seal of problem solved on it, is ridiculous.
Cash, I tell you, is everywhere.
Cash, if the public feels renewed confidence, will flow and again inflation will raise its head.
- Recession is projected and forecasted by most, but I am still not 100% persuaded that it will happen in 2023, but in 2024.
My conclusion is that we are living through a multi-generational reset, an event that occurs once every 80-100 years and will take years to conclude.
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