John E. Charalambakis
- Could we see another 15%+ market downturn? Absolutely.
- Could the bond market illiquidity issues get worse? Yes, they could.
- Could the Ukrainian war expand and undermine European (and not only) security? The chances are rising every day.
- What is happening, then, in the markets nowadays? A form of existentialism is in formation.
Here are the facts that make us answer the questions posed above with a positive:
Equity Market Trajectory: Market sentiment is deteriorating. Business and consumer confidence are declining. Expectations about the Fed pivoting and the hope that the Fed will start reversing its hawkish position are vanishing (although we reiterate our position that the Fed is the main culprit of the situation given their claims about transitory inflation(!), their lack of judgment to start raising rates in September 2021, and most importantly, the fact that not only their QEs went to the extreme, but also and they lost control of the money supply). Furthermore, we expect a significant slowdown in earnings growth as investment spending is being curtailed.
Bond Market Trajectory: The bond market shows clear signs of an acute case of illiquidity, as shown below.
This increases financial stress (see graph below), will result in wider credit spreads, and will contribute to pushing equities even farther down. Needless to say, under this scenario, the possibility of financial instability becomes a strong probability, especially when some EU debts are already unsustainable. The US Treasuries serve as the global benchmark for debt markets. Buying and selling Treasuries (in large quantities) is getting more difficult.
Market depth reached the lowest point in the last 30 months. Similar problems in the UK and the significant problems facing UK pension funds, have forced the Bank of England to keep intervening in the markets by reversing its tightening strategy. Escalating risks of a global recession, in combination with rising geopolitical tensions and the possibility of sovereign defaults, make the cocktail even more dangerous.
Geopolitical Tensions: The developments on the Ukrainian front the last two weeks, but especially of the last few days, point to an escalation by Putin that could not be left unanswered by the West, in terms of supplying the defenders of Ukraine with additional assistance. The madness of Putin elevates the chances of a wider war which in turn will shake up the markets.
The discussion above reminds us of the main themes of existentialism, and we conclude that the market suffers from an acute form of dysfunction marked by: (a) Existence precedes essence; (b) Anguish and anxiety that elevates a generalized market uneasiness; (c) Absurdity, as participants face the inexplicable; (d) Buying low is a form of nothingness or void as nothing can structure and justify developments; and finally (e) alienation, as a feeling of estrangement, seems to permeate the markets.
And because we cannot live by bread alone:
“I stick my finger into existence — it smells of nothing. Where am I? What is this thing called the world? Who is it who has lured me into the thing, and now leaves me here? …Why was I not consulted?… How did I obtain an interest in it? And if I am to be compelled to take part in it, where is the director?”
Soren Kierkegaard, Repetition
Canceling the Noise; Not by Bread Alone: Part XV
Author : John E. Charalambakis
Date : October 11, 2022
John E. Charalambakis
Here are the facts that make us answer the questions posed above with a positive:
Equity Market Trajectory: Market sentiment is deteriorating. Business and consumer confidence are declining. Expectations about the Fed pivoting and the hope that the Fed will start reversing its hawkish position are vanishing (although we reiterate our position that the Fed is the main culprit of the situation given their claims about transitory inflation(!), their lack of judgment to start raising rates in September 2021, and most importantly, the fact that not only their QEs went to the extreme, but also and they lost control of the money supply). Furthermore, we expect a significant slowdown in earnings growth as investment spending is being curtailed.
Bond Market Trajectory: The bond market shows clear signs of an acute case of illiquidity, as shown below.
This increases financial stress (see graph below), will result in wider credit spreads, and will contribute to pushing equities even farther down. Needless to say, under this scenario, the possibility of financial instability becomes a strong probability, especially when some EU debts are already unsustainable. The US Treasuries serve as the global benchmark for debt markets. Buying and selling Treasuries (in large quantities) is getting more difficult.
Market depth reached the lowest point in the last 30 months. Similar problems in the UK and the significant problems facing UK pension funds, have forced the Bank of England to keep intervening in the markets by reversing its tightening strategy. Escalating risks of a global recession, in combination with rising geopolitical tensions and the possibility of sovereign defaults, make the cocktail even more dangerous.
Geopolitical Tensions: The developments on the Ukrainian front the last two weeks, but especially of the last few days, point to an escalation by Putin that could not be left unanswered by the West, in terms of supplying the defenders of Ukraine with additional assistance. The madness of Putin elevates the chances of a wider war which in turn will shake up the markets.
The discussion above reminds us of the main themes of existentialism, and we conclude that the market suffers from an acute form of dysfunction marked by: (a) Existence precedes essence; (b) Anguish and anxiety that elevates a generalized market uneasiness; (c) Absurdity, as participants face the inexplicable; (d) Buying low is a form of nothingness or void as nothing can structure and justify developments; and finally (e) alienation, as a feeling of estrangement, seems to permeate the markets.
And because we cannot live by bread alone:
“I stick my finger into existence — it smells of nothing. Where am I? What is this thing called the world? Who is it who has lured me into the thing, and now leaves me here? …Why was I not consulted?… How did I obtain an interest in it? And if I am to be compelled to take part in it, where is the director?”
Soren Kierkegaard, Repetition