Is There a New Dotcom Bubble?

[Ed209]

They have to continue raising rates because actual, real, inflation is at 20% per year, and rates in the Eurozone are at only 3.5%, which is plain ridiculous, it's too low.

I'm fully aware that real inflation is higher than the carefully curated CPI and RPI.

However, if they continue to aggressively hike the rates, then banks will start failing all over the world. This means they have a dilemma, and I suspect they will either pause next week or raise it by 25 basis points, but they will likely include dovish language.

As the year continues, they will come under immense pressure to cut because of the inverted yield curve and the unsustainable pressure that the current rate is putting on the entire financial system. It's at breaking point. Also, when there's a banking crisis, there is a risk of deflation.

 

[Juan]

However, if they continue to aggressively hike the rates, then banks will start failing all over the world. This means they have a dilemma, and I suspect they will either pause next week or raise it by 25 basis points, but they will likely include dovish language.

Many banks will fall. And systemic banks will be bailed out.

By the summer central banks will start draining cash more significantly, reducing their public debt holdings. This is the right path, but not the right pace. Central banks are raising interest rates too slowly and reducing balance too slowly.

Europe and the US will ultimately find less taxpayers to rip off, as people have decided to simply stop working, since taxes are such a steal, and public services are worse every day, and future pensions are worse every day too. People are paying tons of tax and receiving nothing in return.

Do you know who does not pay tax? Peter Thiel and the like. How come this chap was bailed out at the Silicon Valley Bank rescue, where he was parking circa 50 million USD? Why the IRS does not prosecute these Tech Billionaires?

 

[Juan]

It was fast this time:

SVB Financial files for Chapter 11 bankruptcy

Oddly, this guy avoided losing the money... this should be investigated in depth:

Peter Thiel had $50mn in Silicon Valley Bank when it went under

 

[Ed209]

Many banks will fall. And systemic banks will be bailed out.

By the summer central banks will start draining cash more significantly, reducing their public debt holdings. This is the right path, but not the right pace. Central banks are raising interest rates too slowly and reducing balance too slowly.

Europe and the US will ultimately find less taxpayers to rip off, as people have decided to simply stop working, since taxes are such a steal, and public services are worse every day, and future pensions are worse every day too. People are paying tons of tax and receiving nothing in return.

Do you know who does not pay tax? Peter Thiel and the like. How come this chap was bailed out at the Silicon Valley Bank rescue, where he was parking circa 50 million USD? Why the IRS does not prosecute these Tech Billionaires?

You're not looking at the larger macro picture. If the financial system collapses then there will be much bigger problems to deal with than a slightly elevated rate of inflation. The banking crisis could lead to deflation, which is much worse, as that can cause a downward spiral in economic activity. In this scenario consumer spending goes down as people anticipate ever lowering prices, and this leads to lower profits, job losses, and an economic downturn. The real value of debt then increases raising the likelihood of countries having to default. Businesses would go bankrupt left and right, and many people would be left destitute. Deflation coupled with high debt-to-GDP ratios is a recipe for disaster.

Momus was right when he said we have to get back to being productive. It's what I keep saying over and over again. It is now imperative that we grow our economies as it is the only way out of this mess.

You can't go into a recession with ballooning debts and a high interest rate. If this goes wrong then all hell will break loose. If everything starts to collapse then people will wish they could go back to having a bit of inflation again instead.

If the US was forced to default then the dollar would lose its reserve status and their living standards would plummet.

It's a very complex situation where one can no longer just say "raise the rates." The government's fiscal policies coupled with the terrible monetary policies of the central banks has caused all of this, and it's now so precarious that a single mistake could be disastrous for everyone.

 

[Ed209]

It was fast this time:

SVB Financial files for Chapter 11 bankruptcy

Oddly, this guy avoided losing the money... this should be investigated in depth:

Peter Thiel had $50mn in Silicon Valley Bank when it went under

What do you expect, they are corrupt and they protect each other.

 

[Juan]

You're not looking at the larger macro picture. If the financial system collapses then there will be much bigger problems to deal with than a slightly elevated rate of inflation. The banking crisis could lead to deflation, which is much worse, as that can cause a downward spiral in economic activity. In this scenario consumer spending goes down as people anticipate ever lowering prices, and this leads to lower profits, job losses, and an economic downturn. The real value of debt then increases raising the likelihood of countries having to default. Businesses would go bankrupt left and right, and many people would be left destitute. Deflation coupled with high debt-to-GDP ratios is a recipe for disaster.

Momus was right when he said we have to get back to being productive. It's what I keep saying over and over again. It is now imperative that we grow our economies as it is the only way out of this mess.

You can't go into a recession with ballooning debts and a high interest rate. If this goes wrong then all hell will break loose. If everything starts to collapse then people will wish they could go back to having a bit of inflation again instead.

If the US was forced to default then the dollar would lose its reserve status and their living standards would plummet.

It's a very complex situation where one can no longer just say "raise the rates." The government's fiscal policies coupled with the terrible monetary policies of the central banks has caused all of this, and it's now so precarious that a single mistake could be disastrous for everyone.

There is not going to be deflation. Prices will keep increasing, as the rich have been handed out free money to spend and the rest are trying to make meets end.

People are too stupid to realise the master plan is making all them poor as rats. The only ones who see it coming are the French, who are striking against Macron's pension reform.

The French would have been better off with Le Pen. Now they are enjoying what they voted for. Macron had the pension reform on his agenda all the time, it was all public, and still those idiots voted for him.

 

[Ed209]

There is not going to be deflation. Prices will keep increasing, as the rich have been handed out free money to spend and the rest are trying to make meets end.

People are too stupid to realise the master plan is making all them poor as rats. The only ones who see it coming are the French, who are striking against Macron's pension reform.

The French would have been better off with Le Pen. Now they are enjoying what they voted for. Macron had the pension reform on his agenda all the time, it was all public, and still those idiots voted for him.

A banking crisis can lead to deflation. That is not debatable. It's a fact. There are larger risks at play that the central banks need to be very cautious of, so blindly raising the interest rates without pausing to see what breaks, is silly.

I suspect they will start cutting in the not-to-distant future.

There is no crystal ball, however. One can only look at what the current data is saying, and shit is getting very real at circa 4.75%. That's all we know.

I just hope they don't botch anything else and then force us, the taxpayers, to start bailing stuff out.

 

[Juan]

A banking crisis can lead to deflation. That is not debatable. It's a fact. There are larger risks at play that the central banks need to be very cautious of, so blindly raising the interest rates without pausing to see what breaks, is silly.

There are no "facts" when we are talking about the future. In Spain tourism is as strong as ever and people are spending as usual or more. And everything is way more expensive, I would say prices have climbed 20% on average.

This is an article about those Silicon Valley, Big Tech crybabies:

The Big Read. How Silicon Valley learnt to love the government

On top of not paying taxes, those modern "libertarians" criticise the government but they rush crying to get help when they cannot face market swings. So the Big Tech crybabies were crying on Twitter for a bail out. The likes of Jason Calacanis and Peter Thiel. Spoiled children.

This has to stop. Government must tax Big Tech and treat these people like everyone else. They are not "special": they're just the worst pack of crooks the world has known so far.

 

[Ed209]

By the summer central banks will start draining cash more significantly, reducing their public debt holdings. This is the right path, but not the right pace. Central banks are raising interest rates too slowly and reducing balance too slowly.

I forgot to directly reply to this quote yesterday.

The Fed just literally lent a ton of money to the banks which added $300b to their balance sheet. In a week, they reversed a year's worth of QT. So much for reducing their balance sheet.

To be clear, this money is to cover the depositors because the banks are not liquid enough. There's another word for this usually, lol; it's called being insolvent. The reserves these banks are holding are mainly in bonds, and as I said in my other post, these bonds are losing value by the day, and are essentially trash when the yield curve is deeply inverted.

If the Fed raise the rates again, well, then the yield will get worse. There is a major liquidity problem, and this is very deflationary.

Janet Yellen made a fool of herself the other day. What she said implied that there will be a two-tier banking system as only the biggest banks will be secured. This means that people holding money in regional banks could lose most of their wealth. This will also instigate further bank runs as people will feel forced to switch. It is ridiculous. It also creates a stronger cartel, as all the money will end up pooled amongst the elite.

The money the Fed just lent out is equal to half of the 2008 bailout. The whole situation is just nuts.

Crypto is the solution to this shit show; it's why it was created. The banks are no longer fit for the 21st century, and we have to move with the times.

 

[Ed209]

There are no "facts" when we are talking about the future.

But we're not talking about the future. We're talking about current data and what it can mean.

 

[Juan]

To be clear, this money is to cover the depositors because the banks are not liquid enough. There's another word for this usually, lol; it's called being insolvent. The reserves these banks are holding are mainly in bonds, and as I said in my other post, these bonds are losing value by the day, and are essentially trash when the yield curve is deeply inverted.

You're right on that. Banks are insolvent and central banks will have to deliver pain to the economy to lower prices. Why some banks and depositors are going to be rescued and others will not be rescued?

That's just politics. There not an answer to that because it is just random.

First Republic Bank stock continues to fall, and the Swiss are also discussing how to break their own laws to somehow bail out Credit Suisse. Very "democratic" haha.

The plain truth is, as I said, that the only way to contain inflation is by increasing unemployment and letting "investors" lose a ton of money in the stock market.

What I find deeply unfair, and illegal, is the FED covering all the deposits of rich, spoiled, tech people and tech speculators, at Silicon Valley Bank. The US government should have respected the law and let them lose the money.

 

[Ed209]

Swiss government confirms Credit Suisse takeover by UBS and says, "the bankruptcy of a global systematically important bank would have caused irreparable economic turmoil."

This is exactly right, Lyn Alden:

I said a long time ago if they go above 3% things will start collapsing because it's not sustainable, and that's exactly what's happening.

 

[Ed209]

The levels of debt are just too high.

 

[Juan]

FRC -20% premarket.

And the Swiss government skipping their own laws in a rush, depriving UBS shareholders of their legal right to consider CS takeover for 6 weeks and then vote.

Switzerland, the land where your money is safe, bondholders are happy, and the Saudi and Qatari money can invest with confidence (ironic mode on).

 

[Juan]

Today Mario Draghi must be hiding somewhere. His "whatever it takes", in the long run, has ruined Europe and the Europeans, and will leave behind a trail of bankrupt banks, plus rampant inflation for all the EU citizens. Great legacy Mario, great legacy!

 

[Ed209]

FRC -20% premarket.

And the Swiss government skipping their own laws in a rush, depriving UBS shareholders of their legal right to consider CS takeover for 6 weeks and then vote.

Switzerland, the land where your money is safe, bondholders are happy, and the Saudi and Qatari money can invest with confidence (ironic mode on).

I warned you this would happen, Juan. You can't fight inflation with aggressive rate rises whilst debt-to-GDP ratios are in crazy town.

Today Mario Draghi must be hiding somewhere. His "whatever it takes", in the long run, has ruined Europe and the Europeans, and will leave behind a trail of bankrupt banks, plus rampant inflation for all the EU citizens. Great legacy Mario, great legacy!

The banks' insolvency/liquidity issues were always going to come to light under these circumstances. It's basic economics. However, you are wrong about one thing. You don't get bankrupt banks plus inflation; you get deflation like what happened in the 1930's. This leads to a depression.

It will now be interesting to see what the Fed do on Wednesday. I suspect they may raise by 25 basis points in an attempt to put on a brave face, but it's likely this will be backed up by some very dovish language. At some point in the next few months, it's highly likely they will start cutting because the risk of a systemic collapse is only going to intensify with the current rate. They need to drop around 3 percentage points, quick-sharp.

Good crypto assets are the lifeboat as this Titanic slowly sinks.

 

[Juan]

You don't get bankrupt banks plus inflation; you get deflation like what happened in the 1930's. This leads to a depression.

I'm with you on that, but taking into account that SNB has injected 100 bn into the market and the FED in practice reversed QT to rescue American banks, I doubt we are going to see that depression soon.

If you look at technology, the successive rounds of lay-offs may be the symptom of a big underlying problem they are not disclosing:

Amazon cuts 9,000 more workers in efficiency drive

 

[Ed209]

I'm with you on that, but taking into account that SNB has injected 100 bn into the market and the FED in practice reversed QT to rescue American banks, I doubt we are going to see that depression soon.

If you look at technology, the successive rounds of lay-offs may be the symptom of a big underlying problem they are not disclosing:

Amazon cuts 9,000 more workers in efficiency drive

The way this liquidity crisis develops is entirely dependent on the central banks and the actions they take. We are just passengers to the system, unfortunately. We have no say even though it influences and affects our lives quite profoundly.

Profitable family businesses - that help grow the economy - could be driven into the ground based on the decisions of a select few people. We all have to rely on the central banks to make sound decisions, but they rarely do, and that is why I think it's time for a financial revolution. Every other industry in the last hundred or so years has seen huge amounts of progress and change, except for banking.

There are much better ways of transacting money (and keeping a network secure) without the need for a central bank, and the technology for doing this is only going to get better. It's also cheaper and greener. Humans are fallible and constantly fuck things up, so let's just remove them from the equation. The only people who don't want this are bankers or people associated with traditional finance. I wonder why?

 

[SmallRonnie]

At some point in the next few months, it's highly likely they will start cutting because the risk of a systemic collapse is only going to intensify with the current rate. They need to drop around 3 percentage points, quick-sharp.

Are you basing this assumption off of any facts? The banks that blew up had a very specific issue, not all banks are in the same scenario. Hyperinflation is worse than a couple of banks going under.

 

[Ed209]

Are you basing this assumption off of any facts? The banks that blew up had a very specific issue, not all banks are in the same scenario. Hyperinflation is worse than a couple of banks going under.

I'm not making any assumptions. All the banks are in the same boat, but the non-G-SIB banks are especially at risk. Read my previous posts for more details if you are unfamiliar with the current global situation. It is much more than just a couple of banks; I'm not sure where you are getting your information from. There is a liquidity crisis across the entire banking sector that could threaten a systemic collapse.

We are not in hyperinflation territory, and the larger risk to society right now is a complete systemic collapse and/or deflation. Nobody wants inflation, but it's the lesser of two evils compared to the alternative.

The only reason we aren't seeing an epic crash is because the central banks are propping up some of the world's largest banks via their BTFP (bank term funding program). They just created $300b to lend out, and they will be lending more. This wiped out half a years worth of QT in just a few days. It's not a good situation!

The reason that this is happening is because the interest rate is too high for our highly indebted economies. The yield curve on bonds is too inverted meaning that the reserves the banks are holding (that are supposed to cover their customers' deposits) are trash. In simple terms, all the banks are insolvent. It just depends how much money you want to create to prop them up.

There could be a bank run on any bank at any time, and none of them can technically survive it. It's only because the FDIC insures deposits at the largest banks (backed by money created by the Fed) that customers feel safe. But this does not extend to all the other banks.

The banking system is like a house of cards. If they weren't protected and were made to fail for their mistakes (like businesses in every other sector), then it would have happened many times over. There is too much power and corruption involved.

 

[Ed209]

Not much better than an outright Ponzi.

Who is going to back-stop the insurers if the dominoes start falling? The Fed can just print money out of thin air to prop this mess up, but it's at the expense of devaluing everyone's money and savings. These banks should live and die by their own risk profiles, and it should never spill over and become the publics burden to carry. It's a disgrace. How many bailouts do they need?

 

[SmallRonnie]

I disagree that this is QE. They're still raising interest rates. What they're doing now is just ensuring the system doesn't collapse but they are still going to continue raising rates to crush inflation.

The banks that blew up had a different type of client to most other banks. The Fed was doing this exact same thing years ago too and it didn't cause inflation to rise at all.

The Fed meeting tomorrow is going to be very interesting.

 

[Juan]

The way this liquidity crisis develops is entirely dependent on the central banks and the actions they take. We are just passengers to the system, unfortunately. We have no say even though it influences and affects our lives quite profoundly.

Well, we DO have a say if we just take the money out of the bank, like I'm doing haha.

The Fed meeting tomorrow is going to be very interesting.

Agree. I can't wait to hear Powell's usual blah blah...

It's going to be fun hearing him explain how injecting $165bn USD into the monetary system is a "deflationary" measure haha... Are we back to the days of "transitory" inflation Jay?

He also has to do a loooooot of explaining about de-regulating the financial industry in 2018, altering the Dodd Frank and letting "medium" sized banks do what they wanted without any control or real accountability.

Should we assume the managers and executives of SVB and, for that matter, CS are going to spend time in jail (sorry, had to make THAT joke!)?

 

[Juan]

The FED should look at these data too.

Incredible but true:

US existing home sales increase for first time in a year

In this scenario, 50 basis point raise for tomorrow?

 

[SmallRonnie]

Well, we DO have a say if we just take the money out of the bank, like I'm doing haha.

Agree. I can't wait to hear Powell's usual blah blah...

It's going to be fun hearing him explain how injecting $165bn USD into the monetary system is a "deflationary" measure haha... Are we back to the days of "transitory" inflation Jay?

He also has to do a loooooot of explaining about de-regulating the financial industry in 2018, altering the Dodd Frank and letting "medium" sized banks do what they wanted without any control or real accountability.

Should we assume the managers and executives of SVB and, for that matter, CS are going to spend time in jail (sorry, had to make THAT joke!)?

A lot of people expect him to not raise rates because of the banking system worries. 25bps is 85% likely based on the CME poll. I think he will just say that the banking system is strong because of their recent actions and that they will continue to raise rates because that is the biggest current issue.

They keep referencing the 70s where they cut rates too early and then inflation went even higher again and it caused an even bigger recession in the end. It's better to just get the recession over with now until inflation is properly down. That's what they've been saying the past few months, not my own opinion. I doubt they change their minds now just because a few banks blew up.

Also, if they do act dovish tomorrow, then stocks will pump massively which is also bad for inflation since rich people use their stocks as collateral to borrow money which increases inflation. They also don't want the general public believing that inflation is just going to continue to rampage because if the public believes it, then it kind of just becomes reality since they believe it. I'm not making this up, JPow literally said it himself.

CME FedWatch Tool

Prediction poll for Federal funds rate.

 

[Ed209]

The banks that blew up had a very specific issue, not all banks are in the same scenario

What specific issue? There are about 200 or so banks in the US that would collapse if only half of their depositors withdrew their money. That's all it would take. SVB didn't do anything out of the ordinary as far as banking goes. They just couldn't cover everyone's withdrawals as they actually had a bank run. It could happen to most banks, though. They are insolvent because they mainly hold collateral in government bonds. Sorry for being repetitive, but I don't think people understand what is happening.

Well, we DO have a say if we just take the money out of the bank, like I'm doing haha.

Good I took most of mine out 3 years ago.

The markets have pretty much priced in a 25 basis point rise, but he will likely speak in a dovish tone. He has to allay the fears of a systemic collapse.

I disagree that this is QE. They're still raising interest rates. What they're doing now is just ensuring the system doesn't collapse but they are still going to continue raising rates to crush inflation.

Nobody wants inflation, least of all me, but continuing to raise the rates into this mess is a recipe for disaster. The higher they go, the lower the banks' collateral goes meaning the threshold for a run causing a collapse becomes lower.

The central banks are entirely to blame for all these problems in the first place. They have far too much power and are incredibly stupid with it (to our detriment).

I read a good article earlier today. Here's an excerpt:

In reality, central bank decision-makers led by the Fed were largely responsible for the Great Inflation of the 1970s. They adopted "easy money" policies in order to finance massive national budget deficits. Yet this inflationary behaviour went unnoticed by most observers amid discussions of conflict, rising energy prices, unemployment and many other challenges.

Most worryingly, despite these failings, the world's central banks were able to continue unchecked on a path towards the unprecedented powers they now hold. Indeed, the painful 1970s and subsequent financial crises have been repeatedly used as arguments for even greater independence, and less oversight, of the world's central banking activities.​

The expert who pioneered 'quantitative easing' has seen enough: Central banks are too powerful and they're to blame for inflation

I agree with the statements above. The central banks have become way too powerful over the years and have too much control, and what's even scarier is they want even more power. The white papers for their CBDC plans contain some language that people need to pay attention to as they include power grabs that go beyond their current remit.

 

[SmallRonnie]

What specific issue? There are about 200 or so banks in the US that would collapse if only half of their depositors withdrew their money. That's all it would take. SVB didn't do anything out of the ordinary as far as banking goes. They just couldn't cover everyone's withdrawals as they actually had a bank run. It could happen to most banks, though. They are insolvent because they mainly hold collateral in government bonds. Sorry for being repetitive, but I don't think people understand what is happening.

SVB is in fact different to the vast majority of banks in the US as most of its clients were tech bro VCs and Crypto companies. This is not the case for 99% of the other banks in the country. They also obviously have a different balance sheet to every other bank and not every other bank had such retarded risk management with their bond portfolios.

It's funny that you mention the 70s as a reason for the Fed to stop raising rates when they themselves cite it as the reason not to cut too early.

 

[Lane]

I think he will just say that the banking system is strong because of their recent actions and that they will continue to raise rates because that is the biggest current issue.

The current "bank crisis" is probably equivalent to about 1 or 2 rate hikes in its ability to slow down lending, thus slow down the economy, and thus slow down inflation. In essence, the bank liquidity problems are doing the Fed's inflation fighting job for them--without a rate hike. My bets are the Fed will increase by .25%, add a few dovish words, and the stock market should get a good little bounce. Probably not a good time to be short FRC (First Republic Bank).

 

[SmallRonnie]

The current "bank crisis" is probably equivalent to about 1 or 2 rate hikes in its ability to slow down lending, thus slow down the economy, and thus slow down inflation. In essence, the bank liquidity problems are doing the Fed's inflation fighting job for them--without a rate hike. My bets are the Fed will increase by .25%, add a few dovish words, and the stock market should get a good little bounce. Probably not a good time to be short FRC (First Republic Bank).

These guys here tend to be most accurate with the rate predictions:

CME FedWatch Tool

The Fed does not want the stock market to be at a high valuation since that leads to higher inflation by people being able to borrow money by using their stocks as collateral.

Asides from this, JPow recently said he wants the general public to believe that inflation is going down. This is very similar to CBT which everyone here hates but actually works. If everyone believes that inflation is going to go out of control, then that belief actually makes inflation rise. It sounds crazy but there is a huge amount of research to back it up.

This meeting tomorrow reminds me of when JPow spoke at Jackson Hole on the 13th of September. The stock market was pumping like crazy and in his speech he mentioned the word pain about 20 times and the stock market nuked.

The way they added to the balance sheet is not exactly QE, even though it kinda is. Raising rates and keeping them there for a long time will erode any inflationary effect it had.

 

[Ed209]

It's funny that you mention the 70s as a reason for the Fed to stop raising rates when they themselves cite it as the reason not to cut too early.

When did I say that? A banking crisis by itself is already deflationary.

SVB is in fact different to the vast majority of banks in the US as most of its clients were tech bro VCs and Crypto companies. This is not the case for 99% of the other banks in the country

It doesn't matter who their clients are. That's a ridiculous argument. If someone deposits their money in a bank then they are entitled to it back, and the fact of the matter is that most banks cannot achieve this right now. SVB had a bank run to prove it; that's the difference.

Imagine a hypothetical situation where half of the customers of those other 200 banks decide they want their money out as well. What happens? A percentage of that money will be insured, but what about the 40% or so that isn't, and who will back stop the FDIC if it creates a ripple that cripples other institutions?

The answer is that the Fed will create even more money out of thin air, and the cycle will continue.

If anyone doesn't believe that the central banks aren't responsible for this mess then they are crazy.

In essence, the bank liquidity problems are doing the Fed's inflation fighting job for them

This is correct.