The Economic Truth

Larry McDonald, author of the Bear Traps Report, recently had some hard-hitting words about what is happening with the Federal Reserve and the impact those actions will have on our world.

We are living in a period of mass “Jonestown” economic delusion. Just twenty months ago – central bankers were offering to buy nearly every junk bond known to mankind, dramatically distorting the “true cost of capital.” All the way from crypto to emerging markets – it was a moral hazard overdose. Everyone on earth was borrowing money at fantasy-land bond yields.

Now, the Fed is promising endless rate hikes and $1T of balance sheet reduction onto a planet with emerging market and Euro-zone credit markets in flames.

Listen, all I have is an economics degree from the University of Massachusetts, but after having spent the last 20 years trading bonds professionally and embarking on a 20k feet deep autopsy on the largest bank failure of all time – from my seat the current Fed agenda is sheer madness and will be outed very soon.

Many economists in 2022 are highly delusional – a very dangerous group indeed. When you hike rates aggressively with a strong dollar you multiply interest rate risk, which was already off the charts coming from such a low 2020 base in terms of yield – it's a convexity nightmare. Interest rate hikes today - hand in hand with a strong U.S. Dollar - carry 100x the destructive power than the Carter – Reagan era. - ZeroHedge

Nouriel Roubini says predictions for a mild recession are 'delusional'

The famed economist, who called the 2008 financial crash, told Bloomberg that the economy is headed for a severe recession, as well as a severe debt and financial crisis.

Roubini said debt ratios are historically high at 420% for advanced economies and climbing, while bailouts during the pandemic have resulted in "zombie corporations" that put the economy at risk.

“I think there are many reasons why we are going to have a severe recession and a severe debt and financial crisis,” Roubini told Bloomberg in a recent interview.

In contrast, the stagflation seen during the 1970s was accompanied by low debt ratios, and the debt crisis during the 2008 financial crash saw falling inflation.

"This idea that it's going to be short and shallow, it's totally delusional," Roubini said. - Market Insider

And This from Michael Burry

“The current crop of upbeat company earnings might be the final ray of sunshine for investors before demand dries up and the US economy slumps into a recession”, Michael Burry warned this week.

"These earnings reports and by Jove the whole season have a 'Last Hurrah' feel," he said in a since-deleted tweet on Tuesday.

The fund manager of "The Big Short" fame was likely referring to Microsoft and Alphabet, after the Big Tech duo's solid financial results sent their respective stock prices up as much as 4% in premarket trading on Wednesday. In contrast, investors have punished the likes of Netflix, Snapchat, and Walmart in recent weeks after their earnings disappointed.

Burry predicted earlier this year that inflation would squeeze shoppers and erode consumer spending, while overstocked retailers would be forced to slash prices to get rid of excess inventory, eating into corporate profits and choking economic growth in the coming months.

Walmart essentially confirmed the investor's thesis this week. The mega-retailer complained that high food and fuel prices are sapping demand for general merchandise in its stores, it has marked down unsold goods, and it expects a sharp decline in profits this year as a result. - Business Insider

These are just a few observations that clearly illustrate the challenges we face after years of historically cheap money.

The Federal Reserve is now reaping what it has sown for years, and you and I will pay a hefty price for their actions.