Issues contributed:
Global market liquidity is likely to have begun retreat rapidly, again, in the back of a mixed policies of central banks.
Factors that have carried the U.S. economy are about to break at the same time.
Convergence of components of the “perfect storm” are occurring in the background with a likely inflection point in April.
I made a bold call on 23 November, 2022, telling people to expect the “collapse of everything” to begin within the next four months. Apparently, this has not happened, and the likelihood of a such an event commencing within the next three weeks is relatively small (not nowhere near zero though). My call on the timing was based on few crucial assumptions that turned differently:
A normal winter in Europe.
Continued monetary tightening and asset run-offs (QT) of central banks.
Abating U.S. consumption.
(Optional:) Russian winter offensive.
However, like always with longer-term economic forecasts, you face a barrage of uncertainties and unknowns, which sometimes turn against your forecast. That’s what makes forecasting so difficult, and interesting.
What I did not know late November was that Europe was about to experience one of mildest winters on record, that central banks will push global market liquidity to a record-breaking growth and that the U.S. consumer had a noticeable amount of ‘excess savings’ to keep consuming for few more months.
Simply put, the lack of information in forecasting usually spells failure, at least on the timing of whatever one is forecasting, and this is what we are talking about now. My assumptions failed on the timing (possibly only with a small margin, though), but they did not change the underlying fundamentals essentially guaranteeing that the collapse is on its way.
As pointed out by many economists and hedge fund managers I’ve spoken with during the past few weeks “Things just do not add up”. In this entry, I will summarize the reasons why that is, why collapse of everything has just been postponed and why this postponement has, again, just made the eventual collapse more intimidating.
This entry will start a series of analyses digging deep in to the world economy and the global markets. We will devote March and April to this, and on preparation. I also think that time has come for my fourth installment on the Russo-Ukrainian war, because the narrative and the playbook of the war is about to change, once again. Let’s see if I have the time to write it.
Darkening global liquidity picture
After the bailout of financial markets, and the financial system, in November and December, the global liquidity picture darkened again in January.
Keep reading with a 7-day free trial
Subscribe to Tuomas Malinen’s Forecasting Newsletter to keep reading this post and get 7 days of free access to the full post archives.