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Henrik Zeberg @HenrikZeberg
, 9 tweets, 4 min read Read on Twitter
#HZupdates Let me put some narratives on my charts for a change. When Fed hikes and performs QT, it is pulling LIQUIDITY out of the system. That means tighter financial conditions. We see that by rates moving up
That would be fine IF it was not for the fact, that the economy and the "recovery" is solely based on the inflow of #liquidity. If the recovery was self-sustaining - then this rate increase would be right. Problem is - prices have been distorted beyond recognition in all markets
#HZupdates ....and valuations of #equities and all risk assets have no connect to the earth. This has been the true nature of the recovery. Driven be the "balance"-side - NOT by the "income"-side. So - now you start hiking....
#HZupdates ....what happens then to your valuation (=recovery). Well - it deflates - and the economy starts to shrink. First - you will see the countries with less US-funding abilities having the biggest problems - later rest will follow. So - US should be standing alone...?
Well - yes - initially. But not even the US can stand alone. And as RoW scrambles for USD, trade and growth stalls (not to mention effect of trade war). This is a contraction of the credit cycle and is DEFLATIONARY for the world
#HZupdates This will eventually bring US growth down (topping as we speak) and into a recession. This +the scramble for USD by RoW will encourage selling of risk assets and PM. Current wealth (or perception of such) is moving into debt payments and disappearing as assets drop
Hence - the water (liquidity) is running out - and gold + equities drop. Safe Heaven Bonds and Cash are only place to be! #HZupdates
Negative feedback for as long as it is allowed to continue and eventually something breaks. EU-banks, Italy, Turkey, China or something big -and problem becomes too big for even Fed to ignore. So - Fed changes it's course - and start supplying USD to the world again #HZupdates
When the Fed changes course, the environment shifts from DEFLATIONARY to INFLATIONARY. The inflation starts to run a little hotter, than Fed really likes, but is tied down due to slowing economy = STAGFLATION. This is where USD tops and Gold takes off #HZupdates
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