Market optimism is likely a false dawn, and the big cross asset short squeeze could certainly prove one dazzling flash in the pan. But financial conditions this loose should not be ignored.
Despite Fed tightening measures and surging market yields, extraordinary Credit growth was ongoing in the U.S. A historic lending boom (bank and non-bank), along with notable GSE expansions and deficit spending, fueled system Credit growth.
Powell is pulling his punches.
Importantly, exceptionally strong lending growth ran unabated – bank and non-bank. Despite the Fed’s tightening cycle and a year of weak securities market performance, the Great Credit Bubble inflation was ongoing.
Powell was determined to hold a balanced line Wednesday. And, to be sure, balanced Powell conflicts with press conference forthright hawkish Powell. Dr. Jekyll and Mr. Hyde. And markets fancy balanced Powell. He’s a cautious team player. That hawkish Powell can be a little scary:
Especially after the recent market rally, talk of “resilient” has become commonplace and central to the bullish narrative. And this resilience – at home and abroad – is undoubtedly associated with the “buffer” created from Trillions of pandemic QE. The significant tightening of market financial conditions for the most part didn’t spark panic in corporate boardrooms.
Bitcoin was trading at about $5,200 when SBF announced plans for FTX, down significantly from the December 2017 spike to $19,000. There’s no way the crypto Bubble inflates into such a global phenomenon, if not for the Trillions of central bank “money printing.”
Powell’s head was elsewhere, perhaps drawing inspiration from the resolve Paul Volcker had demonstrated some 40 years earlier.
At least for now, markets seem convinced that the global central bank community has Blinked – just as they knew they would.
Years of unprecedented monetary inflation created false realities. The perception of endless cheap (free) “money” distorted how our market, economic, financial, political and social systems function.