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This Market Is a “Wheelbarrow of Dynamite” Waiting to Blow

If you roll a wheelbarrow of dynamite into a crowd of fire jugglers, there’s not much chance things will end well. The cause of the inevitable wreckage is not the dynamite, but the trigger is the guy who drops his torch.Likewise, once extreme valuations are established as a result of yield-seeking speculation that is enabled (1997-2000), encouraged (2004-2007), or actively promoted (2010-2014) by the Federal Reserve, an eventual collapse is inevitable.

Now Comes Quantitative Tightening(QT)——A Red Dagger Pointed At Global ‘Risk-On’

The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.

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This Market Is a “Wheelbarrow of Dynamite” Waiting to Blow

If you roll a wheelbarrow of dynamite into a crowd of fire jugglers, there’s not much chance things will end well. The cause of the inevitable wreckage is not the dynamite, but the trigger is the guy who drops his torch.Likewise, once extreme valuations are established as a result of yield-seeking speculation that is enabled (1997-2000), encouraged (2004-2007), or actively promoted (2010-2014) by the Federal Reserve, an eventual collapse is inevitable.

Now Comes Quantitative Tightening(QT)——A Red Dagger Pointed At Global ‘Risk-On’

The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.

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