Storm clouds are gathering

The winds of change are whipping around me at this moment... as well as for the global market.

The perfect metaphor has been placed in my lap.

My “Spidey sense” has been tingling for a few days now, warning that storm clouds are approaching in the markets.

And now, as I sit hunkered down in my home with my family as a hurricane bears down on New Orleans, the storm clouds are quite literally gathering around me.

What a gift for a writer!

We’ll see over the next few hours how this hurricane will turn out. And — with stocks nose-diving as I write and gold holding up as a safe harbor in the storm — perhaps the next few days will reveal the track of the economy and financial markets for months to come.

So, for two reasons, I’m writing to you now with some urgency....

A tectonic shift for the markets

The transformation from monetary tightening to monetary easing by the world’s central banks is not surprising.

As you know, I’ve been explaining why massive debt loads accumulated over more than four decades of ever-easier money have made normal interest rate levels — indeed, any rates above the rate of inflation — impossible to endure.

To get an idea of what this complete turn-around means, consider that U.S. markets soared during what was arguably the harshest campaign of monetary tightening in Fed history.

So why did the Dow plunge as much as 1.5% today, with the Fed’s long-awaited pivot coming next week?

Because a benign CPI number today that was right in line with expectations essentially snuffed out any chance of the Fed cutting by a half point next week.

The markets know that far deeper cuts are needed — and soon — to keep the economy afloat.

• Perhaps as much as 20% of U.S. companies are virtual zombies, only able to meet their debt-service payments because of near-zero rates. As these debts are reset over the coming months, these companies are going to face bankruptcy.
• It’s already starting: Bankruptcy filings in August spiked, leading to the second highest total for the first eight months since the aftermath of the Great Financial Crisis in 2008. The only higher total was after the Covid shutdown in 2020!
• We’re already paying over $1 trillion a year just to service the federal debt! That’s more than we’re spending on national defense or any other budget category. Worse yet, we’re borrowing the money to pay the interest, accelerating the debt spiral.
• Even if the Fed slashed interest rates at a far higher pace than anyone is now expecting, this huge interest expense is projected to grow by 20% over the next year.

The markets know all this. The Fed knows this as well as anyone. And everyone knows that the danger is growing.

That’s why the stock and bond markets are teetering even as the Fed is about to pivot: Much more is needed, and soon.