US banking system and economy might be on the verge of breaking right before our eyes.

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Bloomberg: The US Economy is Now Breaking in Plain Sight

You wouldn’t know it by the headlines. But the US economy is breaking in plain sight. Only the savings cushion of the richest 20% are keeping it afloat. And if interest rates keep rising nearly every day, even that won’t be enough.

The beginning of the quarter has gotten off to a torrid start with long-term Treasury yields rising above 4.75% in the first day and a half of trading through Tuesday morning. It’s a continuation of the end-of-quarter trend, when almost every day we hit new multi-year highs across the longer maturity end of the Treasury curve.

Credit Risk Will Replace Interest-Rate Risk as 2024’s ‘Big Fear’ Says El-Erian

Economist Mohamed El-Erian foresees credit risk becoming the market’s primary concern in 2024, overtaking interest-rate risk. With the Federal Reserve’s intense rate hiking cycle ending, the focus shifts to economic growth and debt challenges. El-Erian warns of a more difficult global economy ahead, impacted by dwindling savings and high interest rates. He predicts continued volatility in the market, influenced by debt issuance and a softening economy. This shift poses significant threats to market stability and the U.S.’s financial standing, with corporate and government debt issuance playing a crucial role in shaping future yields.

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Retail Investors Pull Most Cash From US Stocks in Two Years

Retail traders sold off nearly $16 billion in stocks last month, indicating a significant decline in market enthusiasm. This broad sell-off, nearly double that of September, spanned most sectors, reflecting growing caution among investors as the S&P 500 struggles amid high interest rates and increasing geopolitical risks. While institutions also reduced their equity holdings, hedge funds took a different approach, buying into the weakening U.S. stock market.

Fed Chair Powell Says We’re ‘Not Confident’ Have Done Enough to Bring Inflation Down

Federal Reserve Chairman Jerome Powell, speaking at the IMF, expressed uncertainty about whether current monetary policies are enough to continue slowing inflation. Despite some progress, Powell emphasized that inflation remains high and the journey to the 2% target is far from over.

U.S. Money Supply Is Contracting, Something Not Seen Since the Great Depression

M2 money supply is enduring its first meaningful drop in 90 years. A rarity with only five such occurrences in history, is sounding alarms for a potential economic downturn. With a 3.17% year-over-year drop and a more significant fall since July 2022, this contraction in available capital hints at reduced consumer spending and possible deflationary pressures. Historically, similar declines have preceded severe depressions and high unemployment. While modern monetary policy may mitigate some risks, the current shrinkage in money supply poses a stark threat to the economy and stock market stability.

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Black Swan Manager Says Start Worrying When Fed Cuts Rates

Mark Spitznagel, the Universa Investments founder and chief investment officer whose firm is advised by Black Swan author Nassim Nicholas Taleb, said the stock market is likely to surge — then turn drastically when the Federal Reserve starts cutting interest rates.

“That’s when things are going to get really awful,” Spitznagel said in an interview this week in New York.

Spitznagel is extending his concerns about the market’s reliance on Fed support through more than a decade of low interest rates and its bond-buying program, which it’s now in the process of trying to reverse. Earlier this year, he told investors we’re living in “the greatest tinderbox-timebomb in financial history,” even worse than the late 1920s run-up to the Great Depression.

“This is my own crazy theory: I think our rates are going to go back to zero as well. I mean, a lot of people would think I’m nuts,” said Spitznagel, 52. “But remember when a credit bubble pops, remember what a deflationary event that is. It’s like taking a giant pile of cash and lighting it on fire.”


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