Can a Systemic Crisis Even Be Avoided at This Point?

Finance U Public Finance U
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Originally published at: https://peakprosperity.com/can-a-systemic-crisis-even-be-avoided-at-this-point/

In this Finance U podcast, I had the pleasure of speaking with Michael Gayed, CFA, who has a significant following on X, with over 760,000 followers, and runs the insightful Lead Lag Report on Substack. We delved into the current economic landscape, focusing particularly on the credit cycle and the potential for a serious if not systemic credit event.

We discussed:

  • The disconnect between the bond market’s perception of default risk and the performance of small-cap stocks, which seem to be signaling distress. He’s been vocal about expecting a significant market dislocation due to this divergence, suggesting that while credit spreads remain tight, small caps are indicating a looming credit strain.
  • The Federal Reserve’s role and the current economic indicators. Despite the fastest rate hike cycle in history, financial conditions remain loose, which Michael argues could necessitate even higher rates to cool down speculative bubbles. Michael highlighted the unusual behavior of the bond market, where long-term yields are rising, suggesting the market might be anticipating higher rates.
  • The broader implications of deregulation, which could potentially benefit small-cap companies by reducing compliance costs and enhancing their margins. However, this could also introduce more volatility into the market, as less regulation might lead to more disruption and uncertainty.
  • Systemic risks, particularly focusing on how interconnected global markets are today, behaving almost like a single entity or a “Borg.” This interconnectedness means that any significant disruption in one part of the world could have immediate global repercussions, especially in the derivatives and OTC markets.
  • The potential impacts of geopolitical tensions, like those in the Middle East, on oil prices and inflation. Michael pointed out that while oil price spikes could initially seem inflationary, they might lead to deflationary pressures if they cause a rapid economic slowdown due to squeezed corporate margins.

In summary, the signs are all there for a huge, if not catastrophic, breakdown in the global financial (and therefore economic) order. We’re navigating through a truly complex economic environment where traditional signals might not be as reliable due to unprecedented monetary policies and global economic shifts. The potential for a credit event is approaching near-certainty, and while the Fed might be focused on maintaining system stability, the real economy could face significant challenges if these financial imbalances are not addressed. Keep an eye on these indicators, and as always, prepare for volatility and potential shifts in market dynamics.

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Burning up precious natural gas to run data-centres is so disgusting - “no fertilizer and heating for you!”

They should develop own small modular nukes for the purpose.
Would also be great for the canadian tar sands which is another colossal waste of gas.

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Resurrection of a long forgotten possibility of a “Minsky Moment” coming up? Why not? The “Bond Vigilante’s” have awakened from a long nap?

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Really appreciated his comment re: Trump / political leaders. Support what you agree with & express your dissatisfaction with what you don’t. I’ve been disappointed with the tone lately on PP re: Trump and Jordan Peterson. The biggest relief I felt when Trump won was that my kids wouldn’t be targeted as drone fodder for the front lines in Ukraine, so when I saw that we struck Iran, I was initially horrified. Then, I took a breath & remembered the 100 other reasons I voted for Trump. I also remembered how pleased I was with the team he’s built around him, and reminded myself to stay the course in having confidence that he’s making the best possible decisions given the circumstances and the information he has access to that I don’t.

While I may not agree with or fully understand certain decisions, I will continue to support our president & I hope that others do the same. Our enemies realized decades ago that America could only be destroyed from within. The piling on of the juvenile takedown of Cruz in the Tucker-Cruz interview & the pettiness displayed over a single Jordan Peterson debate in recent commentary is less than what I’ve come to expect from PP.

PP won me over as a community of nuance where we can dissect & seek to understand current events. I hope we get back to that rather than falling into the juvenile “clickbait” trap of “slamming” individuals based on single decisions we don’t agree with.

I mean seriously, if we didn’t have Trump, do you even want to consider the alternative?

Also, if you consider Peterson’s overall motives, the risks he’s taken, and his contributions, I think I can let one bad debate slide as well. If you’re familiar with Jordan’s stance on Christianity, you’d know that he personally struggles to call himself a Christian as he feels that he personally falls so short of following Jesus commands. He’s probably a stronger Christian than most, but his depth of study has shown him how much he doesn’t know & doesn’t measure up. Ex. “Christ healed the woman & said go & sin no more”. How many of us once baptized can truly sin no more. It’s impossible.

I liken it to having worked in AI/ Big Data, and Data Science for 15+ years, but hesitating to say that I’m an expert for the simple fact that despite knowing more about it than 99.99% of people, there is still so much that I don’t know. Only when one has deep knowledge and maturity do eyes become opened like this.

My simple point is that we should cut each other some slack and support those who are working as hard as they possibly can to move us forward to a better world. I realize that “doomsday sells”, but again, I thought we / PP are better than that.

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Spot on, Schmitt.

I don’t understand why some people here expected Trump to suddenly become an exemplar of a true libertarianism. He’s a deeply flawed person, we KNOW that, because we were able to observe 4 years of him before.

On balance, he’s still the better choice for America. Throwing him out just because he didn’t excel on every single issue is just dumb. It’s not how politics works. Never.

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Lots to agree with in your post.
I am disapointed enough without non stop bitching.
I have enjoyed the fact based research that provides a different , usually enlightened insight, however the negative tone and direction PP has taken verses:
State the facts and move on to
ACTION ACTION ACTION would be more my style. I suppose some of the good action is in the community chats.
Hope to see/read more constructive interactions that lead us , the tribe, to the best life we can live.
Many of us are blessed lets be a blessing to others.
Rick

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Yeah, becoming a strong Trump supporter wasn’t simple for me - even back in 2016. I’m part of Gen-X that believed that any American kid could grow up to be anything “even President” American Dream as a kid hook, line, & sinker with the innocent eyes of moral altruism.

I’ve always wanted to have Presidents with pure, American super hero lives of untarnished personal, moral, professional honor that we could hold up as examples to our kids to give them the same dream.

Trump is as human & deeply flawed as the rest of us. To meet the impossible standard it would require to recommend him as a role mode for my kids, he’d have never been divorced & would have never declared bankruptcy. He’d also be less viscous with the creative name calling & demeaning of individuals with whom he disagrees, go to church regularly and have demonstrated unwavering faith in God from day 1.

But then, he wouldn’t be who he is, the leader we need for this moment in history giving us the best chance for avoiding complete catastrophe.

I do believe that God is using him. When I think about that & look back at the other deeply flawed & unlikely individuals that God has used, it makes sense.

What he’s already accomplished is miraculous. I pray for him and that he’s given the discernment to continue turning our global Titanic away from the impending icebergs & if not, that God uses these moments of terror (like the one I felt when I first heard we bombed Iran), to lead us to Him and back to Him.

Be blessed my friend.

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Thanks Rick,
Sometimes it feels like communities like this want the market / economy / dollar / society to crash & the world to fall apart even more - not because we really want it, but because in some sad way, we all want to be vindicated by having the whole world recognize that our foresight & prepping was proven right. I have an ego too, so in a weird way, I get that.

There’s a huge part of my ego that would feel vindicated if my “vaxed” friends & family members came to me and admitted that they finally realized that I was right & they should have listened to me & they’re so sorry they acted like fools…, but I think that feeling of elation & prideful satisfaction would be incredibly short lived. I remember that I never wanted to be right & if / when my friends & family come / have come to that point, it’s because they’ve seen or experienced enough horror to change their minds.

In many ways, I use what I’ve learned / continue to learn on PP like I use my concealed carry license. I have a gun & know how to use it, but I pray that I will never have to.

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Of bitching as well, guilty as charged.

My motivations haven’t changed from the election. There are actions that have to happen to reverse so many things.

The campaign promises to reverse those things like 30 million plus illegal aliens; lawfare against political differences like wanting to give an 89 year old woman 12 years in federal prison (a literal life sentence) to a lady praying at an abortion clinic; teaching elementary school kids how to transition; not arresting parents for taking their kids to bars in Dallas, Plano, and Frisco Texas where fat men in sequined g-strings dangle their hairy ball sacks over five year olds’ faces; the cartels still controlling the borders by bribing BP agents; adding trillions to the debt; supporting the MIC no matter what; FBI corruption; revealing the Epsten files; ignoring the debt; supporting countries’ wars where there’s zero national interest for us; rewarding well known past FBI, DOJ, DOD, CIA criminals by doing nothing to them; jab/pharma crimes; etc; have to take place or when the next Marxist administration takes power every. single. one. of the things that have to be transparently addressed, punished if necessary will simply return in spades including reinstituting what DOGE exposed.

Exposure then bragging about exposure is NOT action, action, action. I don’t want that. The math isn’t working and we’re running out of time. 30 million illegals for example requires a minimum of 7 to 8 million deportations per year. So far? One million. It’s not even a good start.

So, bitching? Okay, you’re right. We don’t have much time left though and a few accomplishments are great and needed. With only 3 1/2 years left, two big holes in Iran and spending resources on destroying Thomas Massie doesn’t look like anyone’s serious about reversing things. I don’t think that’s nit pick bitching being concerned about and calling out the lack of urgency.

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I am strictly an actions sort of guy. If Trump does something I don’t agree with, that’s my stance. If he does something I agree with, he has my support.

I remain deeply disappointed that Trump, et al., have decided to let bygones be bygones and not arrest any of the miscreants such as Pelosi and Schiff or look any further into Butler.

I consider it a colossal mistake to leave rattlesnakes under the sofa.

I am, however, disappointed to discover this past week that the Catturds of the world are no better than the ultra-leftists. They demand ideological purity and unquestioning support of “their guy.”

And, hey, I get it. Trump is the very first president in generations where you might finally hope that he cares about the little guy too.

It’s pure oxygen for people who have been locked in a sealed cave.

But does he actually care?

Well, not if he continuously supports ““market”” interventions that are professionally front-run by the insider class strip mining the wealth of the nation for the benefit of the financier class at everybody else’s expense. Not if he allows us to be corralled into a "stable coin " world that are CBDCs by any other name.

ALL politicians have to be watched carefully and held to account. ALL of them.

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And always.

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If we avoid deifying individuals, it will be much easier for us to learn when someone brings useful ideas or does imitation worthy actions.

I try to leave a few people in my feed that I utterly disagree with on a good number of topics. I think it can be clarifying to periodically hear contrary world views.

Charlie Kirk is a great resource. I’ve seen him debate many times. Recently, many of his “demolished” titled videos are him talking over the other person, which in my opinion inhibits their ability to digest what he’s saying. When he holds back and lets them finish, it is much classier and more probable that they internalized what he said.

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I just love how infrequent posters/lurkers sit on the sidelines never saying much, only to finally weigh in to say how disappointed they are in the discourse. :roll_eyes:

Maybe just maybe more frequent participation would shift the tone. Just saying. It is like voting - if you don’t vote you do not get to bitch and complain later when things do not go as you want.

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I don’t disagree, but some people seem to confuse voting with pushing a button on a vending machine. It’s not how it works.

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Agree with this point. Voting is just one part of necessary civic engagement. The problem is, people think they can cast a vote every 4 years then just bugger off and not pay attention until the next election. There must be far, far greater civic engagement & participation, efforts to ensure there is transparency & accountability to have any hope in hell of getting out of this mess. I do not see that happening though. Because too many citizens are silent lurkers who expect something for nothing.

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This :100:!! Although Trump may be losing support from a percentage of MAGA, I see a lot of willful ignorance on display. Cultish like behavior. And as @larrythelogger points out, we are quickly running out of time.

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I never believed Trump would be truly transformational. That’s just not his style. He’s always been about the marketing. That’s not to say he can’t/won’t do some good things. But he’s hopefully a placeholder. Vance? Not sure, he realizes that he must live in the shadow of Trump. It won’t work any other way. But what would a President Vance be?

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I’d love to give that a try.

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He’s too connected to Peter Theil and Palantir for my taste

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What’s your perfect candidate ?