Englund

 With inflation on the rise and the era of ultra-low interest rates over, financial markets will face a huge stress test in 2023.  While banking systems are more robust than they were in 2008, a real-estate slump could severely affect heavily leveraged private-equity firms, producing a systemic crisis. Banks that provided much of the funding for private equity real-estate purchases could be on the hook. That has not happened yet, partly because lightly regulated firms are under less pressure to mark their books to market.  But suppose interest rates remain stubbornly high even during a recession (a distinct possibility as we exit the ultra-low-rate era). In that case, widespread payment delinquencies could make it hard to maintain appearances. Italy is another example of latent risk. In many ways, ultra-low interest rates have been the glue holding the eurozone together.  Open-ended guarantees for Italian debt, in line with former European Central Bank President Mari...

 Sure, it matters—especially to this year’s earnings—whether or not there is a recession.  Sure, whether the Fed starts cutting rates in late summer or waits until next year matters. And sure, whether inflation turns out to be sticky or not matters.  But we don’t have to worry about missing out on a bubble or about a bubble bursting, a pandemic or the danger of a depression.  Things are getting back to normal, and that is good. James Mackintosh WSJ 8 January 2023 https://www.wsj.com/articles/last-year-investing-seemed-easy-not-anymore-11673128421 There is a lot of unfounded optimism Buttonwood The Economist 5 January 2023 https://englundmacro.blogspot.com/2023/01/toppstrateg-spar-unikt-borsras-i-usa.html This is my biggest fear entering 2023.  Not that the Fed will make another mistake or inflation will get too high, but that the higher rates the Fed is (properly, if belatedly) using to fight inflation will set off a sandpile avalanche somewhere else. So many pe...