Through the Windshield Glass

[] Markets are showing cracks and economies are struggling. Weak liquidity could force the Federal Reserve to pivot at a time that its credibility is on the line. [View in browser]( [View in browser]( [] [Godesburg's Haven Investment Letter]( [] [Godesburg's Haven Investment Letter]( [] Through the Windshield Glass [Garrett Pic] Market momentum is Red. Today, we had another swing in negative momentum as markets popped in early hours and rolled over in the afternoon. Every sector remains negative, including energy which continued a breakdown in the afternoon session. Dear Investor, I had long described most policy decisions by the Federal Reserve as “Alice in Wonderland” level experiments. You know… “Through the Looking Glass?” Well, Allianz Chief Economic Advisor Mohamed El-Erain has a new term. In discussing the Federal Reserve’s impact, El-Erain said that the U.S. economy “is starting to go through the windshield, the financial system is starting to go through the windshield.” It’s hard to disagree there. Today, the Bank of England announced even more support to its bond markets as a liquidity crisis rages, while the Federal Reserves is now quietly sending billions to the Bank of Switzerland to avoid a massive dollar shortfall. Good times… El-Erian is another voice who deserves attention. The long-time PIMCO executive has actively criticized the Federal Reserve since its botched “Transitory Inflation” call in mid-2021. Remember, while the Fed said inflation would be transitory, it was still buying Treasury bonds and mortgage-backed securities and kept interest rates well below historical levels. Keep this in mind. There is a direct causal relationship between the Fed’s balance sheet size and the S&P 500’s performance. Add liquidity to the system, and capital LOVEs to find its way into risk assets like equities. In addition, there is a causal relationship between the Fed’s holdings of mortgage-backed securities and housing prices. The Fed artificially helped keep mortgage rates lower last year by expanding its mortgage-backed security holdings to $2.7 trillion. In addition, a Zero-bound Fed funds rate created an environment for cheap credit - as always. Today, the Fed blames the “work from home” movement for the rise in U.S. housing numbers. But, no… cheap credit and low rates created the conditions for that run on housing from 2020 to 2021. Mortgage-bonds - bought by the Fed - helped keep spreads low and mortgage rates well under 4%. It proves that not even the people on the Federal Reserve seem to understand the source of inflation. What’s worse - they don’t understand (or maybe they just play dumb) that their actions drive asset prices up and down. Competency Issue Yesterday, I explained five names you should follow in this market. • Jamie Dimon, CEO of JPMorgan • Scott Minerd, CIO of Guggenheim Investments • Zoltan Pozsar, Investment Strategist at Credit Suisse • Sam Zell, Chairman of Equity Group Investments • Michael Burry, founder of Scion Capital I talked about Jamie Dimon’s concerns about the state of the economy, the 20% downside to the S&P 500 that he sees, and other concerns. Dimon is also very worried that America is getting energy policy wrong… a statement that was only proved correct by the news that the United States and Saudi Arabia may break up after 80 years of cooperation. Someone will fill that void in leadership - and you can bet on Russia or China at the top of the list. Today, I want to highlight a statement from Scott Minerd at Guggenheim Partners. Last week, he wrote a blog post about the dangers ahead in October. We’ve seen cracks in the United Kingdom, Switzerland, and the European Union. The emerging markets are breaking down, and our bond markets continue to go haywire. Most people wonder when the liquidity problems of Europe spill over to our shores. I think that will be in November - as it will take some additional time to reveal additional cracks - especially with many banks and other funds still trying to get certain assets off their books and not properly marking them down. But Minerd wrote something in this screed that hit me. Yes, rates are moving higher at the fastest pace in modern history - and yes - every time that the Fed engages in a fast tightening cycle - something around the world breaks. Minerd writes: “Now in the middle of a sea change in financial markets, most of the professional talent that manages this complex global network—asset managers, market makers, financial advisors, bond issuers, macroprudential regulators, central bankers—have little to no experience with the market volatility associated with a sea change in global policy, whether it be monetary, fiscal, or geopolitical. The good news is that as challenging as 2022 has been, investors with dry powder have the opportunity to take advantage of dislocations that have offered yields at levels we haven’t seen in decades." And therein lies the problem. I’m 41 years old, and I’ve traded through four major financial crises (2001, 2008, 2020, and 2022) and three smaller - but pronounced ones (2011, 2015, 2018). But this is only the third time I’ve dealt with interest rates over 3%. Most people trading and investing have never known interest rates over 5%. Anyone who has started in the markets since 2010 has virtually no reason to teach themselves of the fundamentals of a balance sheet. They haven’t needed to. Instead, they’ve rooted for zombie stocks, non-interest-bearing assets, unprofitable companies, and cheap capital. The Fed’s cheap capital just made everything go up. Well, it’s all resetting now. This is a bizarre time - because this crisis was avoidable… with the right management. Perhaps it could have been delayed at the least. Or maybe the Fed might have taken action back in 2021 sooner. Isn’t it fitting that Ben Bernanke just received the Nobel Prize for Economics - when most of the policies of 2009 led us to the problems that we have today? Then again, it’s clear that today’s Fed doesn’t even understand its policies. I feel like I’m tumbling down the rabbit hole… fortunately with momentum to protect me and cash as my preferred antidote to such a reckless time. Enjoy your day, [Garrett signature] Garrett {NAME} Chief Analyst, American Markets [] Through the Windshield Glass [Garrett Pic] Market momentum is Red. Today, we had another swing in negative momentum as markets popped in early hours and rolled over in the afternoon. Every sector remains negative, including energy which continued a breakdown in the afternoon session. Dear Investor, I had long described most policy decisions by the Federal Reserve as “Alice in Wonderland” level experiments. You know… “Through the Looking Glass?” Well, Allianz Chief Economic Advisor Mohamed El-Erain has a new term. In discussing the Federal Reserve’s impact, El-Erain said that the U.S. economy “is starting to go through the windshield, the financial system is starting to go through the windshield.” It’s hard to disagree there. Today, the Bank of England announced even more support to its bond markets as a liquidity crisis rages, while the Federal Reserves is now quietly sending billions to the Bank of Switzerland to avoid a massive dollar shortfall. Good times… El-Erian is another voice who deserves attention. The long-time PIMCO executive has actively criticized the Federal Reserve since its botched “Transitory Inflation” call in mid-2021. Remember, while the Fed said inflation would be transitory, it was still buying Treasury bonds and mortgage-backed securities and kept interest rates well below historical levels. Keep this in mind. There is a direct causal relationship between the Fed’s balance sheet size and the S&P 500’s performance. Add liquidity to the system, and capital LOVEs to find its way into risk assets like equities. In addition, there is a causal relationship between the Fed’s holdings of mortgage-backed securities and housing prices. The Fed artificially helped keep mortgage rates lower last year by expanding its mortgage-backed security holdings to $2.7 trillion. In addition, a Zero-bound Fed funds rate created an environment for cheap credit - as always. Today, the Fed blames the “work from home” movement for the rise in U.S. housing numbers. But, no… cheap credit and low rates created the conditions for that run on housing from 2020 to 2021. Mortgage-bonds - bought by the Fed - helped keep spreads low and mortgage rates well under 4%. It proves that not even the people on the Federal Reserve seem to understand the source of inflation. What’s worse - they don’t understand (or maybe they just play dumb) that their actions drive asset prices up and down. Competency Issue Yesterday, I explained five names you should follow in this market. - Jamie Dimon, CEO of JPMorgan - Scott Minerd, CIO of Guggenheim Investments - Zoltan Pozsar, Investment Strategist at Credit Suisse - Sam Zell, Chairman of Equity Group Investments - Michael Burry, founder of Scion Capital I talked about Jamie Dimon’s concerns about the state of the economy, the 20% downside to the S&P 500 that he sees, and other concerns. Dimon is also very worried that America is getting energy policy wrong… a statement that was only proved correct by the news that the United States and Saudi Arabia may break up after 80 years of cooperation. Someone will fill that void in leadership - and you can bet on Russia or China at the top of the list. Today, I want to highlight a statement from Scott Minerd at Guggenheim Partners. Last week, he wrote a blog post about the dangers ahead in October. We’ve seen cracks in the United Kingdom, Switzerland, and the European Union. The emerging markets are breaking down, and our bond markets continue to go haywire. Most people wonder when the liquidity problems of Europe spill over to our shores. I think that will be in November - as it will take some additional time to reveal additional cracks - especially with many banks and other funds still trying to get certain assets off their books and not properly marking them down. But Minerd wrote something in this screed that hit me. Yes, rates are moving higher at the fastest pace in modern history - and yes - every time that the Fed engages in a fast tightening cycle - something around the world breaks. Minerd writes: “Now in the middle of a sea change in financial markets, most of the professional talent that manages this complex global network—asset managers, market makers, financial advisors, bond issuers, macroprudential regulators, central bankers—have little to no experience with the market volatility associated with a sea change in global policy, whether it be monetary, fiscal, or geopolitical. The good news is that as challenging as 2022 has been, investors with dry powder have the opportunity to take advantage of dislocations that have offered yields at levels we haven’t seen in decades." And therein lies the problem. I’m 41 years old, and I’ve traded through four major financial crises (2001, 2008, 2020, and 2022) and three smaller - but pronounced ones (2011, 2015, 2018). But this is only the third time I’ve dealt with interest rates over 3%. Most people trading and investing have never known interest rates over 5%. Anyone who has started in the markets since 2010 has virtually no reason to teach themselves of the fundamentals of a balance sheet. They haven’t needed to. Instead, they’ve rooted for zombie stocks, non-interest-bearing assets, unprofitable companies, and cheap capital. The Fed’s cheap capital just made everything go up. Well, it’s all resetting now. This is a bizarre time - because this crisis was avoidable… with the right management. Perhaps it could have been delayed at the least. Or maybe the Fed might have taken action back in 2021 sooner. Isn’t it fitting that Ben Bernanke just received the Nobel Prize for Economics - when most of the policies of 2009 led us to the problems that we have today? Then again, it’s clear that today’s Fed doesn’t even understand its policies. I feel like I’m tumbling down the rabbit hole… fortunately with momentum to protect me and cash as my preferred antidote to such a reckless time. Enjoy your day, [Garrett signature] Garrett {NAME} Chief Analyst, American Markets [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. [] Sent to: {EMAIL} [UNSUBSCRIBE]( [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. [] Sent to: {EMAIL} [UNSUBSCRIBE](