- Geopolitical unity is fracturing as countries are forced to compete more
- LIBOR is signaling a credit emergency in Europe
- The market is sending signs a major war and/or a major recession may be imminent
- The last remaining heroes for risk-on capital, the FANG stocks, are quickly becoming villains
The central banks of the world have failed: colossally, completely and dangerously. Yes, they will try to rescue the “markets” once again, as they did in 2011 and 2016 when things similarly looked to be falling apart.
The reason they might not be able to succeed this time?
They are out of maneuvering room.
Nothing will happen if interest rates are clubbed back down a percent or two. To do that, though, would require the same sort of lock-step coordination as prior times. The ECB, BoJ and Fed would all have to operate seamlessly again.
The most immediate of my concerns, even more than the tech-wreck that began a few weeks ago, is the rise in the LIBOR interest rate. Why? Because trouble always moves from the outside in.
Let’s do the math With $350 trillion worth of assets tied to LIBOR, that means each 1% rise in the LIBOR rate translates into $3.5 trillion dollars of increased interest costs.
LIBOR is now at its highest rate since 2009, and it's spiking for reasons nobody can fully explain. In my mind, higher LIBOR means that there’s less trust and/or liquidity in the system. It also means borrowing costs are heading up for…