SSO - Weekly Commentary: 2024 Year In Review

2025-01-04 07:10:33 ET

Summary

• Bubbles are self-reinforcing, but inevitably unsustainable inflations.
• The most systemically dangerous Bubbles are fueled by extraordinary monetary inflations - the expansion of perceived safe and liquid money-like debt instruments that enjoy insatiable demand.
• Cutting rates again on November 7th, the Fed disregarded highly speculative markets, which turned only more manic post-election.

"Bubbles are self-reinforcing, but inevitably unsustainable inflations."

"Asset and speculative Bubbles are invariably fueled by underlying Credit expansion."

"The most systemically dangerous Bubbles are fueled by extraordinary monetary inflations - the expansion of perceived safe and liquid money-like debt instruments that enjoy insatiable demand."

"Credit inflation/expansion manifests in various forms of inflation, including higher consumer and producer prices, asset inflation and speculative Bubbles, over- and mal-investment, and over-consumption with resulting trade and Current Account Deficits. "

"Things turn 'crazy' at the end of cycles."

"Rapidly expanding growth of debt of deteriorating quality coupled with speculative Bubbles ensures systemic risk rises exponentially during late cycle 'terminal phase excess'."

The "periphery and core" and speculative dynamics analytical framework is invaluable in Bubble analysis.

2024 was in so many ways an incredible year. I've been at this macro analysis thing for going on four decades. There have been remarkable years: Wildly unstable and speculative markets culminating in 1987's "Black Monday" stock market crash. 1998, with booming markets narrowly dodging calamity with the Russia and LTCM collapses, was also extraordinary. And, of course, unnerving 2008 was nothing short of phenomenal. But from a Bubble analysis perspective, 2024 is unrivaled.

Bubbles don't do equilibrium. They burst, or their inflation accelerates. Especially late in the cycle, extending "terminal phase excess" ensures a highly destabilizing intensification of inflation dynamics (increasing the likelihood of a crash scenario)....

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