• Clifford Bennett, Chief Economist | World’s most accurate currency forecaster at ACY


• 30.03.2022 12:45 pm
#stocks , Clifford Bennett has over 36 years of market trading experience and was named the 'World's most accurate currency forecaster' by Bloomberg New York. He has advised some of the world's largest organisations, billionaire investors, and political leaders and spoken at the prestigious APEC summit on reserve currency issues. Clifford is the Chief Economist at ACY Securities

Fantastic news and developments out of the peace talks between Russia and Ukraine.

This is certainly going better than many of us hoped. It is too early to be sure however and a tactical shift in military focus away from Kiev may not bring an end to the war. That said, there is some valid hope now.

This was a nice add on catalyst to the already significant upward momentum in equity markets, but it was not actually the driver.

Share buy-backs and a resurgent ‘buy the dip’ no matter what sentiment have been the sole drivers of this rally. Which began long before any positive peace talk developments. One wonders just what this market is capable of?

Could it be that the huge washes of free money generated by Governments and central banks over the past two years remain the dominant force. There is no receding in this wash of money, and this is what continues to give equity markets a free pass on any economic reality down there in the streets below?

We have a lockdown China economy which will be crawling in relative GDP terms, Europe will still go into recession even if peace occurred, and consumers in the US are experiencing 7.9%, likely to go to 10%, even 12% inflation this year. The Fed is coming for them too.

Supply of energy and especially food will remain highly disrupted. There is no end in sight for the global economic implications and damage currently being waged by war and sanctions alike.

We are looking at extreme divergence between the equity market and any reasonable take on the economy. Whether that be the major economies of Europe, China or the USA, or the global economy as a whole.

The conflict in Ukraine will likely eventually end in the permanent partition of Ukraine, with Ukraine confirming itself a neutral state. That most likely end-game remains perhaps months away however, and the food scarcity and subsequent inflationary pressures are likely to persist for at least twelve months.

We will be left with a Federal Reserve making not one, but two huge historic level errors.

Firstly, as we said in June last year, the entirely false belief and lack of understanding of the economics of our time, when they persisted with the view that inflation would be “ ransitory".

Secondly, right now the Federal Reserve is making an equally damaging error in feeling it will have to raise rates aggressively to control this new immediate wave of war inflation. This approach will certainly drive the US economy into recession later this year.

We were arguably the first in the world, mid last year, to be arguing the Federal Reserve should have been already raising interest rates as inflation was set to take off permanently. We warned then, that acting late would see the Federal Reserve raising rates far more aggressively than it would have otherwise have had to. Our clear warning is coming completely into play.

What gives us pause for thought now, is that war inflation is entirely beyond the powers of higher interest rates to tame. It is a potent and dangerous mix to have a central bank ever raising interest rates to fight inflation, when those rate hikes will have no impact on the  inflation, but only eat away at economic activity. Consumers will be hit by the twin blows of hyper-inflation and aggressive interest rate levels. Recession follows.

The world could be facing recessions in both Europe and the USA simultaneously in the second half of this year.

Stocks will remain elevated by the distortions of buy-backs and cult like just keep buying sentiment.

The further the elastic band is stretched between stock prices and economic reality, the bigger the eventual crash.

We are tipping in the coming months from the risk of a moderate further stock market correction toward a more damaging collapse type risk.

For now, investors seem intent on ignoring the reality all around them and to just keep buying. Particularly senior corporate executives who just can’t seem to get enough of their own stock.

Clifford Bennett
ACY Securities Chief Economist.

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

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