The Godfather of Global Liquidity: Another 20% Selloff Waits

I noticed a chart from Twitter, this shows that the current trend is similar to what happened in 2008, this is a scary reminder, right?

But do we really needs to believe or to prepare for it? 

For me i'd like to consider from a whole picture includes: Will there be More Black Swans? How is the economic lookout present? How is the capital liquidity situation inside the Market? what is Investors' expectations now……

From my understanding, pandemic , war, lockdown, the biggiest black swans had fly into the market. People are more care about the economic environment around each economy now. 

Speaking of United States, as the FED are expected to raise interest rate 150bps in 2022. Economists point out that the economic growth rate has slowed to 3.3% this year and 2.2 % next year, respectively, with a 25% chance of a U.S. recession in the next 12 months and a 40% chance of a recession in two years.

Regarding the Capitals Liquidity：

• In Feberary, According to data compiled by the Bank of America’s capital flow monitoring agency EPFR, since 2022, the total capital inflow into the stock market has reached a record high of US$153 billion, which is US$2 billion higher than the inflow of US$151 billion at the beginning of 2021.
• In March,we see U.S. buybacks at record highs ahead of earnings reports,
• While last week in April：BofA Strategists See U.S. Equity Outflows Just Getting Started, In the week through April 20, investors pulled $19.6 billion from U.S. large caps, the largest exit since February 2018, The outflow from broader U.S. equity funds was the biggest since December.

Michael Howell, dubbed the godfather of global liquidity, gives opinion said that the global liquidity as opposed to market liquidity, If you put more liquidity into a financial system, what’s happening is you are decreasing systemic risks, because it’s much easier for any particular entity to get funding, and if funding is easy, people will move along the risk curve into higher risk instruments.

And in response to surging inflation, some 95% of central banks around the world are tightening. The Federal Reserve, in the minutes from the last Federal Open Market Committee meeting, outlined a plan to reduce its balance sheet by some $2 trillion.

Howell says a normal tightening cycle would lead the S&P 500 down by around 15%, if a recession is thrown on top that’s a 30% drop, and if there’s a banking crisis on top of that, there’s a 50% slide.

Since there’s already about 10% of the decline from the peak this year, Howell says there’s another 20% drop to come.

Michael Howell

Regarding the Market’s Sentiment: 

Bearish sentiment in the stock market has surged to its highest level since the great financial crisis  in 2009,as investors grapple with rising interest rates.

The AAII weekly investor survey show the percentage of bearish respondents surged to 59%.

Do you think it will repeat the trend of 2008?

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