The New CS Board

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Emerging Markets -

"If The Fed Marches On, They're Creating Another Lehman Situation", Larry McDonald Warns Powell Is "Pumping A False Narrative"
https://www.zerohedge.com/markets/if-fed-marches-theyre-creating-another-lehman-situation-larry-mcdonald-warns

Excerpts
After the next Fed hike, the 10-year/3-month Treasury yield curve is going to be inverted. The Fed will start to cut rates next year and the real yield on bonds is going to get extremely negative, and that’s when the miners will do very well.

I like names like Hecla Mining, one of the largest silver producers. At $3.80 the stock is a screaming buy. Your downside is $3.50, and the upside is massive. Fundamentally, there’s immense demand for silver for electric vehicles and solar panels over the next decade.

The Fed has been exporting inflation all around the world into countries that can least afford it.

What do you mean by that?

The strong dollar a global wrecking ball. There are $70 trillion of GDP outside of the United States, but only $23 trillion in the US. The Fed pretends to care about inequality and all the related issues. I’m sure they do in some respect, but they are exporting inflation to places like Chile, Columbia, Panama, Sri Lanka and the other countries where we see protests in the streets. Societies are being destroyed, families crushed because they’re trying to buy essential commodities like oil, gas, food, coffee, corn which are traded in US dollars. When the Fed is promising all these rate hikes, they make the dollar stronger and commodities more expensive. It’s a colossal tax on emerging market countries. If you’re in an emerging market country, you’re getting annihilated. Your standard of living is being destroyed because the Fed is trying to fight inflation in the United States. It’s heartbreaking.

How dangerous could this situation become?

With a raging greenback, you add lighter fluid on to the credit risk fire in emerging markets. Emerging- and frontier market countries currently owe the IMF over $100bn. The strong dollar is vaporizing this capital as we speak. Based on our conversations with clients, we believe that at least five finance ministers globally have called the Fed in the last two weeks. There is so much credit risk in emerging markets, it’s like 1998 levels. In many countries, the credit spreads are through Covid levels, with places like El Salvador, Ghana, Egypt, Tunisia and Pakistan appearing particularly vulnerable. If the Fed is trying to complete their agenda, they’re risking the greatest emerging market credit crisis in thirty years.

The situation is also tense in Europe. In the market for credit default swaps, prices for hedging against the default of European banks have skyrocketed in recent weeks, particularly in the case of Credit Suisse.

The problem is the much bigger loan book of European banks as a percentage of their market cap. Now, the strong dollar is creating tremendous amounts of stress in the European financial sector, and they’re dealing with the Russian crisis as well. This creates a massive tightening of financial conditions. Hence, the credit default swaps on European banks are near or through Covid levels, and a bank like Credit Suisse is just another victim here.