BOO!

Given all the bank runs and fur and intervention from wet-lipped policy makers who appear to be playing a high stakes game of whack-a-mole as the tide goes out on the ZIRP era, it’s astonishing to see many equity markets, YTD, are up. And some, like the NASDAQ, up big. The CAC too, despite the all the rioting. Or perhaps, because of all the rioting, given the effect on the local joie de vie of a spirited spat with the moisturised chins of the so called ‘elites’. Prend ca! Hmm. That said, ignoring the fixation with inflation prints and noisy, near-term data, there continues to be a whiff of impending recession. Coupled, perhaps, with an incipient loss of confidence in the whole financial system given the ongoing stampede of deposits out of mean-fisted banks, and into juicy 5% yielding money market funds. Banking is, as ever, nothing but a confidence trick, and once the cat’s out, per Credit Suisse, it’s GAME OVER. Cracks in the system can be papered over, the can kicked down the road, but emergency measures don’t solve the problem: a wild, decade long misallocation of capital. Given the exposure of many regional banks to commercial real estate and other nasties, the next act in the whole sorry drama could have those watching a proper BOO! So too those investors who liked the return prospects in a low rate environment, but didn’t grill the risk officer too hard about what might entail if they wanted their money back in short order. Delinquencies on commercial property loans – as reported by the FED – remain near record lows but are starting to squeak higher. And almost $1.5 trillion of sticky CRE debt is supposedly set to mature by the end of next year, according to the beards at the Mortgage Bankers Association. For those over their skis in such business, it has the makings of a long, sweaty Summer. Gold, meanwhile, is quietly consolidating above $2000. Out of sight, out of mind.