As Bad as it Gets…

Let’s get straight into this one. Here’s the reality: shit is rapidly falling apart, as expected…?

If you recall, last month I laid out how quickly forward-looking indicators were deteriorating and provided one potential scenario where I could be wrong. That is, a situation in which a recession would not materialise. A redux of 2016. Given the most recent GDP print of -0.9% for Q2, that scenario is now completely off the table.

And, while we’ve just now entered a ‘technical recession’, the magnitude of the damage to financial markets is already HUGE.

Let’s have a look at some charts to see just how bad things really are.?

This is the worst H1 for US Bonds since 1788!?

… and the worst start to equities in real terms since 1872…?

If that were not bad enough, when you combine the losses in equities and bonds in the US, it is the worst drawdown as a percentage of GDP in all history… 60% of US GDP!!! Yes, you read that right...

Looking at just the last few weeks, we’ve experienced one of the most volatile five-week periods since 1929…?

Let me put this into context before we look at more charts. In global terms, I estimate that the war on inflation has cost:?

• 21% of global GDP in equity losses.
• 10% of global GDP in bond losses.
• Maybe another 5% of GDP in other losses.?

That is a mind-boggling 36% of global GDP and is likely to get worse…?

By the time the dust has settled, we will have destroyed some 40% to 50% of GDP in asset valuations.?

All of this, just to fight 9% inflation that, as I’ve explained before, was driven by supply issues not demand issues. Wow.?

This had led to the worst sentiment I have EVER seen in financial markets.

Positioning in Equity Futures is the lowest in history…?

AAII Sentiment of Bears just hit its highest level ever…?

Bullish Sentiment touched its lowest level ever…?

Sentiment towards stocks and bonds combined are at the lowest level ever…?

Pessimism is near all-time highs…?

… and Emerging Market Bond Sentiment is as bad as it gets…?

Dollar Liquidity is at its lowest level ever…?

While bond market liquidity is the second lowest level ever…?

Everything has been taken out and shot. These are the lowest returns ever…?

Global Consumer Confidence is around the lowest ever…?

… and this is showing up in a buyers strike from consumers… the worst conditions ever…?

... and Small Cap Valuations are around their lowest level ever…?

You get the idea… we have never seen anything quite like this.

As ever, be careful out there!

If you are interested in learning more about Global Macro Investor, my original, thought-provoking and completely independent research publication,?click here.