I'm convinced we're on the precipice of a highly volatile market phase.
In my view, the reckless fiscal and monetary policies enacted since COVID have set the stage for a market meltdown. Trillions upon trillions of spending and debt accumulation cannot continue unchecked.
Yet despite these gaping twin deficits, the US dollar retains its safe haven status...for now. I believe this anomaly is living on borrowed time. America's fiscal profligacy is eroding faith in the dollar's dominance.
Just look at the bond market. Relentless upward pressure on yields reveals gathering cracks in the financial system's foundation. Selloffs intensify amid bad news, the opposite of what textbook finance teaches. This confounding behavior resembles an emerging market in crisis. Could the once mighty US dollar face a similar crisis of confidence?
My biggest fear is an utter collapse in Treasury markets as spending spirals further out of control. With everything pegged to the 10-year yield, the damage would swiftly infect the entire financial ecosystem. Risk assets across the board would face carnage unlike anything we've seen.
And that's before factoring in the ticking time bomb in energy markets. A decade of underinvestment has left supplies critically low relative to demand. As emerging economies fire up infrastructure projects, the squeeze will intensify. Oil, gas, uranium - you name it and shortages abound. This scarce resource is an antidote for what ails overvalued financial assets.
Yet blithe ignorance of these risks still reigns in popular narratives. Take China for example. The media frets endlessly about economic troubles there. But scratch beneath the surface and you'll find Chinese industries eating America's lunch while running massive trade surpluses. The truth belies the slogan.
In fact, an entire bloc of emerging markets stands poised for explosive growth. Their prudent fiscal and monetary policies following COVID have readied them for liftoff. Meanwhile the West finds itself burdened by foolish policies. The pendulum is swinging toward fresh leadership on the global stage.
The Russia-Ukraine crisis only accelerated this transition, shattering assumptions about the rule of law and sanctity of property rights in the developed world. When push came to shove, political expediency won out over principles. This tarnishing of the West's reputation is driving capital flows toward emerging financial hubs better positioned to remain neutral.
Put it all together and I see excessive risk hidden beneath the placid surface of indexes hovering near all-time highs. Consider positioning conservatively for the volatility and disruptions ahead. Hard assets like energy, metals, and certain commodities offer a prudent hedge. Emerging market investments selectively provide growth potential. Otherwise, safety first. The time for caution is now.