🚨 "Stimulating into a bubble" by Ray Dalio - here are the key takeaways 👇
The Federal Reserve announced it will end Quantitative Tightening (QT) and begin Quantitative Easing (QE) again — calling it a “technical adjustment.” But let’s be honest: That’s easing. And easing into this environment is something we’ve rarely seen in history. Let’s unpack what this means 👇 📉 Normally, QE happens during crisis. Low valuations, weak growth, wide credit spreads, and falling inflation. QE was meant to stimulate into a depression. 📈 This time is different. Stocks are near record highs AI and tech valuations are in bubble territory Unemployment is near record lows Inflation is still above target Credit and liquidity are abundant So if the Fed starts buying bonds and adding liquidity now — while deficits stay huge — it’s essentially monetizing government debt during a boom. That’s not “technical.” That’s a classic late-stage Big Debt Cycle move — where monetary and fiscal policy collide to keep the system afloat. 🧩 The mechanics: QE pushes real yields down Financial assets inflate (especially tech & gold) Wealth gaps widen Inflation reawakens — eventually forcing the Fed to tighten again ⚠️ And that’s when bubbles pop. So yes — the Fed may be stimulating into strength, not weakness. Into a bubble, not a bust. Into risk, not safety. This is the kind of pivot that separates traders from historians.
US Manufacturing Recession:
The ISM Manufacturing Index fell to 48.7 in October, marking the 8th STRAIGHT month of contraction. The US manufacturing sector has been in recession for 34 of the last 36 months. Backlogs of orders have been contracting for 3 years STRAIGHT. Source: Global Markets Investor @GlobalMktObserv
Lots of questions on the back of the recent stress we have been seeing in markets over the last few sessions
💥 Is there a banking crisis? Nope. 💵 A dollar funding crisis? Not really — at least, not yet. 🏦 Is the Fed secretly doing QE again? Also no. So… what’s actually going on? Here’s the real story 👇 After the U.S. government raised the debt ceiling in June, it started rebuilding its Treasury General Account (TGA) — basically Uncle Sam’s checking account at the Federal Reserve. The target? $850 billion. When money flows into that account, it’s pulled out of the financial system. Think of it as a liquidity drain — cash that could’ve been circulating in markets is now just… sitting there. 💧 Roughly $700 billion has been drained so far. And when that happens, bank reserves fall — which is exactly what we’re seeing today. Reserves are now sitting near multi-year lows (as a % of GDP). Less liquidity = more pressure in dollar funding markets. We can actually see that stress: ➡️ SOFR (the Secured Overnight Financing Rate — basically what banks pay to borrow short-term dollars) has ticked higher. Is it panic time? Not really. The current move is small compared to the September 2019 Repo Crisis, when the entire funding market froze and the Fed had to pivot hard from QT to QE overnight. So no, there’s no crisis — but there is a tightening squeeze in the plumbing of the financial system. Source: Tomas @TomasOnMarkets
For the K-shapers...
Source: BofA, Sam Ro 📈 @SamRo BofA
🦔 Layoffs are back — and they’re bigger than you think.
Through September, U.S. companies cut nearly 950,000 jobs — the highest year-to-date total since 2020 and worse than any full year since the Great Recession (excluding COVID). October alone brought headlines: 💻 Amazon – 14,000 corporate roles gone (AI cited as a factor) 🏪 Target – 1,800 jobs cut ☕ Starbucks – 900 employees laid off 🎬 Paramount – 1,000 roles eliminated Even Southwest Airlines announced its first major layoffs ever. Government jobs made up ~300,000 of those cuts, but tech and retail are taking the brunt. “We’re not just in a low hire, low fire environment anymore. We’re firing.” – Dan North, Allianz Trade The new pattern? AI is accelerating restructuring. 60%+ of executives on LinkedIn say AI will replace entry-level tasks. Companies are trimming labor to protect profits amid tariffs and cost pressures. Job security is no longer guaranteed — even in stable sectors. Source: zerohedge, Bloomberg
📉 China’s manufacturing slowdown deepens.
October’s PMI came in at 49.0 — hitting a 6-month low and missing expectations of 49.6 (Reuters poll). That’s down from 49.8 in September. 🇨🇳 China’s manufacturing sector has now been in contraction since April, underscoring persistent weakness in global demand and domestic investment. ⚙️ The country’s manufacturing activity has remained in contraction since April. Source: CNBC
China’s economy is hitting an imbalance wall. It keeps building, but people aren’t buying.
🧱 Investment eats up 42% of GDP — nearly double the global average. 🛒 Household spending? Just 37% — vs. 60% in most economies. The result: too many factories, not enough consumers. Property prices are still falling, savings rates are sky-high (20%+), and deflation has taken hold. Consumer prices are down, producer prices have been negative for years, and exports are doing all the heavy lifting — but even that’s cracking under U.S. tariffs. Instead of fixing the imbalance, Beijing is doubling down on the old playbook: more infrastructure, more state-led projects, little direct help for households. Economists say China needs a massive rebalancing — trillions in fiscal transfers to boost consumption and rebuild trust in the safety net. But that would mean loosening state control… and that’s not the direction things are heading. 📉 Without change, growth could slow to ~3% a year. 🧊 Deflation lingers. ⚙️ Factories hum, but consumers stay quiet. China’s still building the world’s factories — but it’s running out of people to sell to. Source: StockMarket.news
Yesterday we saw another $3 billion FED pump into the banking system.
The use of the facility is now a daily occurrence; the regional banking sector obviously has a liquidity issue. That's a total of $21 billion in 4 weeks. Source: The Great Martin on X
