Random Ramblings (III)

On central banks, zombies and liquidity

From Tuomas Malinen’s Forecasting Newsletter.

Issues discussed:

• Major central banks have started to cut rates, but they may be cutting into another inflation shock.

• Is the U.S. banking sector “zombifying”?

• We may be approaching a major liquidity event in July.

I started to build a game theoretical model to explain the changing dynamics of modern nuclear conflict, which is why I am not publishing scenarios on it now (building a model naturally takes time). I hope to have a preliminary version of the model ready by the end of the month, after which I will publish my early thoughts here. I will write also an academic paper on it so that my hypotheses will become properly tested. I have not written an academic article since 2018, which makes writing one now great fun (yeah, I am a nerd too :D ), even though the topic is rather macabre.

So, instead of scenarios of a nuclear conflict in Europe, I will provide some thoughts on central banks enacting rate cuts and the ‘zombification’ of the U.S. banking sector. In addition, I provide updates on the global liquidity situation. Please note my summer campaign offering annual subscription with 20% off. You can claim it by clicking subscription link below.

Rate cuts have commenced

During the week the European Central Bank (ECB) and the Bank of Canada (BoC) announced interest rate cuts. Both cut rates by 25 basis points, the ECB from 4% to 3.75% and the BoC from from 5% to 4.75%. Speculation on the rate cuts by the Federal Reserve has already begun, but there’s a problem.