Silence of the Lambs

Another market cycle with little market movement and another movie reference: in Director Jonathan Demme’s famous ‘The Silence of the Lambs’, the main character is shocked to discover that the ‘silent’ lambs are brought to the slaughterhouse.

Markets remain in an unusually quiet ‘wait-and-see’ mode. Bitcoin dominance has failed to break out from a narrow range for nearly a year. Crypto total market cap has barely flinched in 2022. Yet, in the background, dark clouds are looming.

While the world is awaiting higher inflation, the real danger might be a collapse in economic growth. As analysts write, China’s business cycle suggests much lower growth. The fallout from the Shanghai lockdown, supply chain bust-ups, sanctions against one of the world’s main commodities providers, continuous lifestyle changes from COVID are all together brewing up what could be an economic storm to hit the world economy in the next 12 months.

The main question for us is now what this will do to markets. Most expect markets to be hit hard by recession. Yet, when COVID hit, Central Banks opened the flood gates which unexpectedly drove new all-time highs. That was in the middle of a global Pandemic. Could this be the same this time around?

Whoever will need to make decisions about interest rates and policy inside the leading Central Banks is not in an enviable position. A lot will come down to inflation levels. Lowering rates while inflation remains high will probably prove to be politically impossible. On the other hand, predicted rate hikes might be skipped and that alone could prove to be enough to lighten some market fireworks.

The day is nearing when the lambs will find out their fate.