text: RBC (Canadian multinational): “A number of the more financially and politically fragile OPEC+ nations have expressed growing anxiety about an oil price decline that is potentially placing their newly bolstered balance sheets at risk as well as the expansive spending programs that help secure social peace… [leading to more production cuts to buoy oil prices higher].” (AC: In the past three months, WTI Crude is down from $108/bbl to $82/bbl this morning, which has been a major driver in lower inflation readings since July. If oil reverses back up to $90-100/bbl, expect inflation to do the same. – M.S.)Citi Global Wealth (from last week):“Markets are deeply unsettled… A ‘rapid change of weather’ for the economy appears on the horizon… 10% [chance] of Robust [economic conditions], 20% Resilient, and 70% Recession…[The Fed is moving] so fast that the impact of their tactics is not apparent… How much tightening can the economy endure before credit costs rise and credit availability falls dangerously? … [T]he Fed’s medicine will have intended and unintended consequences. Its ability to counter mistakes will diminish over time… The case for a ‘recession’ or ‘stall’ in the economy in 2023 is quite strong and rising.”And now the specific warnings about a potential financial crisis: Morgan Stanley Global Asset analysts report that institutional and retail investors now own 23% of U.S. credit assets, which is up from just 10% in 2005. They note a large share of credit ownership has shifted from banks to investors due to higher yields, and cite an increased risk due to deteriorating credit conditions. Analysts estimate that the U.S. high yield bond, private credit, and leveraged loan market is valued at $3 trillion, or about three to four times the size of the 2007 private-label security subprime housing market. Ultimately, this means investors could experience heavy losses during a liquidity crisis or credit collapse, as opposed to well-capitalized banks which are better suited to absorb losses. Morgan Stanley analysts also expect loan default rates to increase, as leveraged debt maturities increase 10-fold through 2026. Earlier this month, Bank of America analysts issued a warning about the potential for a liquidity crisis in U.S. Treasuries. “In our view, declining liquidity and resiliency of the Treasury market arguably poses one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.” At risk is the $30 trillion Treasury market seizing due to a lack of buyers. The New York Fed came out last month, I believe, and said that the Fed’s plan is to calm Treasury markets by saying that they’ll buy Treasuries to increase liquidity. The risk is that the Fed is unable to calm fears and encourage buyers, and the Treasury market crashes, which will spike yields and be destabilizing. This is exactly what the BoA analysts are warning could happen. Several banks are talking about the potential for another Plaza Accords. That was a 1985 agreement among the finance ministers of major economies to depreciate the dollar against the Deutsche Mark, Franc, Pound, and Yen due to the dollar’s strength. With expectations of a hawkish Fed hiking interest rates, the dollar is expected to continue strengthening versus foreign currencies. The dollar’s strength versus emerging markets currencies is leading to policy tightening and foreign reserve drawdowns to keep those currencies stable.And we’ll end on some comments from Fed officials this week: