One of the Fed’s recurring arguments meant to explain why the financial system is more stable now than it was 10 years ago, and is therefore less prone to a Lehman or “Black monday”-type event, (which in turn is meant to justify the Fed’s blowing of a 31x Shiller PE bubble) is that there is generally less leverage in the system, and as a result a sudden, explosive leverage unwind is far less likely… or at least that’s what the Fed’s recently departed vice Chair, and top macroprudential regulator, Stanley Fischer has claimed.
But is Fischer right? Is systemic leverage truly lower? The answer is “of course not” as anyone who has observed the trends not only among vol trading products, where vega has never been higher, but also among corporate leverage, sovereign debt, and the record duration exposure can confirm. It’s just not where the Fed usually would look…
Which is why in the excerpt below, taken from the latest One River asset management weekend notes, CIO Eric Peters explains to US central bankers – and everyone else – not only why the Fed is yet again so precariously wrong, but also where all the record leverage is to be found this time around.
This post was published at Zero Hedge on Nov 19, 2017.