"It's been so long since we've had to consider what a world is like with real interest rates and real cost of capital that will distinguish winning companies from losing companies, winning stocks from losing stocks.The last decade or so spawned a host of business and technology innovations. "This paradigm shift at some point will bring in a new cycle," he said. Out of the ashes of this transition period, a new business cycle will emerge, Pick said. Some observers are worried about Black Swan-type events happening in the plumbing of the financial system, including the bursting of what one hedge fund manager called "the greatest credit bubble of human history." Dimon sees "at a minimum, huge volatility" as the major purchasers of government bonds may not have the ability or appetite to step in. Less than a year after their campaign began, the world's major central banks lost their nerve and halted QT programs amid slowing growth. The last time the Fed attempted quantitative tightening, back in 2018, odd things happened in stock, foreign exchange and oil markets. Remember 2018?īut such shifts could be bumpy. Interest rates on many online savings accounts have edged closer to 1%. Venture capital investors have been instructing start-ups to preserve cash and aim for actual profitability. The impact of their efforts will touch everyone from credit-card borrowers to employees of struggling corporations to the aspiring billionaires running Silicon Valley start-ups. That is over as central banks prioritize the battle against runaway inflation. Thousands of start-ups have bloomed in recent years with a money burning, growth-at-any-cost mandate. Unprofitable corporations have been kept afloat by ready access to cheap debt. The moves have penalized savers and encouraged rampant borrowing.īy draining risk from the global financial system for years, central banks forced investors to take more risk to earn yield. Low or even negative interest rates have been the hallmark of the previous era, as well as measures to inject money into the system including bond-buying programs collectively known as quantitative easing. Instead of just raising alarms, Pick - a three-decade Morgan Stanley veteran who leads the firm's trading and banking division - gave some historical context as well as his impression of what the tumultuous period ahead will look and feel like. Even regional bank CEO Bill Demchak said he thought a recession was unavoidable. Wall Street's top executives making the rounds at financial conferences this week delivered dire warnings about the economy, led by JPMorgan Chase CEO Jamie Dimon, who said that a "hurricane is right out there, down the road, coming our way." That sentiment was echoed by Goldman Sachs President John Waldron, who called the overlapping "shocks to the system" unprecedented. "When you look at the combination, the intersection of the pandemic, of the war, of the inflation, it signals paradigm shift, the end of 15 years of financial repression and the next era to come." And we have our first inflation around the world in 40 years," Pick said.
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