"It’ll Be An Avalanche": Hedge Fund CIO Sets The Day When The Next Crash Begins

While most asset managers have been growing increasingly skeptical and gloomy in recent weeks (despite a few ideological contrarian holdouts), joining the rising chorus of bank analysts including those of Citi, JPM, BofA and Goldman all urging clients to "go to cash", none have dared to commit the cardinal sin of actually predicting when the next crash will take place.

On Sunday a prominent hedge fund manager, One River Asset Management's CIO Eric Peters broke with that tradition and dared to "pin a tail on the donkey" of when the next market crash - one which he agrees with us will be driven by a collapse in the global credit impulse - will take place. His prediction: Valentine's Day 2018.

Here is what Peters believes will happen over the next 8 months, a period which will begin with an increasingly tighter Fed and conclude with a market avalanche:

“The Fed hikes rates to lean against inflation,” said the CIO. “And they’ll reduce the balance sheet to dampen growing financial instability,” he continued. “They’ll signal less about rates and focus on balance sheet reduction in Sep.”


Inflation is softening as the gap between the real economy and financial asset prices is widening. “If they break the economy with rate hikes, everyone will blame the Fed.” They can’t afford that political risk.


“But no one understands the balance sheet, so if something breaks because they reduce it, they’ll get a free pass.” 


“The Fed has convinced itself that forward guidance was far more powerful than QE,” continued the same CIO.


“This allows them to argue that reversing QE without reversing forward guidance should be uneventful.” Like watching paint dry. “Balance sheet reduction will start slowly. And proceed for a few months without a noticeable impact,” he said. “The Fed will feel validated.” Like they’ve been right all along.


“But when the global credit impulse reverses, it’ll be a cascade, an avalanche. And I pin the tail on that donkey to be Valentine’s Day 2018.”

Of course, the global credit impulse is something that we have been exclusively warning about for the past 4 months...

... but "apparently" it wasn't until Citi's report last week which explained it's all that matters:

... that suddenly everyone admits to paying attention. We'll take it.


Erek playit (not verified) Sun, 06/25/2017 - 11:00 Permalink

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There's a bus leaving in ten minutes, please be under it.

In reply to by playit (not verified)

CNONC This Might Hurt Sun, 06/25/2017 - 18:39 Permalink

How about this for a black swan credit event starter:  The cladding that caught fire in the recent London event may be the same or similar product which caught fire on several high rise biuldings in the UAE recently, including the New Year's Eve 2015 fire, and a recent one next door to the Birj Khalifa.  As many as 30,000 buildings in UAE have a similair cladding.  Luanda and other expensive, fast growing cities in the developing world have thousands of buildings with the same material.  Consider how much debt, commercial, development and residential, is backed by these structures, and then imagine that those structures are uninsurable, and, hence, worthless.  Who owns the debt?  Who insured the issuance of the bonds?  Who is the reinsurer?  Who insured the developers?  Who is on the hook?After seeing how quickly the London fire dropped from the news, my tin foil hat wearing nature asserted itself, and I began to look at this subject.  I have only scratched the surface, and may well be off on a wild goose chase, but I have some serious questions.http://www.chicagotribune.com/news/nationworld/ct-dubai-high-rise-fires-20170122-story.html   

In reply to by This Might Hurt

Withdrawn Sanction CNONC Sun, 06/25/2017 - 22:05 Permalink

The intriguing thing about Grenfell Tower and the other high rise fires you mention is what did NOT happen.  GT burned for hours...and remained standing.  Isn't that interesting?  WTCs 1 & 2 burned for less than 2 hours while WTC 7 burned hardly at all, and yet all 3 collapsed into their own footprints.   I guess concrete and steel behave differently in Manhattan than in other locales.  Amazing. 

In reply to by CNONC

Wrenching Away Withdrawn Sanction Mon, 06/26/2017 - 10:29 Permalink

I know this won't get through to you, but I'll try anyway. Structural steel is sprayed with insulation material to protect it from the heat of typical "high rise inferno" type fires. When a large airplane crashes directly into that steel, the massive shock from that would blast all of the insulation off of the steel columns leaving them exposed directly to the heat of the fire. If you understand building construction techniques and physics, its really not that difficult. But conspiracy theories are so much more fun than trying to understand.

In reply to by Withdrawn Sanction

Demologos Wrenching Away Mon, 06/26/2017 - 11:09 Permalink

The airplane that didn't crash into building 7 caused a massive shock blowing the insulation off of the structural steel leading to its collapse, right?

The mode of failure from the plane impact on the twin towers should have been shear forces causing them to sag at the point of damage on one side. Then, the floors above (that had thinner support columns and beams) the impact would have torn away from the rest of the structure and fallen to the ground. The building below the point of damage (with much thicker support columns and beams) would have remained standing. The end result should have been two "decapitated" buildings.

There is video showing the antenna of one tower begin to tilt from vertical, then straighten again as the building below begins its free fall. It is impossible for the building to straighten itself once it begins to deform if the "pancaking" theory was the mode of failure. It could have been "pulled" straight when the building lost support at the foundation level.

"Wrenching away" is a great description of the failure mode we should have seen.

In reply to by Wrenching Away

Ring_Of_Fire Okienomics Sun, 06/25/2017 - 11:13 Permalink

I'm convinced a big correction is close, maybe even a big crash.. I'm playing puts 1 month out every month now at SPY 230. A 15% correction within 1 month is a 70 bagger.. A 20% correction within 1 month is 115 bagger. I will be playing this strategy the next 12 months, each month uping my bet the longer they drag the enevitable correction out.. 

In reply to by Okienomics

zebra77a Ring_Of_Fire Sun, 06/25/2017 - 13:08 Permalink

They *never* pay.  The MM will buy the underlying with both fists before they will pay the Put Herd. Happens every time, watched it over and over again. It's cheaper for the OCC to juice the stock than to pay you, and I am certain they have a direct pipeline to the Federal Reserve with unlimited credit access.*Don't get caught in the Put Herd* I call OTM Puts Lotto Tickets.. Cheap but you never make money on them...But what they do do - is get the MSM to pipe out end-of-the-world articles after article. And people get sucked into thinking their gonna clean up when it's only noose loosening to trap the bears.  Then for 'no reason at all' it suddenly rips up trapping all the puts and blowtorches them into oblivion before finishing them off with a nice steak sauce of Theta time decay, where it hovers like Magic Johnson 20 feet from the hoop.. Their like big happy spleen whales that grabbed a crop of put shrimp in their mouths before happily filtering them.. 

In reply to by Ring_Of_Fire

O C Sure Fake Trump Sun, 06/25/2017 - 11:34 Permalink

*This summer for sure.*
O I don't know, never had a significant spring sell off, so no reason to expect a summer rally. Then again maybe a summer rally will be that much stronger because of no spring sell off. On the other hand, it may be just a long broadening toppyish sorta thing followed by a plunge instead of a blow off. Nothing has really been etched into the public psyche yet, like internet of the 90s, housing of the 00s. May have thought that 3d printing was it, or cryptos, but they haven't yet induced an Ijustgottahaveit public frenzy. Maybe it will be AI? Likewise, without a rate squeeze usually only war knocks it down but this is already seen in the price action well before it hits. On the one hand, broadening top, on the other, spike. And of course, the tighter the squeeze on rates, world-wide, the higher prices of things will climb.

In reply to by Fake Trump