Will Risk Parity Blow Up…???

When something that is this widely adopted blows up, it tends to blow up spectacularly.

By Harris “Kuppy” Kupperman, founder of Praetorian Capital, Adventures in Capitalism:

For four decades, the US stock market has traded up and to the right. During those brief moments of setback, treasuries rallied strongly. The fact that these two asset classes seemed to offset each other, creating a smoothed-out return profile, was not lost on certain fund managers who created portfolios comprised of the two. Then, to better market this portfolio to the sorts of institutional investors who cannot bear drawdowns, the overriding strategy was given the pseudo-intellectual sounding Risk Parity moniker.

Over time, the reliability of Risk Parity funds has astonished most observers, especially after being tested by fire during the GFC. As a result, portfolio managers took the logical next step and added copious leverage—because in finance, when you do a back-test, every return stream works better with leverage.

Naturally, as Risk Parity continued to produce returns, inflows bloated these funds. Risk Parity strategies, in one form or another, now dominate many institutional asset allocations. While everyone makes their sausage a bit differently, trillions in notional value are now managed using this strategy—long equities, long treasuries. Are they highly-leveraged time-bombs??

Taking a step back, it’s important to ask, what created this smooth stream of Risk Parity returns? Was it investor brilliance or was it a four-decade period of declining interest rates that systematically increased equity market multiples while reducing bond yields? What if all the sausage-making was just noise?

This then brings out the next logical question; what happens if the rate cycle has now turned and we have an extended period of both increasing interest rates and declining equity market multiples?

During the darkest Covid days of March 2020, I distinctly remember a few days where the equity market crashed along with treasuries. It was so highly unusual, that it was memorable. I kept saying to myself, “well, this is odd…”

Later on, we learned that during the global margin call caused by Covid, multiple Risk Parity funds were forced to de-lever and sell both legs of their trade (dumping both equities and bonds). For the first time that I can remember, bonds did not act as the anticipated hedge to an equity market crack-up. They actually accelerated the crack-up as collateral values crashed.

When a strategy gets too crowded, particularly with excess leverage to augment returns, we often see that strategy act “funny” around stress-points. This is because when any large player gets into trouble, they de-gross, which starts a feedback loop, forcing someone else to get into trouble and also de-gross—it simply cascades.

Fortunately for everyone, the Fed stepped in with unlimited liquidity. It turned out to be an excellent time to buy pretty much anything with a CUSIP. However, that week in March should have been a wake-up call for everyone in the Risk Parity world. Instead, I suspect they’ve made a few small tweaks and continued with their prior strategy.

For some time, I have been very clear that the disinflation cycle has been turning. Sure, I was a bit early, and the cycle overshot my wildest expectations. However, that’s how tops get made. Now, with each passing day, complete with new and bizarre forms of price inflation, it is increasingly obvious that the multi-decade disinflationary cycle has turned.

We’re barely into the first innings and supply chains are breaking, while prices are soaring. Just wait until the Global Central Planners really get going with their “fixes” which will naturally accentuate the inflationary pressures.

This will get nasty for many risk assets and their valuations will come in—at a time when treasuries also sell off due to inflationary pressures. I don’t think most Risk Parity portfolios are ready for what’s coming.

The Risk Parity sell-off of March 2020 was the warning that everyone should have paid attention to. Now, once again, bonds are getting wobbly while equities are also acting heavy. Some of the nastiest days over the past month were on days when both equities and treasuries sold off at the same time. Inflation expectations are starting to get priced into the markets—gradually, then suddenly.

What if the Fed is not there to backstop the Risk Parity funds? What if the Fed is forced to tackle a failed energy policy that was mangled by ESG? A 60/40 portfolio can suffer through bad periods if it isn’t levered. Put some leverage on that and watch out.

Ever since March 2020, I’ve been convinced that these Risk Parity funds will blow up spectacularly with any rise in inflation expectations, as both legs of the trade get shredded.

It’s getting closer to game-time on that theory. I’m not saying that this is a tomorrow sort of thing, maybe it takes a few quarters, but I think we’re well into the death-rattle stage for Risk Parity strategies. When something that is this widely adopted blows up, it tends to blow up spectacularly. I suspect this will get wild.By Harris Kupperman, founder of Praetorian Capital, Adventures in Capitalism.

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  138 comments for “Will Risk Parity Blow Up…???

  1. Seneca’s Cliff says:

    I think fate does not like our financial Ponzi scheme economy. So this risk parity play along with all the leverage is like a giant build up of dry tinder so that when the eventual financial forest fire comes it will burn hot and clean all the way down to the soil so new seeds can be planted from which can grow a better world.

    • Old School says:

      Every investment strategy doesn’t work at some time. Main thing is to make sure your logic is sound and that the strategy can’t get you in trouble when it goes out of favor. Changing strategies when it goes out of favor usually has you selling at the wrong time.

      • Bobber says:

        What about all the conservative investors who had a strategy of staying in ST fixed income, to avoid an overpriced stock market? By the time the stock market recedes to reasonable valuations, they’ll have nothing left after inflation. They’ve already lost a ton as they watched the Fed print asset inflation from 2012 forward.

        Arguably, these “conservative” investors applied sound logic, but their strategy has resulted in gradual financial demise with no prospect of reversal. They played by the rules, but as it turned out, the rules changed without their knowing, as central banks went the quiet but forbidden path of monetizing debts.

        • 91B20 1stCav (AUS) says:

          Seneca/OS/Bobber-…so, in the end, ‘never gamble more than you can afford to lose…’?

          may we all find a better day.

        • Joe Saba says:

          They played by the rules,
          except they keep moving goal posts and changing the rules
          not to worry
          YOU’RE GONNA OWN NOTHING and you’re gonna be happy

        • Old school says:

          You got me there. Fed screwed over conservative fixed income pretty badly, but the cycle isn’t over. If Fed loses control and stocks go to long term trend fixed income may have last laugh.

        • Wisdom Seeker says:

          Everyone needs to realize that in the absence of the guardrails imposed by the former gold standard, we’re all playing Calvinball now.

          [ If you don’t know what Calvinball is, it’s time to dig into some classic Calvin & Hobbes cartoons, where it’s very clearly explained in a way that will also relieve a lot of your financial stress! ]

        • ChangeMachine says:

          I think it was Kuppy who said, roughly speaking, that the Fed is more or less up-front about their plans. They said they want inflation. They made it rain inflation. It pays to listen (cautiously) to what the power-mongers say. Investments are a gamble on the future. If you are losing, reassess your predictions.

    • Jay says:

      And Pelosi & Schumer who are really running the show versus Biden are getting ready to flash another $4.7T in fuel on the growing fire. I’d call it scorched earth.

      And to me, the biggest CRAZY of it all is this:

      Medicare Part A goes bust by 2026.
      Medicare Part B was $500B in the red last year.
      Social Security will go bust around 2030ish.

      And not a single $0.01 of these new taxes are going to fill any of these donut holes. None! In fact, Congress is about to make things worse by passing Vision, Dental & Hearing for Medicare. Yikes!

      • Anthony A. says:

        I will bet that if this passes, recipients won’t get $6,000 towards a pair of hearing aids under Medicare. It will be more like $50 and you pay the rest.

      • OutsideTheBox says:

        And we spend 1.3 trillion on the military industrial complex EVERY YEAR.

        • Ted says:

          Outside the box: Think of it as insurance. You never know when those Canadians will decide to send their tanks south.

        • Mtnwoman says:

          Yes, funny how ONLY social spending and NOT our grotesque military spending upsets some people.

        • OutsideTheBox says:


          Thanks for the laugh !

        • OutsideTheBox says:


          The USA spends 13 TRILLION dollars every 10 years on the MIC and our fruitless wars.

          THIS is where the real money goes. Not bridge building and granny’s SS check.

      • Swamp Creature says:

        No good dentists will ever take patients with dental ins from Medicare. They will be told to go pound sand.

    • Nathan Dumbrowski says:

      Just not going to happen. We have a life guard on duty 24×7. That would be the US FED. They no longer are going to let people learn to swim or struggle. They are there to jump in with infinity and no risk approach. This has been proven time and time again over the last decade. We are able to bet it all without risk

      • gametv says:

        no prospect of reversal = wrong.

        i think that there are multiple investing strategies that have simply worked because global debt has been allowed to run rampant, with excessive stimulation by the government.

        – high p/e tech companies are dependent upon low interest rates for their valuations
        – ETF investors are making a bet that stocks move in one direction and dont attempt to determine whether the prices are rational. that looks like a bad idea when interest rates go up
        – REIT and real estate investors are dependent upon low interest rates for higher real estate valuations, whether those be commercial or residential.
        – banks are dependent upon low interest rates for mortgage refinancing revenues and for trading revenues. banks increase their net margins with a steeper yield curve, but i wonder if the potential loan losses in an economic downturn will swamp the banks far beyond the incremental loan income.
        – we are at a peak in the ratio of margin debt versus the amount of the market that is sold short.

        the only reason the central banks were able to get away with this is the deflationary pressures of the internet. it radically increases price transparency in MOST markets (some markets like higher education and healthcare have different drivers that make them almost immune to normal price pressures).

        As the Treasury tries to issue debt over the coming year, each month it will meet with less and less demand for that debt and rates will be forced higher, despite the best efforts of the central bankers.

        My guess is that we are in for an extended bear market where every sell-off is met with a new rally of optimism, until finally there is capitulation. i just dont think the government can commit to massive monetization with the high inflation.

  2. NJB says:

    Risk parity trade doesn’t make sense anymore. Super low bond yields are required to justify equity prices. Bond yields need to rise and equity valuations will have to fall. In other words, bonds and equities will fall in tandem. No more inverse correlations.

    • Jay says:

      Very well said. The final questions are: when and how fast?

      I don’t see this one taking 40 years to play out ; )

    • Wisdom Seeker says:

      NJB is right but we should also look holistically at the global economy. Individuals can make trades but at the global level, every security has to be owned by someone at all times, except for default or maturity. Even every dollar of cash has to be held by someone at all times.

      Risk Parity will suck but so will holding cash, or real estate, when inflation rages and rates rise. Those losses are going to be taken by someone, somewhere.

      There Are No Sidelines, and it’s an Everything Bubble that’s popping.

      Money printing has reached its limit. Creating more cash increases demand, but the problem today isn’t lack of demand, it’s constrained supply.

  3. James says:

    I think arguing over yields and bonds is pointless is just detail.

    The fact that the Fed can manipulate the government in favor of certain individuals and against other individuals and see it as collateral damage for the ones that get screwed over… Shows that we do not have a so-called “free economy.”

    It’s rigged to the core.

    For example in my industry the big players are immediately granted all the newest exemptions and so forth. But the little companies they have to sit back and wait until the big players already have their feet knee deep in the technology. Which obviously gives a huge market advantage to them.

    And that’s just a small example.

    Free market my ass.

    • The Feds supports the institutions, the integrity of the institutions (banks) is essential to the well being of the individual. Post pandemic they nationalized the economy. Now if a small business fails, a larger corporation which can spread the risk, and has the advantage of borrowing at low rates from them, will replace that business with a franchise model. Displaced small business owners go to work for the franchise. Alternately small businesses arise to compete with the franchise models. The corporate models then learn to adapt to their customers, who are also employees, by paying higher wages. So it’s a virtuous cycle. In China they have decided to take money away from the big corporations and invest in small businesses. This isn’t because they feel an obligation to the lower income class, but their economy is a command economy whereas our economy, (more of a free market) responds to imbalances, including the Fed, which now exhorts Congress to create more fiscal spending. Same program, different ideologies. Capitalism is not anarchy, no matter what the Koch brothers think.

      • joe2 says:

        “So it’s a virtuous cycle.” For the crony fascist big corporations. Destroy small independent companies and replace them with government crony obedient large corporations. No small business owner I know wants that. But the government is pushing them into debt with forced closings and business restrictions.

        “whereas our economy, (more of a free market)” BS. Selling your book?

        What a load of crap you are pushing. Just get the government out of business regulations that favor their cronies. It’s all designed to destroy independence from the government in business, schools, and health.

      • Dys says:

        I dunno, buddy. Banks, and really the lion’s share of the financial sector is fit for total excision. Not only do banks frequently cause catastrophe, but they also largely do… Nothing. Or at least not something that couldn’t otherwise be done automatically. Kahneman, and I don’t remember the numbers, looked over a large bank’s reports and found most managers didn’t beat the index most of the time. As far as capital allocation, that could be done algorithmically, and then in person. By far and large, though, it seems like finance is and has been for some time outmoded. I could cite some interesting information, but I suspect this is a pretty easy inference to make and I’ll let you make it yourself.

        The whole thing with corporations, I’m not a fan of. A corporation is a structure, rules, hierarchy, dependencies that stretch far and wide and ultimately limit the degrees of freedom given franchise X can leverage in the even they’re called to task. Y’know, inertia and obstacles. Basically it falls into the same category of Wolf’s logic pertaining to saturation. And consolidation of power, wealth, or plain capital is just a hazard. But even removing the long-range risks, consider the fact that a person is either now subject to working under somebody else’s whims as opposed to their own. And it also removes the degree of intimacy with the community. Instead you have a corporate office running 5000 locations making decisions based on sparse data in highly diverse localities, making bad decisions. And they’re doing it, as we all know, exclusively to increase profit. At least with a truly local business there’s the slight probability that the owner has a vested interest in maintaining and supporting the locale. That the owner has legitimate connections with people inside the community, and has an interpersonal interest in promoting them. Ultimately, what a local business does, is create social currency (this is a term you’d ought to look up), and that is genuinely important in the health and wellbeing of individuals, groups, communities, and ultimately the whole state- but corporations in their sterility are simply incapacious in fostering this sort of growth.

        The feedback loop, sure. But I can also justify heroin use using the same logic so is it really a good point to argue on?

        But the point I really want to espouse here, is that we’re operating in a fairly novel system, which disfavors the largest proportion of people and benefits a very small margin at the end of the day. That the immense leverage granted to this class is not just an egregious injustice, but that it’s hazardous both socially, politically, ecologically and so on through various modes. These people might have hit the IQ ceiling, but at the end of the day they’re still human, at the end of the day they’re still handling imperfect information, and at the end of the day they’re seated in the throne of social, political, and economical control that’s never before been seen – it’s a considerable hazard to allow this to continue and that’s precisely what both the fed and the government are allowing by their succor. And this was a critical facet of free markets, the allowance of failure. It’s how selection pressure is applied – but now we’re interfering through means of artifice to keep the dead living at the expense – both in real terms and future volatility of our future selves and the whole of humanity as we march ever forward in tow of magnificent error.

        • Suppose you could say, because the banks (corporate franchise) wouldn’t lend, the shadow banks came about. Private business competes with franchises and the system achieves stasis. The system works less well in other countries (Japan zombie banks) and in China where nothing gets done other than by decree. So by analogy it’s a good system. Interesting that the Reddit crowd thinks Gamestop and AMC are good businesses. So far nobody is regulating that issue.

        • Old School says:

          When capital markets are working in a healthy it increases real wealth to society main by rolling out new inventions to the masses. Automobiles, electricity, I-phones, footwear, life saving drugs all require tens of billions of investment to rollout to the masses at a reasonable price.

          Corporations do have a lot ol power when they get large. Maybe there should be a limit that says no corporation can be more than 1 or 2% of economy, but usually they get sloppy and fall down.

      • Sams says:

        Well, the USA is maybe more of a free market, but by no means regulated to level the field between different business. When corporate lobbyists write laws that benefits large corporations and politicians sponsored by large corporations rubber stamp the laws, the result might be sort of “free market”, but with a rather different meaning laid to the word “free”.

        Like some is more equal than others, the market is also more free to some.

        • 91B20 1stCav (AUS) says:

          Sams-have also heard this situation referred to as ‘oligopoly’.

          may we all find a better day.

      • cb says:

        Ambrose Bierce said: ” the integrity of the institutions (banks) is essential to the well being of the individual.”


    • hidflect says:

      Thank you for the breath of fresh-air.

    • Depth Charge says:

      Kinda like all the “forgivable” PPP loans – they by and large went to well-connected, wealthy insiders who then got to buy new houses, boats, planes, etc.

    • REvers'em says:

      James, what industry are you working in? Just curious since you have a specific point on that it would be interesting go know as I run in a small professional service company of 60 employees.

  4. 2banana says:

    US markets didn’t recover from the 29 crash until WWII.

    Japan still has not reached former stock market peaks after 30 years.

    You can go a generation for basically zero return in stocks.

    Especially after an epic run up.

    • phleep says:

      Add to that, the wave of aging (globally), which may just be one of several shocks feeding into the vortex. 20 years of lost value is a bridge too far for millions, and now staring us in the face.

      Given general household (and corporate) finances, I have steeled myself for the sight of the old and sick in the streets, at scale. Come to think of it, the young and sick are likely too. Inflation speeds it all up. Everybody has tickets to the game, but only the super-special ticket-holders get the few seats inside. Money loses its moneyness. It migrates somewhere — but crypto is so scam-riddled I’m not going there now.

      I can imagine Stalin-style housing blocks to store all these insolvent folks. My area is kind of looking like that lately, and here in Californee, they passed a law allowing top-down rezoning anywhere for high-rise. Nice areas are being forced to accept ghetto density and denizens. Oh, the beauty of central planning! I think nature is like a vast balance, a balance sheet, and the postwar deferred bills are coming due. What a happy intoxication it was: grow everything with no consequences. California is a crowded trade. The USA is a crowded trade. Planet earth?

      My strategies: First on my list was to “go primitive”: everything I need is walkable from here. Recreation too (and my health is thus very good). Then, I got that leverage down. That means downsizing investments marbled-through with leverage, like high-flying growth stocks with only a story. (I kept a few.) If this model breaks as described in this brilliant blog, the passive indexing takes a vast hit and drags down the weak quickly. Then the strong will go through a trough and re-emerge.

      • Harrold says:

        You should visit Manhattan some day and see “ghetto density” housing at its finest.

        • 91B20 1stCav (AUS) says:

          Or, in a scene from the cinema world, the situation Zhivago finds when returning to his wife’s family’s home in Moscow following the (inevitable/unavoidable?) Revolution…

          may we all find a better day.

        • joe2 says:

          Take the train from DC to NYC through NJ and you will see a third world country. Abandoned buildings, trash and folks just standing around.

        • Anthony A. says:

          Just go to Newark, NJ for a day.

        • Swamp Creature says:

          They should saw off NJ and let it float out into the Atlantic Ocean.

      • OutsideTheBox says:


        Your post: Doom porn

      • Wolf Richter says:


        Your statement, “and here in Californee, they passed a law allowing top-down rezoning anywhere for high-rise” is a lie.

        Duplexes are not high-rises.

    • Old School says:

      Its hard to know if we are at inflection point. Central banks and PhD economists and politicians can keep the debt game going a long time with evermore illogical schemes. Confidence will eventually break.

      • Jay says:

        On a certain level, I agree. There’ve been many occasions over the last 40 years that the central banks have stepped in, picking winners and losers. However, at some point, their bag of tricks has to become just that.

        My guess is there wasn’t nearly the amount of leverage from 1975 to 1985 as there is today. As such, we don’t need sustained double digit inflation to put the FED between a rock & a hard place.

        To me, the most significant issue has been the FED continually saying transitory without defining how many months transitory is. Apparently, non-transitory appears to be 12+ months.

        And the biggest difference this time around is the fiscal insanity is an order of magnitude greater today than 40 years ago.

        • Depth Charge says:

          Jerome Powell’s “inflation is transitory” is Bernanke’s “subprime is contained.” These clowns would make Pinocchio blush.

      • Depth Charge says:

        They’ve basically signaled they’re ok with destroying the US dollar, which tells me they’ve got some other crackpot scheme cooked up in the even the dollar goes Weimar – like a FED digital coin. Problem is, for them, that people like myself have no interest in it. I don’t think they’ve bargained for what will transpire if the dollar goes Weimar. Check that – they already have their New Zealand bugout compounds.

        • RightNYer says:

          Yes. In Weimar Germany, the civilian population wasn’t armed to the teeth.

        • historicus says:

          Dont forget…
          “QE is temporary, and we will roll off our balance sheet when unemployment dips below 6.5%” Bernanke WSJ July 2009

          Unemployment went to 3.5% and we GOT MORE QE!!

        • OutsideTheBox says:


          It’s fun to point to Weimar isn’t it?

          The truth is that famous episode of hyperinflation lasted for merely three years. A german named Schacht was charged by the then Finance Minister with introducing a new German currency.

          And hyperinflation ended almost overnight.

          Additionally, this hyperinflation was directly caused by the victorious Allies via imposing draconian reparations on Germany.

          Germany had NO way to pay these astounding reparations. So astounding amounts of money was printed since that was the only available option.

  5. Mark says:

    “Fortunately for everyone, the Fed stepped in with unlimited liquidity.”

    No. Fortunate for the rich and ultra rich . 95% of America got screwed.


    • historicus says:

      Being Punished for saving ones earned money at a 5% clip is Unamerican…
      and THEFT, pure and simple.
      Wake up America!

      • OutsideTheBox says:


        Money is for spending.

        Not saving.

        Stop hoarding.

        • ATCretired says:

          Surely you’re kidding OTB. You should always save a minimum of 10% for long term (after establishing an emergency fund). Either that or plan on eating cat food on cracker after retirement.

        • OutsideTheBox says:

          As people on the site endlessly point out…. fiat money has declines in purchasing power over time.

          So that money needs to be converted to an instrument that is a durable store of value.

          Some people think that is gold, others feel real estate is the best store of value.

          Me…..I don’t think there is a good answer to this.

        • OutsideTheBox says:


          Also my post is actually a haiku.

    • Yort says:

      Even the super wealthy are now finally running scared at the moment due to Fed Idiocrasy, trying to find a place to hide their Fed Hyperinflated “Paper Wealth” trillions from StagFlation…. per Goldman Sachs client conversation via Yahoo Finance:

      “Stagflation was the most common word in client conversations this week as equity market volatility remained elevated,” said David Kostin, Goldman Sachs U.S. equity strategist.

      Markets have historically hated stagflation, per Goldman’s research.

      “During the last 60 years, the S&P 500 has generated a median real total return of +2.5% per quarter, but that quarterly return fell to -2.1% in stagflationary environments, worse than the median returns in environments characterized solely by weak economic growth or high inflation,” Kostin added.

  6. economicminor says:

    Add in our reliance on a business model they called “Just in Time” to the total disaster at the ports all over the world. Once you get this far behind with organizing the shipping distribution, there isn’t the room to sort it out much less fix it.

    This mess is so disruptive to almost all businesses and it is not something that will be solved in a few month, or without government intervention.

    We have interest rates to low to reflect risk or inflation. So we have extreme leveraged debt, a total mess in the business of business and delusion and denial across the board.

    What possibly could go wrong?

    • Saylor says:

      Dimitry Orlov did a simple educated statement about our JIT versus the centralized storage of materials in the Soviet Union. He opined that we would fair worse in in a collapse due to the JIT and the private modes of transportation versus the more ubiquitous rail system there.

      • Nick Kelly says:

        By Western standards the SU was always in collapse.

        Standard procedure when parking in a city was to remove wipers and place in trunk. They could be VERY hard to obtain.
        Western ballpoint pens were treasured. It was a long time even in the West before the tolerance of ball to chamber was close enough. Soviet copies left gobs of ink. Every one carried a ‘perhaps bag’ in case you saw ANYTHING for sale at the state price. Anyone familiar with SU or willing to read about it can give thousands of examples.

        In one of the last meetings of the COMECON a journo grabbed a member and asked for the main takeaway. Answer: ‘the idea that there is a more efficient distributor than the market is dead.’

        Moving on to Russia today, there was just a TV tour of a Petersburg apt in a pre-Revolution house that had been converted to apts.
        Exposed electric wires pinned to the walls snaked all over the place. Each of the units had its own coin- op meter. To use the shared bathroom, you had to plug a meter and then rush there before someone else got in.

  7. Joe in LA says:

    In a pinch, the Federal Reserve will be authorized to buy equities. They got very close in 2020, buying corporate debt.

    I suspect American elite commitment to personal responsibility and capitalism is about an inch deep. At the first sign that real money is being lost — the entire system will formally convert to corporate socialism. And this can be done easily — the 1% own the courts, the government, the Fed.

    There will be very little opposition. The January 6 crowd thinks immigrants and woke university professors stole the American dream. Those folks are thus well conditioned to accept further expansion of corporate control of their lives — anything to “save the market.”

    • Crowley says:

      Agree with your former statements, disagree with your latter points.
      From what I’ve read, the Jan 6 crowd sees the US as a post-Constitutional Republic and corporate socialism as its new enemy.

      • Crowley says:

        … to add: They have no clue how to stop corp socialism, tho.

        • joe2 says:

          I see evolutionary socialism – a bio-psychological evolution to a socially integrated society like ants. Everyone in his place with his assigned job. To avoid this the internet would have to be smashed and everything decentralized into 1750 AD agrarian sized units.
          So, best plan is just go with the flow and enjoy the show. It won’t happen in your lifetime.
          Say, any relation to Aleister Crowley? I did read his books. It seems his vision of individuality is nearly over. Do what thou are told.

    • Sams says:

      «Corporate socialism» by the government. With corporate control of the government it will be the US version of political systems seen before, fascism.

      With a strong corporation as the leader. That will be a new twist to a system best known by having a strong leader.;)

      • LK says:

        Can’t wait for the 2028 election between Amazon and Tesla.

        • Sams says:

          Could be that Facebook is the runner up;)
          But I would not bet against Amazon. Neither against Alphabet…

    • RightNYer says:

      I disagree. People will recognize that an equity market bailout is bailing out the rich. They might not have realized it in 2008, but they do now.

      • Augustus Frost says:

        When collective psychology turns against central banks including the FRB, their “policy response” will fail, no matter what they do.

        Read comments on this blog and elsewhere all the time acting as if these CB have mythical powers when they don’t. It’s not like “printing” money (actually inflating debt) is a recent invention.

        • RightNYer says:

          Exactly. The central banks have two “tools,” printing money and jawboning. That’s it. People think they’re gods and can fix any problem with the economy. They can’t do anything except make people THINK they can do these things. It works for a while. Until it doesn’t.

      • Harold Trier says:

        You must not remember Occupy Wall Street. It was started because of exactly what you’re talking about.
        It of course got co-opted by bad actors and then eventually devolved in to a ghetto burning man concert, but it started off like yellow jacket protests in France. They’ll just push the race button like they did before.

        The problem is *most* people can’t keep a train of thought going beyond a two week time frame let alone long enough to be effectual.

        We have been in a state of psychological warfare since before most if not all here were born. I pray I am wrong about it and maybe without bread and circus the masses truly will wake up to the prison that has been being built around us since 1913.

        • drifterprof says:

          I agree with your general perspective, but who are the warring parties in the psychological warfare?

        • Jerry says:

          You’re not wrong. Freedom in America ended with the last frontier. When people cannot settle new lands, infighting soon follows. Americans are now born into wage slavery, just like everywhere else. It’s not bad, if slavery is your thing. It ain’t mine.

    • Depth Charge says:

      “The January 6 crowd thinks immigrants and woke university professors stole the American dream. Those folks are thus well conditioned to accept further expansion of corporate control of their lives — anything to “save the market.””

      Nice fantasy, bud. Crackpipe much?

      • MarkinSF says:

        The arc of the “left’s ascent” began with the ’29 crash and started it’s downward arc with the “Reagan revolution”. There has not been a single POTUS representing the left since J Carter.
        Corporate powers dominate the landscape as they did in ’29. Of course with no TV to brainwash them working people knew which side of their bread was buttered. They came together as one and the wealthy had to toe the line. Do you really think they were putting things in terms of left and right?

      • drifterprof says:

        “The arc of the “left’s ascent” began with the ’29 crash and started it’s downward arc with the “Reagan revolution”. There has not been a single POTUS representing the left since J Carter.”

    • Saylor says:

      I’ve frequently argued with both red and blue friends that they think it is ‘left versus right’ when it is actually ‘up versus down’. One of my examples that I give them is that Goldmen sucks donated close to the same amount of money to both Obama and McCain (probably have been doing that for many campaigns.) Are ‘they’ just covering their bases or something more?
      Does it matter? The knock on effect is that with money so polarized it effectively eliminates a third party challenge. Easy to play one party against another. Exponential to have to deal with a 3rd party.

    • Old School says:

      John Law made the mistake of basing currency on an equity and it didn’t work out so well. Fed to some degree has made the same mistake by inflating equity bubble. Making people think they are wealthy when they are not is not a good strategy.

  8. CJH says:

    The private sector is fueled by debt leverage. The donor class lives on interest, cap gains and rents–all of which are leveraged for maximum returns. To the donor class. But what of wages? If they do not rise sufficiently the rug gets pulled out from under the creditors. I believe that’s the deflation narrative economist Michael Hudson promotes.

  9. Julian says:

    I don’t see Inflation as a problem from where I’m looking. There are some short-term supply issues that will be worked out over the next couple of quarters and by this time next year no one will be one bit worried about any Inflation issues.

    It’s a transitory issue. It has no legs.

    The 2020s are set to be a Booming Decade with big gains in the stock market through to 2030. I am very bullish.

    I’d advise you folks to get in while the going is good or you’ll miss out!

    • economicminor says:

      I think IF you look deep into the supply chain issues you’ll discover that they may not be so short term. I’m guessing 5 years on the short side and 10+ on the more realistic side. Rising energy and raw material costs are not going to help in the short nor long term.

      It appears to me that the short term quarterly profit ideology that has been employed over much of the developed world is showing up its weaknesses in Spades.

      • Harrold says:

        How are rising energy and raw materials going to negatively effect the supply chain? The supply chain is all about logistics.

        • Nick Kelly says:


          There is the supply chain and the stuff in the chain. The chain exists to move the stuff. It could function perfectly with nothing in it, but no one would think this satisfactory.

          As to how does rising energy prices effect supply chain: the supply chain uses energy. The ship uses oil. the plane uses jet fuel.

        • Harrold says:

          That would just increase costs, which would be passed on to the end consumer of the product.

          Not sure how that would make the supply chain collapse.

          Maybe if you could give an example?

        • Robert Hughes says:

          Just look at rising cost for bunker fuel. Hence transportation costs rise – inflation. Why – push green stuff, then less investment in basic energy, cold winter, etc., and shortages appear and cost rise again. Only now beginning to the effects. Look at Europe, going to be a cold cold winter.

      • economicminor says:

        Supply Chain > Pandemic shuts things down..
        Companies not only don’t order but people quit for a variety of reasons.

        The government throws money at the public.

        The public responds and orders lots of stuff.

        The supply chain is already impaired. Many suppliers put the new old orders at the back of the line. Business wants to survive so they order from multiple suppliers hoping someone will fill their orders.

        Now comes the supply, from lots of mfgs. From everywhere.. So business picks up its 1st order and starts distributing/mfging, selling and the 2nd order comes in. So business calls trucking company to pick it up and they say, all booked up.. So it sits on the dock.. Then the 3rd order comes in and gets piled up on 2nd orders.. The piles become so big that it take an order takes 3/4 times longer to get on a truck and out of the yard. Then the next order comes in.. “Just in Time!” has piled up..

        Now the docks are so stuffed with containers that they virtually can’t move or sort or do anything, yet there are 50+ more giant ships waiting to unload at each port.

        What is needed is space but they have no space. They need to move the stuff to efficiently sort and distribute it but the freeways are clogged and the railroads haven’t really been upgraded in many decades so they are of little help. No space, no way to move the cargo.

        So how does this get solved in a quarter or two? It is major Gridlock! It needs major infrastructure revamping and you can’t do that when every square inch is already in use.

        And all it took was a little virus no one can see to disrupt the “Just In Time” economic model that has become the mainstay of World Trade.

        • historicus says:

          economic minor

          The Fed says inflation is from the bottlenecks.
          I hold the opposite opinion. And I think they are shifting the blame away from the mess they created.

          The bottlenecks are CAUSED by the inflation realization.
          Purchasing managers are, as you say, ordering from multiple sources hoping to get filled. But more importantly, what started this was the realization that prices are going up.

          So the purchasing agents contact their suppliers…and say
          “I will take all you got at that price…and how about next month too?” For to have inventory in an inflation is a good thing. So the orders increase exponentially, and the shortages and bottlenecks are the result NOT THE ORIGINAL CAUSE. They just add to the mess.
          Blame shifting from the perpetrators of the mess,…. the Fed and J Powell.

        • Diogenes says:

          Jay Forrester, MIT prof, died at 98 in 2016, solved this problem 60 years ago.
          I remember taking an engineering systems course with his book Industrial Dynamics, which modeled exactly this problem.
          Another student and I would run it on an IMB 7094 with a deck of cards in 1967. Used Fortran.
          Computer just started coming. Integrated circuit courses were just starting, in mid ’60s.
          Profs worked us like dogs. 7 courses. Electives were either thermodynamics, or circuit theory.
          Sputnik struck the fear of god into everyone that the Russians were so far ahead of us that we were hopeless.
          Now we are complacent and in fact the Chinese in AI are so far ahead that the software chief of US Air Force quit, saying that Air Force can’t spend $20m to fund needed research.
          $20m out of a budget of, what, $800b!!!

    • RightNYer says:

      You forgot the /s tag. Or you’ve been smoking something.

    • Depth Charge says:

      You are either very deluded or joking.

    • Augustus Frost says:

      Yes, the actual economic fundamentals are fantastic and asset price valuations are very reasonable?

      Is this what you believe because the exact opposite is true?

    • Old School says:

      You might be right, but the stock market already had a fantastic 12 years even though the real economy was so-so. Most of the stock market was multiple expansion and there is a limit to that scheme.

    • You’re OK with Microsoft at 140x 2018 earnings?

      I’m also an optimist, but that’s because collapsing the equity bubble will fix a lot of things, including taking capital away from the financial engineers and restarting investment on Main Street.

      • RightNYer says:

        Also, people forget that even the FAANG companies are beneficiaries of the credit bubble. Where do the earnings go if their customer base isn’t able to borrow cheap money?

    • historicus says:

      Not transitory. What is your definition of transitory?
      LeGarde said the inflation was transitory how many months ago?
      And then Powell picked up the same lingo….

      You havent seen the beginning of this yet…..
      Winter will bring more shortages, more energy price increases, more logistical issues.

    • Petunia says:

      The port is backed up because that’s the way the state wants it. They want shortages to scare their people into submission. It’s also an extra benefit that the resulting price increases fit into their inflate away the debt agenda.

      None of this is an accident. It’s ideology put into practice. Now we know how far they are willing to go.

  10. tom15 says:

    Thanks Wolf
    Loved the link. Article nailed it.

  11. c1ue says:

    Typo: may risk assets
    Should be
    many risk assets

  12. Aren’t CDS the key to risk parity. If those spreads blow out the hedge is too expensive. Someone must have realized that when a bond is bought on margin to borrow against, that both assets can rise, and inversely they should fall together. If I am buying stocks on bond collateral, there’s your margin call. Add: The bond market rises on the back of the reserve currency, US dollar. USG shifting assets as reserves to foreign countries to settle trade deficits has had the cumulative effect of cheapening the dollar.

  13. c1ue says:

    I don’t know about death rattle, but the fat lady is definitely clearing her throat.
    But the question is always the same: just how likely is the Fed to change its spots? I’ve been surprised over and over again since 2003 – plus 2022 is an election year with a lot of risk for the party in power.
    Will the Fed really take away the punch bowl in order to take inflation?

  14. AdamSmith says:

    Is this your put Wolf?
    Seems like and make sense.
    My brother-in-law is agonizing over 5 t bills at 1.75% wondering what to do thinking about annuities.

    My thought on annuities is no way as you are locked in and I think you would get screwed by this strategy.

    Any thoughts on this given the risk parity concept?

    • c1ue says:

      The risk with annuities isn’t just the lock in.
      There is also default risk.

    • Old school says:

      T-bills was one of the best investments when inflation started rising in the 70’s. It basically kept up with inflation while stocks and bonds got creamed. Might be different this time.

      • historicus says:

        Fed Funds (bill rates essentially) kept even with or exceeded the inflation rate …until 2009.

        I would post a chart but this site doesnt allow.
        Maybe wolf can find a CPI vs Fed Funds chart to post…

        It shows how rogue, how off the historical rails this Fed has been since the blow up of 2008.

        • Old School says:

          I have started listening to Peter Schiff podcasts. Don’t know if he is right, but he says Fed will never raise rates. Not sure if he is right, but if they get through taper the max Fed fund rate economy can stand is less than 1% in my opinion. Too much debt.

  15. Petunia says:

    Watched a hedge fund manager comment on how buying up the distressed assets/debts resulting from the Evergrande mess would be a wonderful opportunity. They are already investing in the “sort of” defaulted debt. They can’t wait to buy more and slice and dice it. Reminds me of the line in The Big Short, “dog shit wrapped in cat shit.”

    And anybody who thinks there isn’t contagion occurring from this is mistaken.

    • Nick Kelly says:

      Forbes had a piece saying Evergrande was just a blip compared to the 8 trillion that Chinese local govs have borrowed for similar projects, plus hiways, malls, stadiums, etc. many with no rational basis.

      Don’t know what its status is now but the world’s largest mall / park in China had only got to 5% occupancy and part was being demolished.

      The world’s largest creator of credit since the GFC was China.

    • Sierra7 says:

      Brings back the memories of watching the post GFC Congressional hearings (and also absorbing the great Senate Staff Report, “Wall Street and the Financial Crisis”) when Lloyd Blankfein was trying to “high step” around Carl Levin’s questions about what made up some of those “CDO”s) and what Goldman did with it’s own “cats and dogs” freaky investments (Blankfein actually labels so much of that, “Sh*&) they ultimately laid off on their own long term investors. Blankfein goes on to say that those good Goldman investors were “sophisticated” enough to know the differences! The hypocrisy is stunning! And these jokers got away with all this destruction with no-body significant going to jail!
      Yes, it is a contagion. No question. And it is destroying our country!

  16. cprrover says:

    There will never be a time when the Fed will not step in. We have seen over and over they will protect the banks and markets.

    • Old School says:

      Yes, but some problems can be more than the Fed can handle. They can print, but it’s not a good solution if inflation is running hot. That’s called being trapped in a policy mistake and they can’t save the real economy then.

      • historicus says:


        Indeed . The Fed can control PERCEPTION…ie we will support stocks, we will keep interest rates low, etc.

        But they can lose control….because even the Fed isnt bigger than the market…
        They can’t, nor do they have any idea, of the amount of debt and stock that has been created at these levels, these fake levels they have made seem real. And they cant support that leviathan in the end.
        We could very well be trapped in a dystopia of their creation…
        stocks lose….
        and being in cash is a lose too…

  17. gorbachev says:

    Once a fellow threw a large spoon of oatmeal at me
    missed and hit a tree and it stuck . Inflation is like that.
    Only persistent wage increases that stick lead to
    hard inflation. Product shortages and supply issues
    will get resolved unless you are under sanctions
    like some countries.

    • p coyle says:

      or the resources that are needed to make the products start running short…especially at price levels that allow for a profit. then shortages and supply issues rule the day until the mining of asteroids and the like become reality. not holding my breath on that one.

  18. Dean says:

    Inflation for the US Federal Reserve will be transitory for almost 12 years as in 2032 they will be switching to a digital dollar, electronic, digital currency and we will be even more enslaved into a world of more fake, non tangible money and economics.

  19. MonkeyBusiness says:

    Remember Portfolio Insurance back in the days? Look guys, you can have your cake and eat it too!!! Everyone was gangsta till Black Monday (October 1987).

  20. Lasse says:

    This is it!

    I’ve been wondering where is historical low interest rate market is heading. Now everything is clear to me.

    Great post with tons of common sense. Thanks!

  21. BuySome says:

    Cancel comment..was related to an Ipad problem that was deleted. Thanks.

  22. Martok says:


    Excellent post and I agree, and eventually these overvaluations and unchecked money supply flows and propping up the economy, will come to a end.

    There has to be a point where this Gov credit card’s interest payment exceeds it’s balance, maybe 40-50T as a guess, but it is a finite wall, and I suspect many institutions and individuals doing the same counting on “Papa Fed” coming to the rescue, except the fire truck has run out of money.

    @MonkeyBusiness – Yes I remember “Portfolio Insurance” as a prudent way to protect yourself, but never hear it disgusted today – excellent post.

    To anybody – What are you investing in if you believe this market is crazy and eventually will fall?

    Regards – Martok

    • Depth Charge says:

      “To anybody – What are you investing in if you believe this market is crazy and eventually will fall?”

      I am investing in my cash pile. Same as Warren Buffett, only his pile makes mine seem like a flat spot. My return comes as asset prices fall.

      • Martok says:

        @Depth Charge – Agreed, – I was thinking about “maybe” gold/silver too.

        These stocks have been inflated to a unreal level, and when they fall I will be ready too – I was around for the ’87, 2000, 2008 crashes and believe this one will be bad, with all Fed tricks, and with the crazy crypto money that came from someone’s hard drive, plus margin, – it will be ugly.

        • Diogenes says:

          1. Cash. Is only safe alternative. But hard to do when guaranteed to lose 5% each year from inflation.
          2. May be now is right time to short S&P futures. But watch out. Leverage is 20:1.
          3. Gold, yes. But wait until after the crash. Gold may fall with equities.
          4. Silver, yes. In 1980, silver was $50. Dow was 777. Now Dow is 34,000. Silver is $22! Wait until crash.

          No good answer to your question exists.
          Kupperman closer than most. He’s logical.
          But luck beats logic every time.

        • Ron says:

          Wait till tether is exposed for fraud ,there’s your crash

        • Anthony A. says:

          Cash is your friend in times like this.

    • Bead says:

      Cash secured puts aka “picking up pennies in front of the steamroller.” The skeptic’s approach to the hunt for income.

    • AdamSmith says:

      Dream on Big Guy….
      There are multiple ways the carnival can continue even though the cargage will be ugly.
      No problem, the media will ignore….
      Those in the investing realm put up a confident front but all are afraid they will be wiped out in one the the “whiplash” financial moments designed to diminish your wealth and all the anchovies like myself who have a nice middle class lifestyle even as the money buys less, and less, and less, and less.

  23. Ahmed says:

    Mr. Kupperman has company for his dire forecast for Risk Parity adventurism..

  24. Swamp Creature says:

    Noticed the grocery stores stock full this morning. I loaded up with one basket of essential non food items. There were signs, “Take what you need but don’t buy more than you need”

    Do they know something we don’t ???

    • Michael Gorback says:

      Polite way of asking people not to hoard?

      • RightNYer says:

        One thing I’ve learned over the years is that people won’t be good neighbors on their own. They need incentives. So polite signs asking people not to hoard will work about as well as a sign with a basket of candy on Halloween asking kids to take only one.

        • Sierra7 says:

          Kids have more discipline when asked to “….only take one” with candy than adults when it comes to having discipline in spending!
          I’ll take the kids any day!!

  25. michael says:

    The consequences of many bad decisions are beginning to pile up for this FED fueled economy. I suspect there will not be a soft landing when it all unravels.

    Inflation and shortages are real at least where I shop. If they have a high demand part in low quantity on hand they are charging a premium. If not they cannot tell you when it will be back in stock and for how much.

    If you are a manufacturer and cannot obtain raw material until some time in the future, will you sell at today’s prices?

  26. Gary Yary says:

    Nice write up and article Kuppy!

    The normal investment methodology has been thrown into the “my older brother is the banker” in tonights monopoly game. He wins.

    As an adult who has experienced this and witnessed this scenario in differing levels thru adult life – and now in the central bank macro universe – simply walk away.

    Sell your equities. Bonds and CD’s are safe…sell them anyway. Walk away. Cash depreciates less than a tanking equity market.

    No parity. No play.

    If you walked into a restaurant and it was filthy, crowded and disorganized – walk away.

    This Frankenstein economy reeks of manipulation and carrion.

    I see some weekend tremors at Southwest airlines. Rumors of a anti vaccine strike…Wolf mentions buyers strikes frequently…h/t to the laborers at LUV for whatever they are doing.

    The meme stock heroes who have short squeezed GME and AMC. I think TSLA is under the same affect. But…had this happened to GS or Morgan Stanley…indictments, prosecutions and bail outs from Uncle Feddy.

    The inept SEC sits on their hands while this mockery unfolds? How does GME return to a fundamental normal? If I am on the GME board of directors…my recommendation is to sell every share…do an IPO called Game Start – better yet – take it private.

    The SEC…hey this is stupid…lets make sure it doesn’t happen more than…whats the count? Whatever.

    Interesting times, interesting replies, interesting topic!

    • AdamSmith says:

      Very articulate, I sense a certain smugness….

      No one will leave this unscathed as this is the design. We in the middle class will go down with the investor class. Risk parity will give way to the power of AI…. Unless you are a programmer with extensive knowledge of the financial markets, you will not prevail against AI. AI will win, even those of you who are extremely intelligent will have to be a part of AI or you will be doomed to some variation of the precarit in the HUNGER GAMES….

      There is no return to the past, the present is intentional chaos, the future appears nasty, brutish and turgid at best.

      As the tech AI algorithm grows more powerful in investor behavior prediction all the options will be severely curtailed and those with any assets left will slowing draw the capital down to nothing….

  27. CCCB says:

    I have a book full of sayings I read regularly

    One of my favorites is from a late 1970’s Wall St CEO who said “Excessive debt always ends badly, whether on a personal or corporate level … for 2021 I would add “or governmental level”

    My takeaway from this article is this – leveraged ETF’s

    3x ETFs are 300% leverage. Stonk gamblers love them. They’re self imploding time bombs when markets turn the other way…

    “Excessive debt always ends badly.”

  28. Jim Y says:

    I think Risk Parity also includes commodities and gold.

    But according to my calculator, TLT (long term treasuries) went up 14% from 2/20/2020 to 3/23/2020. SPY went down 33%

    • Finster says:

      It pretty much has to now. If you’re just doing stocks and bonds and they both tank together, you tank with them. Commodities, including gold, are fundamentally unlike them because their value doesn’t turn on discounted future cash flows (excessively lightly discounted ones at that). Commodities and cash are going to have to be part of the mix.

  29. Swamp Creature says:

    Larry Fink was on CNBC this morning. He was deflecting the host’s questions about his investment in China and Chinese stocks. He wouldn’t answer the question. When pressed for the 5th time he finally admitted that his primary allegance is to his investors and shareholders of Blackrock which he is the CEO. This low life is in the front of the line to replace J Powell as head of the Fed, which will happen if they fire Powell as a scapegoat.

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