The Age of Credibility.

A wave of unrest.

2. John Authers:

Monetary regimes don’t fall often. Half a century ago, in 1971, Richard Nixon ended the Age of Gold by formally eliminating the dollar’s peg to the precious metal. Since then, the dollar and other currencies have rested on fiat—they’re worth something because governments say they are. You could call this the Age of Credibility. In place of gold, currency’s anchor is the trust in the central banks that issue them. Now credibility appears to be at an end. With central banks desperately ripping up their playbooks to try to rein in inflation that’s veered far beyond target, they’re admitting they’ve been wrong, and giving up on trying to steer the markets on their plans for the future.

That’s alarming, because the precedent of the 1970s is not encouraging. Oil briefly took over from gold as the anchor for currencies, and the world suffered through a period of protracted stagflation. The new Age of Credibility arrived courtesy of Paul Volcker, who as chairman of the Federal Reserve raised rates repeatedly at the turn of the ’80s and managed to squeeze inflation out of the system. For the four decades since, central bankers’ credibility has been the anchor. (Source: bloomberg.com)

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2. The S&P 500 Index may have another 24% to fall by year-end, if the past 150 years of financial-market history are any guide. That’s according to Societe Generale, which calculates the benchmark gauge may need to tumble as much as 40% from its January peak in the next six months to hit bottom. That comes out to 2,900. The upper end of the range the firm gave is for the index to slump by roughly 34% from its top, to 3,150. Societe Generale arrived at this range by studying post-crisis market valuations starting in the 1870s, using quantitative analysis, as opposed to factors such as earnings projections and valuations. “The current market valuation clearly stands as a bubble vis a vis the valuation reset of March 2020 and its trajectory,” quant strategists including Solomon Tadesse wrote in a research note Thursday. “The dynamics of post-crisis fair value still call for a deeper correction to bring current prices in line with the reset anchor fundamental fair value.” (Source: bloomberg.com)