The "Everything Bubble" and the "Great Repricing"

I have been calling 2022 the year of the "Great Repricing", but that begs the question of what has caused or what is the reason for these large adjustments. Of course, interest rates are moving higher which changes the present value of all future cash flows; however, I will provide the quick shorthand primal answer, the "Everything Bubble". The Great Repricing is offsetting the Everything Bubble which is leading to the "Everything Bust".

Given we have had a decade plus of zero interest rates followed by a short period of rising rates which were cut-off before markets could adjust, followed by a second zero rate period related to the pandemic, we have seen 14 years of low rates and excessive credit. The entire financial history since the GFC has been characterized by not just low interest rates but zero rates. The result has been an equity bubble, a fixed income bubble, and a credit bubble. The bubbles are now coming to an end.

We are now seeing increases in rates as the Fed attempts to stop inflation, but this is really a normalization away from extremely low negative real rates; well below the low rates estimates for r-star.

The Great Repricing is the bursting of the Everything Bubble and a return to normalization. There will be no relief, even if the Fed pauses, until the bubble extremes are extinguished.