At present, there is a vigilant signal in the US market: well-known traders, former senior Fed officials, economics professors and other celebrities seem to be increasingly pessimistic about the US economy. A clearer signal is that Bridgewater, which has the sharpest sense of smell, has begun shorting European and American corporate bonds, and in April it began using a basket of credit derivatives to short European and American corporate bonds, according to people familiar with the matter.

In addition, the hot U. S. housing market also sent a dangerous signal. Sales of new homes in the United States recorded the biggest month-on-month decline in nine years, according to the latest figures released by the Commerce Department. Other data show that the inventory of the US housing market, which is actively listed in the United States, rose 8% in May from a year earlier, which is a "major turning point" in the US housing market over the past few years. More and more sellers began to accelerate the sell-off and cash out. The demand for mortgages in the United States has fallen to the lowest level in 22 years.

The Fed plays a key role in blowing up and pricking bubbles. At present, it seems that the storm of raising interest rates by the Federal Reserve may be more intense under the pressure of US President Joe Biden. Wall Street has even begun to discuss the possibility of the Fed raising interest rates by 75 basis points at a time.

A dense early warning sound

A series of pessimistic warnings added haze to US stocks.

On June 10th, local time, CPI data from the United States in May revealed that the inflation rate was growing at the highest rate in four decades, which surprised the market. After the opening of US stocks, the three major indexes collectively opened low and closed low. In the end, the Nasdaq led the decline, down 3.5%, the S & P closed down 2.9%, and the Dow fell 880 points, or 2.73%.

Among them, US technology leading stocks plummeted across the board, with Amazon.Com Inc down 5.6%, Netflix Inc down more than 5%, parent company Meta down 4.6%, Apple Inc and Microsoft Corp down 3.9% and 4.5% respectively, and Alphabet Inc-CL C down 3.2%.

After a ferocious sell-off, Wall Street analysts pointed out that the US stock market is re-examining the risk of recession in the US because it is not fully priced in the haze of inflationary inflation and Fed interest rate hikes.

In a recent interview, Mark Spitznagel, chief investment officer of Black Swan fund Universa Investments, said the financial system was most vulnerable to "the biggest credit bubble in human history". If the bubble bursts, it would be the most catastrophic market failure anyone has ever seen.

At present, the US credit debt market is mainly composed of municipal bonds and corporate bonds. The average maturity of US credit bonds in the next five years is more than US $1 trillion, and the proportion of speculative debt continues to rise, increasing the pressure on enterprises to repay their debts.

Mr Spitznagel has been staunchly opposed to the Fed keeping interest rates close to zero or even negative, warning that this has pushed up asset values and encouraged excessive borrowing. At a time when central banks around the world are tightening monetary policy to fight inflation, the performance of US Treasuries is disappointing investors.

According to the latest report released by Deutsche Bank this week, if the recession arrives at the end of next year, as predicted, and inflation remains high, the default rate on US junk debt is expected to peak at around 10.3%.

A clearer signal is that the Bridge Water Fund, which has the sharpest sense of smell, has begun to short European and American corporate bonds, and media quoted people familiar with the matter as saying that it used a basket of credit derivatives to short European and American corporate bonds as early as April this year.

Greg Jensen, chief investment officer of Bridgewater, said in an interview that Bridgewater chose to short European and American corporate bonds because the company thought inflation would be more entrenched than the Fed expected, which would eventually force the Fed to raise interest rates faster.

Other Wall Street giants have issued warnings one after another:

Chief Executive Wells Fargo & Co said that it is difficult for the US economy to avoid some degree of recession.

Dimon, CEO of JPMorgan Chase & Co, warned that the US economy is facing unprecedented challenges and investors should prepare for the coming "economic storm"

Goldman Sachs Group Group President John Waldron (John Waldron) also issued a warning: due to a series of shocks to the global economy, the future will enter a difficult period, has seen a more severe capital market environment.

When analyzing the possibility of US economic recession, Summers, a former US Treasury Secretary and now a Harvard professor, said bluntly that history tells us that when inflation exceeds 4% and the unemployment rate is less than 4%, the US economy will enter a recession within two years. At present, the United States has no tools to smoothly make the economy a "soft landing."

According to the latest data from the U.S. Department of Labor, the non-farm unemployment rate in the United States was 3.6% in May, while the inflation rate in May was still as high as 8.6%. The market expects the Fed to raise interest rates more aggressively and even shrink its balance sheet sharply to curb "high fever" inflation.

Separately, William Dudley, chairman of the New York Fed from 2009 to 2018, said the chances of a soft landing in the current cycle were close to zero because every time they had to push up unemployment in the past, they ended up in recession.

A red flag for the US housing market

At the same time, the soaring US housing market has also sent dangerous signals.

Since 2022, the Fed's aggressive policy of raising interest rates has been rapidly pushing up mortgage rates in the United States. The average fixed rate for 30-year mortgages in the United States has soared to 5.1% from 3.1% at the beginning of this year, leading to a sharp drop in the US housing market and a decline in sales of both new and second-hand homes.

According to data released by the U.S. Department of Commerce, sales of new homes in the United States fell 16.6 percent in April 2022 from the previous month, the fourth consecutive month of decline, the lowest since April 2020 and the biggest decline in nine years.

High house prices and high interest rates are having a significant impact on the hot US housing market. According to Realtor.com, a US statistics website, inventories of the actively listed US housing market rose 8 per cent in May from a year earlier, the first "major turning point" in US housing inventories in years, and sellers feeling the pressure began to accelerate the sell-off and cash out.

According to the seasonally adjusted index released by the Mortgage Bankers Association (MBA), the total number of mortgage applications last week fell 6.5 per cent from the previous week (including applications for purchases and refinancing), the fourth consecutive week of decline and demand fell to its lowest level in 22 years.

Before that, the rise in US house prices was particularly ferocious, spurred by the epic release of the Federal Reserve. According to the latest data updated by the S & P CoreLogic case Shiller National House Price Index, the national house price index rose 20.6% in March from a year earlier, the highest year-on-year growth rate in the 35-year history of the data. At the same time, case-Schiller's 10-city and 20-city index also rose 19.5% and 21.2% year-on-year.

At present, the average house price in the United States has risen by more than 100% from the trough of 2012.

Another leading indicator of US house prices: timber prices have also sounded the alarm. Us timber prices have halved since the beginning of March, according to the latest trading data from CME. So far, Chicago timber futures have fallen to $572 per thousand board rulers, down 50% so far this year.

John Burns, a real estate consultancy, points out that the decline in US timber prices is mainly due to a drop in demand for new homes due to soaring mortgage rates, and that US timber stocks have risen to high levels.

In response, Canfor, one of the world's largest timber producers, said it would extend its production reduction plan to address the problem of excess inventory.

China International Capital Corporation predicted that the U. S. real estate fever may be "reduced", the Federal Reserve raised interest rates to push up mortgage rates, real estate sales investment or slow. However, China International Capital Corporation further pointed out that under strict financial supervision, most of the new housing loans in the United States in the past two years were high-grade credit loans, not "subprime loans". Therefore, the "fever" of the US housing market may not cause financial systemic risks.

Will the storm of raising interest rates be more violent in the future?

The Fed plays a key role in blowing up and pricking bubbles.

At present, the continued collapse of US stocks and the "fever" of real estate are still not the biggest concern of the Federal Reserve, and the most "urgent" problem is still the inflationary rate.

The latest released data show that US CPI growth accelerated by 8.6% in May from a year earlier, and failed to continue to slow after a slight slowdown in April. Instead, it surprised the market by refreshing the highest growth rate in four decades set in March.

In a statement after the release of the data, President Joe Biden made it clear that fighting inflation is the government's top economic priority and that the United States needs to "quickly take more measures to lower prices." and called on Congress to pass legislation to reduce energy, prescription drugs and transportation costs.

With November's mid-term elections approaching, soaring inflation has become a political problem for the Biden administration. The latest poll results show that only 37% of people approve of Biden's handling of the current economic problems in the United States, and only 28% approve of his handling of inflation. More than 80% of respondents believe that economic problems, inflation and rising natural gas prices are the most important issues that determine how they vote in November.

In the face of a series of pressures, the Biden administration is putting pressure on the Fed. Cecilia Rawls, the White House economic adviser, said recently that Biden gave the Fed "room to do what they need to do".

Wall Street traders expect the Fed to raise interest rates by 50 basis points each in June, July and September, while expectations of subsequent rate cuts are soaring. Wall Street has even begun to discuss the possibility of the Fed raising interest rates by 75 basis points, with Barclays becoming the first major Wall Street bank to raise interest rates by 75 basis points, and even next week. The swap market expects a 75 basis point rate hike in July to reach a 50% probability.