The Risk of a “Minsky Moment” in the US Banking Industry: What You Need to Know

According to reports, Marko Kolanovic, chief global market strategist at JPMorgan Chase, the turmoil in the US banking industry has made a soft landing of the economy unlikely, and increased the risk of “a Minsk moment in the market and geopolitics.”. Even if the central bank successfully curbed the spread of the crisis, due to pressure from the market and regulatory agencies, the credit environment is bound to tighten more quickly. “Minsky moment” refers to the final stage of excessive risk taking resulting from long-term economic prosperity; A destabilizing event may force investors to sell assets to increase their cash holdings, sending the market into a downward spiral. Kolanovic reiterated his view that the first quarter may be the peak of the US stock market in 2023, and recommended that customers sell while any market concerns ease and there is a rise; But he also pointed out that some markets appear to be oversold in the short term. (Bloomberg)

Chief Global Market Strategist for Xiaomo: The Risk of “Minsky Moment” Rising

The US banking industry is facing a period of turmoil that has caused concern among experts about the likelihood of a “Minsky moment” in both the market and geopolitics. According to reports, Marko Kolanovic, chief global market strategist at JPMorgan Chase, has warned that the unstable credit environment, along with pressure from the market and regulatory agencies, could make a soft landing of the economy unlikely. In this article, we’ll explore what a “Minsky moment” is, the factors contributing to the current crisis, and how this affects the US stock market.

What is a “Minsky moment”?

The term “Minsky moment” was coined by economist Hyman Minsky, who argued that during periods of long-term economic prosperity, investors tend to become overconfident and take on excessive risks. The resulting instability can lead to a sudden loss of confidence, forcing investors to sell their assets to increase their cash holdings. This, in turn, can cause a downward spiral in the market.

The current crisis in the US banking industry

The US banking industry has been facing a period of instability due to several factors. One of the key factors is the ongoing COVID-19 pandemic, which has led to a decrease in economic activity and an increase in unemployment rates. This has made it harder for individuals and businesses to repay loans, leading to a rise in default rates.
In addition, there has been a significant increase in risky lending practices, particularly in the subprime lending market. This has led to a surge in bad debts, which has put additional pressure on banks and other financial institutions.

The risk of a “Minsky moment”

According to Kolanovic, the current crisis in the US banking industry has increased the risk of a “Minsky moment”. He believes that the first quarter of 2023 may be the peak of the US stock market and recommends that customers sell their assets while the market concerns ease and there is a rise.
However, Kolanovic also pointed out that some markets appear to be oversold in the short term. This suggests that investors should look for opportunities to buy undervalued assets while also being mindful of the risks associated with the current crisis.

Conclusion

The current crisis in the US banking industry has increased the risk of a “Minsky moment” in both the market and geopolitics. Experts warn that the credit environment is bound to tighten more quickly, which could lead to a sudden loss of confidence and a downward spiral in the market. Investors should be mindful of the risks while also looking for opportunities to buy undervalued assets.

FAQ

Q: What is a “Minsky moment”?
A: A “Minsky moment” is a destabilizing event that can occur when investors become overconfident and take on excessive risks, leading to a sudden loss of confidence and a downward spiral in the market.
Q: What factors are contributing to the current crisis in the US banking industry?
A: The COVID-19 pandemic has led to a decrease in economic activity and an increase in unemployment rates, making it harder for individuals and businesses to repay loans. There has also been a significant increase in risky lending practices, particularly in the subprime lending market.
Q: Should investors sell their assets?
A: According to Kolanovic, investors should sell their assets while market concerns ease and there is a rise. However, some markets appear to be oversold in the short term, so investors should consider buying undervalued assets while also being mindful of the risks.