Friday, January 17, 2020

Trump CasinoNomics: Double Or Dog Food

When corporations eliminated real retirements they had to create an imaginary one instead aka. The Dow Jones Illusional Average. Human history's biggest Ponzi scheme...

"Last week, our estimate of prospective 12-year nominal annual total returns - fell to the lowest level in U.S. history, plunging below the level previously set at the peak of the 1929 market bubble" - John Hussman, December 2019

The problem with strip-mining future generations to pay for a party today, is that there is no sustainable hand-off to the next generation. It appears that when global central banks bailed out gamblers in 2008 and time again over the past decade, they forgot to mention that they have no exit strategy for BubbleNomics. There is no "Plan B" for when this all explodes spectacularly at "all time highs"...

Like what?

Monetization of record debt issuance in 2019 fueled the Trump super asset bubble:

The problem with the Trump deficit is already 100% self-evident. However, this society specializes in ignoring the obvious. Four months ago, the Trump mega deficit crashed the overnight repo lending market. Which is what led the Fed to increase their balance sheet at the fastest rate since 2009 with stocks ALREADY at all time highs. Something that had never been tried before - a late cycle melt-up bubble using monetary overdose. Never tried for a reason. Gamblers have been euthanized by record combined monetary and fiscal stimulus. And the rest of society is likewise stoned by trickle down complacency. It's as if the Dow is some sort of talisman to hypnotize the masses. As long as it's going up, people never question the economic collapse taking place in broad daylight.  

Now asset managers - whose sole job is to convince people to take on more risk, and thereby increase AUM (assets under management) - are telling people that future returns are not impacted by past outsized returns.

Going into another year of the longest bull market in U.S. history:

This argument is classic data mining. Take the past several decades and extrapolate the past to the indefinite future. Solely using statistical regression, while ignoring ALL prevailing idiosyncratic risks - record global debt levels, record low interest rates, fiscal policy depletion, over-valuations, record leverage etc. etc. They assume the past is the future by ignoring all risks. It's about the most facile market thesis one could imagine, short of imploring people to buy stocks on Twitter. Typical of what we see from today's used-car-salesmen investment advisors.

We are surrounded by a generation of super dunces who now believe that printed money is the secret to effortless wealth. No matter how much the middle class gets decimated, they assume that "stocks" will always be a great investment. Their knowledge of economics, entirely worthless. 

Which is why TRUE market experts NORMALIZE returns based upon where we are in the cycle to get a more accurate picture of the future. Per John Hussman, December 2019:

"Last week, our estimate of prospective 12-year nominal annual total returns on a conventional portfolio mix (invested 60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills) fell to the lowest level in U.S. history, plunging below the level previously set at the peak of the 1929 market bubble."

Considering that it took 25 years for the Dow to regain its 1929 peak. Not everyone has that kind of time.  

Zooming out to the big picture - this prevailing delusion that corporate insiders cashing out of stocks at a record rate, leaving corporations with record (buyback) debt, will also support history's largest generational retirement at an average rate of 10,000 boomers per day, is sheer fantasy. The all time greatest con job.

People have totally forgotten how we got here. Cheap money and too much debt. The solution to which was even cheaper money and even more debt.

You have to be brain dead to believe this fairy tale.

Sadly, most people DO believe this fantasy, which is why they don't question it. They have 100% faith in central banks to keep inflating this bubble and also prevent it from crashing. If they didn't believe in this fairy tale, the "system" wouldn't work. Which means that "the system" is based solely upon exploitation. Working for decades and having nothing to show for it used to be called slavery. Now it's called "business as usual". 

Japan and China have both already learned the hard way that it's IMPOSSIBLE to keep monetary-inflated bubbles from exploding. In 2015, China tried everything - shutting down markets for days at a time, prohibiting short selling, prohibiting ANY selling. Regardless, asset values found their true price. After all, it only takes one trade to "revalue" an entire asset to its correct price. Just because someone paid a million dollars for a brick in the past, doesn't make the brick worth a million dollars in the future. 

The U.S. could have learned from those examples, but instead chose the hard road to enlightenment.

What I call "Shanghai Surprise".

"The Chinese state is the largest shareholder in the Chinese financial system. That surely makes its ability to stave off a liquidity crisis pretty much limitless."

"Don't worry, be happy. Prospective future returns are now the lowest in U.S. history"