The various stimulus gimmicks of this era have steamrolled realists under the crazy train of Disney markets. Meanwhile, Wall Street analysts and today's EconoDunces assure us they can predict the future, even as their asset bubble wholly disconnects from the underlying fundamentals. Put the Casino-Bankrupter-in-Chief in charge of the last Trump (S&P) casino, and just remember one thing: no Alice in Wonderland saw it coming...
As we see above, the real problem is no longer merely the stock bubble. The real problem is the massive disconnect with the underlying fundamentals of the economy. The net effect of the past decade was to cannibalize what remained of the global economy amid non-stop monetary and fiscal stimulus gimmicks. The 2008 bailout and subsequent decade, exchanged a private debt crisis for a much bigger sovereign debt crisis now waiting in the wings of human history's biggest failed bailout.
Deflation has been the common theme for the past decade, and yet the concern for the past decade was the imminent return of inflation. Old habits die hard. The only inflation in this environment is asset inflation. We are told that the collapse of U.S. bond yields is solely due to the collapse of the global economy. Hence not to worry. However, the S&P 500 garners more than half of its profit overseas, which is why CEO confidence is tanking while "consumers" are guzzling Trump Kool-Aid:
"Don't worry, we are decoupled. From reality"
What today's asset managers are telling their clients is that stocks ALWAYS go up in the long-term. They are ignoring the fact that this cycle is entirely unlike any other cycle in our lifetimes. They are ignoring the fact that this time it may take lifetimes to get back to breakeven. In 1929 it took 25 years to breakeven, not a lifetime, but too long for those close to retirement. For young people sure, ride out a -90% dip amid record global dislocation. We don't even know which companies will exist on the other side of this record corporate debt purge.
What is coming is the end of a supercycle. This bubble is wholly disconnected from the underlying fundamentals. As predicted by Hugh Hendry:
"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks."
Nevertheless, the crazy train must continue.
The role of today's asset manager is to make up reasons for people to ignore risk.
"I feel as though I’m playing a game of Musical Chairs while the music still plays"
Deja vu circa July 2007:
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”
