A decade of monetary bailouts have created the largest divergence between fantasy and reality in world history. All under the well-conditioned gambler belief that bad news is good news, worse news is better.
As always, the burden of truth remains on the truth. History will say that a fatal addiction to ignorant and arrogant bullshit was the end of the Republican party.
As always, the burden of truth remains on the truth. History will say that a fatal addiction to ignorant and arrogant bullshit was the end of the Republican party.
The grand finale version of history will go like this:
At the end of the longest expansion and bull market in U.S. history, the economic tank was totally out of gas. The Trump tax cut and attendant mega deficit had boosted bond yields sending the Dow down -20% from peak to trough in 2018. Under extreme coercion from Trump, the Fed pivoted to full easing mode. They called it the "mid-cycle adjustment" coming at the end of the longest expansion in U.S. history. No one questioned it. For a time those three rate cuts kept stocks bid, however, by mid-2019 the bill came due for the tax cut, via record bond issuance. The overnight "repo" lending market collapsed. The Fed stepped in to take over the entire repo market. In the event, the Fed fully monetized Trump's deficit, creating a combined 10% of pro-cyclical fiscal and monetary stimulus. Unprecedented in U.S. history. Stocks skyrocketed, creating a massive divergence with the underlying economy. Valuations reached record levels By the end of 2019, the market was the most overbought in almost fifty years. Amid non-existent pullbacks.
By late January 2020, the Fed rocket ship was starting to lose thrust, just as the Coronavirus broke out in China. The world's second largest economy was on the ropes after two years of trade wars, Hong Kong riots, and global deflation. The PBOC injected massive stimulus into markets creating the blow-off top for global risk, led by Tesla which was the most shorted stock in the world.
All of which gets us to this week. Last week I described the various combination of historical crashes that rhymed with this impending super crash. In particular I said that VixPlosion 2.0 was imminent. Of course, when the market opened this past Monday, the PBOC delivered their monetary adrenaline injection which has put a bid under the most beaten down global markets.
Be that as it may, this latest bailout rally has been extremely uneven. Leading mega cap software stocks saw almost no pullback last week. Whereas economic cyclicals crashed. Which is why now, Microsoft, Tesla, and a handful of other massively overbought names are making new bubble highs, while the rest of the market is lagging. Central banks have succeeded in creating market concentration on a scale never before witnessed.
As I write on Wednesday morning, the overnight futures are vertical bid for the third day this week, back towards new S&P all time highs. The Nasdaq hit a new high yesterday.
There is extreme biblical irony in the fact that MAGA has succeeded in decimating the oil industry while the world's leading alternative energy stock goes parabolic.
Which is a minor preview of the paradigm shift that is about to come:
What we have now is a bear market ex-Tech, and a recession ex-deficit
