Trapped gamblers were bailed out overnight (Friday morning) by a massive combined global bailout package. Consisting of massive doses of central bank liquidity and a fiscal stimulus package making its way through U.S. Congress.
Last week I predicted that the next attempt to use QE to engineer a market rally will fall flat on its face. Now we will find out who is right. Sure, the rally may last hours or even days - who knows - however, ultimately bidding up the S&P futures while the world falls apart in real-time, won't solve the underlying problems. Hard to believe as that may sound.
The Coronavirus is a MASSIVE deflationary shock coming at the end of the global credit cycle. It's 9/11 on steroids. After 9/11, the travel and hospitality sectors imploded due to fears over terrorist attacks on airplanes. Many airlines went bankrupt. This event is like 9/11 except it also impacts local shopping malls, local restaurants, fitness centers, sporting events, taxi drivers, gas stations, cruise ships, hotels, airlines etc. etc. all of which are seeing a collapse in demand.
The narrative out of everyone on business television is STILL that this is a temporary situation that can be solved with a big bazooka of short-term stimulus.
They are ignoring the credit crisis taking place in real-time. Treasury Secretary Mnuchin, speaking on CNBC this morning, re-iterated multiple times that this event is not like the financial crisis. He is right by being totally wrong - it's worse than the financial crisis.
Worse yet, monetary policy is entirely exhausted. And fiscal policy will do nothing to offset the collapse in demand.
Liquidity can only hide insolvency for so long.
All of this should be commonsense and obvious to today's economic pundits, but they are all so busy reassuring investors that they can't find the time to tell the truth.
While Keystone Kops run amok with their half-assed bailouts, the deflationary shock will spread and deepen. At which point they will lack any and all tools to prevent total collapse. In the meantime, the smart money will be hitting the bid knowing full well that this latest "TARP" bailout rally is their last chance to get out of Trump Casino.
The differences between now and 1987 are fundamentally profound. Begin with what I said above, this Coronavirus quarantine is a massive deflationary shock arriving at the end of the largest credit bubble in human history.
In 1987 the economy was fundamentally sound, and policy-makers had the full arsenal of stimulus at their disposal. Today, stimulus has been entirely depleted. In 1987 there was no trade war, no Coronavirus, and no repo liquidity crisis. Today's policy-makers are smoking crack to believe this is anything like 1987. As are the investors who believe them.
Nevertheless, faith in central banks is alive and well. The belief that printed money is the secret to effortless wealth has somehow survived the first leg of super crash.
Recall, in 1930 the market crashed and then bounced for several months before it rolled over into the abyss. Could this be that tradeable bounce?
My going in position is not yet. Here are the reasons why:
Over the coming days we will be hearing rumours about this entity and that entity going under. Financial firms margined out of existence. And of course insolvent companies unable to rollover their debts.
"Bond ETFs are highlighting signs of liquidity stress in broader markets, with cash prices trading at persistent and deep discounts to the value of the underlying assets."
The $31 billion iShares iBoxx $ Investment Grade Corporate Bond ETF closed at a discount of 3.3% to its net asset value on March 11, the largest such divergence since 2008"
Listening to Cramer's wish list of stimulus ideas - much of which came to fruition over the past 24 hours - his prescriptions largely ignored the underlying problem of collapsing demand. Giving businesses more debt at the end of the cycle is a recipe for disaster. This problem can no longer be solved by Supply Side economics. The 40 year failure of those asinine policies is now complete. The next step is heli money for the middle class, something Cramer never even mentioned. Until universal income arrives, global deflation will continue to deepen inexorably.
Which is why Cramer's advice to BTFD will be fatal. He believes this nascent rally is the last chance to get in, whereas it's the last chance to get OUT:
Worse yet, from a technical standpoint, this market never saw investor capitulation, which would set-up the 1930 bounce scenario. Certainly selling was heavy, much of which was by computers. However, human panic never took place. Which is why this rally can't be trusted.
The Super Crash ratio has not been repaired, as gamblers are still hiding in the mega cap Tech stocks:
For example Apple, which is still above its 200 dma:
Here we see via second derivative volatility, that panic never manifested itself. The VIX itself was bid up due to machine selling. However the VVIX was subdued by BTFD.
As of 11:30 am Friday, the S&P 500 is still in no man's land and the rally is fading fast.
The equal weight S&P is camped at the last line of support:
You know you're a denialist when you take this home for the weekend:
In summary, yet again, this current bailout is solely for the rich. Which is why it will do nothing to solve the real problem of deflation.
