Monday, April 27, 2020

100% Smoke And Mirrors. Accept No Substitutes

Crude oil is the best indicator we have for what is actually happening to the REAL economy outside of central bank controlled Disney markets: Total annihilation...

Our leaders are hardcore psychopaths who believe it's their god given right to lie constantly. And the sheeple at large wouldn't have it any other way. I call this process carbon harvesting.

Fake optimism is the order of our day. Now at a level bordering on wholesale criminality. A society run by and for perma-smiling denialists who couldn't face the truth if their life depended on it. In this age there is no audience for truth. Everyone is now subscribing to their own brand of bullshit. The 2020 election has only ratcheted up the disinformation overload. Every dumb thing Trump says now gets repeated on CNN 400 times per day. Who has that kind of time? It's not breaking news that he's a moron.

Speaking of which, today's economists are total fucking idiots. There is no other way to describe that profession. Over the past decade they have entirely sold out to central bank alchemy. Which is why they are constantly behind the curve on predicting what is happening to the real economy. Likewise, today's central bank rigged markets in no way convey the demand collapse in the economy. The concept of true price discovery is a relic of a bygone era. Central banks don't want anyone to really know what is going on beneath the surface of their well maintained fiction. Only the commodities market - which is, so far, outside the buying purview of central banks - gives an accurate depiction. And it's not pretty. Oil of course is ground zero for global implosion, not only because of the demand collapse but because of the rampant global oversupply going into this crisis. Now, producers are reacting belatedly to curb supply, however, they have no control over the collapse in demand. The players in the crude oil market are ALL price takers. The OPEC cartel has been neutralized by oversupply.

The primary difference between now and 2008 of course is the fact that the global economy is now on lockdown. The slow retreat of the virus will leave many comfort-seekers still hesitant to return to normal activities. The other main difference from 2008 is that back then China drove the world economy out of recession, as their GDP growth never dipped below the 9% growth mark. This time they are ground zero for the virus and the economic implosion.

Here we see 20 years of China GDP growth (red) with commodities. The IMF now predicts 1.2% growth for China in 2020:

Here we see U.S. crude oil demand from refineries on a weekly basis. A gauge of what is happening to U.S. GDP. An optimist would like to believe that demand will v-bottom as it did in 2009, however that isn't going to happen this time around. The dotted lines give a more realistic depiction of grand "re-opening". 

Given the collapse in refinery demand (above), gasoline prices will be a far better indicator of demand return, than crude oil.

Gasoline prices v-bottomed in 2009, whereas now they are languishing at decade lows amidst zero demand.  All tremendously deflationary, and an indication of non-existent recovery despite record stimulus. 

Central banks are totally out of commission. Century low interest rates mean that they have no control over the underlying economy. In addition, the shutdown leaves no pathway for fiscal stimulus to reach the economy. All central banks can do now is manipulate social mood and the misallocation of capital. 

On that basis I give them an A+.

Another gap open Monday morning on optimism over the economic grand "re-opening" and BOJ "unlimited bond buying".

The riskiest sector - Biotech - has now returned to the scene of the crime. Indicating that fake optimism is alive and well:


This year's FOMC rally took less than half as much time as  last year's to cover roughly the same distance. 

"That's not FOMC, this is FOMC..."

Here is the updated timeline for "reflation"