Wednesday, April 22, 2020

FOMC: Fear Of Missing Crash

"I bought for the Coronavirus, but I doubled down for the credit crisis. No one ever accused me of being intelligent"

According to the Free Money Implosion Hypothesis, policy-makers will continue to increase the size of the bailouts, until they blow up the bond market. Because we live in a Super Idiocracy and that's how we roll baby...

The various stimulus bills are starting to overlap one another. The funds for the "PPP" (Paycheck Protection Program) were barely disbursed this week before Congress approved another round of funding yesterday.

However, the interesting proposal that has yet to be passed, is for FULL MMT mode via middle class bailout. This is the one that will blow up the bond market:

"$2,000 in cash per month guaranteed for at least six months"

Every American adult age 16 and older making less than $130,000 annually would receive $2,000 a month"

It remains to be seen whether or not the GOP will go for this, however in the meantime insolvencies will continue to mount by the day. As we see via my graphic below, the dilemma policy-makers face is that if they don't bailout the middle class, the credit markets will face record defaults. If they DO bailout the middle class, the credit markets will face record bond issuance, which will implode liquidity. Last year's repo crisis was merely a mild demonstration of what would happen. 

Either way, the result is the same:

Here we see via the Treasury market, the Repo crisis of last year due to Trump's $1 trillion deficit, and the more recent stimulus-driven yield spike. I am predicting that policy-makers will continue this stimulus madness until we get a 10x repo crisis across the entire bond market:

Notice, I haven't even mentioned Coronavirus once, yet. Nor have I mentioned the actual economy.  

From an economic standpoint, all of this stimulus will go straight down the shit hole UNTIL the Coronavirus subsides and everyone comes out of their bunkers. Which could take a LONG time. Which means that on the business side, the ongoing mass defaults will be unabated by these various stimulus gimmicks. Policy-makers can potentially bailout households at the expense of the bond market, but they have no ability to bailout all businesses with the economy firing on only half the cylinders. I see real "reflation" taking quite some time post-stimulus and post bond market implosion. 

Getting back to the casino. Due to the overriding belief in printed money, somehow this moment feels like another topping process, despite the fact that the market is already down over -20% from the highs. Which is where this gets interesting, because the same stocks that led at the February high are leading now.

"I bought for the Coronavirus, but I doubled down for the credit crisis"

FRED: 10 Year Breakeven Inflation Rate

Amid all of this money printing, no surprise gold stocks are leading the market. However, gold itself peaked over a week ago. I am not of the belief that a massive credit crisis will be bullish for gold. Recall that gold sold off INTO the 2008 credit crisis and THEN bottomed. This time gold rallied AHEAD of the impending credit crisis not wanting to miss out on all the fun.

I think we all see where I'm going with this:

As I've noted, Amazon is among the few stocks to make new highs during this counter-trend rally:

AMD is leading semiconductors deja vu

Also no surprise, Biotechs made new highs in the race for the cure.

The same sector that led in 2015 ahead of the smash crash:

I would be remiss if I didn't remind everyone that the oil market melted down this week and crude oil for delivery went negative for the first time in history:

In summary, all of the stocks above that just made new highs are about to rollover and join the downside party. And contrary to ubiquitous belief there is nothing the Fed can do about it. 

As I predicted, Super Crash was the biggest crash in U.S. history - based upon the velocity and magnitude of decline from all time high to bear market low. Also in terms of overnight limit down sessions, and day session circuit breaker trading halts. It took $2 trillion of printed money to reverse the downside momentum.

However now the zombies are 100% convinced that printed money is the secret to effortless wealth.

Everything Crash WILL convince them otherwise.