Tuesday, April 14, 2020

The Dumb Money Bubble Has Burst

Don't tell anyone, it's still a secret...

The Fed's new mandate is to artificially inflate valuations, eliminate diversification, eradicate price discovery, and generate mass complacency while the economy implodes. I call it Monetary Euthanasia. 

Today's Idiocracy calls it "Easy Money"

Perma-bulls are adamant that the Fed can use printed money to maintain asset prices at a new permanent plateau while the economy implodes in real-time. Bears are of the belief this is all just a sucker's rally destined to implode. The truth is very likely in between. 

I swore that this time around I would not be surprised at how desperate and dumb policy-makers will become, and therefore I must give credence to the bullish argument. Due to the mega deficit, the Fed is now forced to deploy mega stimulus which is clearly having a buffering effect on volatility. The volatility trade in my opinion is over. The Fed has neutralized it.

That said, the Fed has no control over the solvency of underlying assets. Therefore all the Fed can do from this point forward is to continue to prevent true price discovery. To drive an ever wider wedge between fantasy and reality. Which will drive value investors out of the market. The dumb money will merely keep buying all the way to the bottom at the behest of their used-car-salesmen investment advisors. As we see, they have every intention of riding out depression:

All of which is the worst case scenario for real investors. It means that stocks won't crash from this point forward, they will drip lower and lower and lower, deja vu of 1930-1932. The crash is over.

Or is it?

In the event of an Emerging Market currency crisis and extreme dollar rally, then another explosion will happen. However, anticipating and trading through that type of scenario will be difficult to say the least. However, it would set up a capitulation type of scenario and tradeable rally should it occur.

Nevertheless, I think we have to be mindful of the in between slow-drip purgatory scenario, because it appears that central banks are hell bent on making it happen. They have removed any sense of panic from markets. All there is now is blissful complacency.

Which I call Monetary Euthanasia.

All that aside, there is always a bubble somewhere. And right now the bubble is in stocks that are deemed beneficiaries of the new work-from-home hysteria overtaking the planet. I am referring to Zoom, Netflix, and of course Amazon, the largest beneficiary of Coronavirus:

Amazon is the LAST vestige of the dumb money super bubble, making a new all time high.


I would be remiss in not once again pointing out the new latest Fed bubble which is in fake reflation - the biggest headfake in human history, compliments of central bank monetary euthanasia.

You will notice how quickly gamblers seized upon 1930s style global depression versus 2009. It took two years for Newmont to eclipse its 2008 high at a time when reflation was REAL and not a figment of Chairman Powell's imagination.

"In its latest outlook for the world economy, the IMF said it expects GDP will contract by 3% in 2020, a far worse recession than the one that followed the global financial crisis of 2008"

Growth in China, the world's second-largest economy and the first to be slammed by the coronavirus, will meanwhile plummet to 1.2%. It hasn't seen growth that weak since 1976."

What about social mood and Elliott Wave Theory?

Social mood is clearly reaching a new (lower) high compliments of Fed dopium. However, again, the downside of panic has now been buffered by QE Maximus.

So normally while this formation below would portend a mega crash, we will soon find out what actually happens. Either way the Fed can't create value where there is none. All they can do is to continue to encourage the misallocation of capital going into depression.

Good times.