I said on the first leg down that the casino would explode, because central banks would lose control. I was wrong, that never happened. The most violent crash in U.S. history was ultimately brought under control by two trillion in Fed money printing. AND RECORD BTFD from new casino gamblers flooding into Trump Casino. My bad.
Nevertheless a large amount of technical damage was done. And now the casino is far MORE overvalued than it was two months ago at the prior top. Meanwhile, gamblers have a newfound sense of invincibility and TOTAL belief in central bank lubrication.
It's rare that we have the chance to make the exact same monumental bet twice in a matter of years, much less two months. Yet this is the opportunity rampant denial has presented us. The good news is that if history is any guide, it won't be the last.
Which is why I am doubling down on my call for extreme dislocation in this next leg down, what some are calling "the re-test". Although, this time I am not predicting they will shut down the casino for an extended period of time, now that the Grand Re-opening has begun. As a sign of "confidence" they will want to keep it open. Which will make the decline even more brutal. Nonetheless, the built-in circuit breakers could still see the market halted -20% for the remainder of the day.
"The Trump administration’s response to the coronavirus has coalesced in recent days around the same message - the need to reopen quickly."
Among those calling for a re-test is billionaire Jeff Gundlach who ignited this week's short-covering bonanza. According to the article below, over the past 92 years and 25 bear markets, the market re-tested a bear market low 60% of the time. But here is where it gets really interesting - of the 25 bear markets since 1928, 11 of them took place during the Great Depression. Yes, you read that right. And during the Great Depression, bear market lows were re-tested 90% of the time. Meaning it was an extraordinarily volatile decade. Which I believe is the new normal. Massive rallies and crashes. An annual bull market, and annual bear market.
Japanification
But here is where it gets even more interesting - what many are calling a "re-test", already was a re-test, of the 2018 lows. And according to today's bulls that re-test passed per this recent sugar rally.
NOTE in the lower pane that this latest rally was driven by mega cap Tech and therefore breadth never confirmed the rally. This leg down should blow through the (third) "re-test" level like a hot knife through butter. Next "support" is the 2016 low - 50%:
Here we see via Tesla a return of FOMO deja vu of the February top. This time, the stock is three wave corrective. As it was in February, the second high matched the top in the S&P 500:
What I am saying is that fear is about to make a comeback into markets after a decade hiatus sponsored by central bank market magic. It's a bold call to make to be sure. Because in order to come true, the market will have to break in such a way that faith in central banks is imploded. At which point fear and panic will re-enter the markets. And at that point volatility and true "price discovery" will return.
We already see via the virus pandemic that this is a new age of fear. The age of zombies is over. There is nothing to fear but fear itself, however, the zombies who took the decade off from reality are now experiencing fear. Their vacation from reality is over, and they have no will or ability to face the truth. They are out of practice. Non-stop lying bought them a decade reprieve from reality at what history will say was a terminal cost to health and wealth. Mental health is about to become a serious problem for this society of denial addicts. Being fake happy is now a full time job.
Those of us realists warned over and over again that inconvenient reality would return in brutal fashion, and it did in a way that not even the most bearish among us could predict. Now the denialists are trapped and therefore the lying is ratcheting up commensurately. It's all they have going for them - a groupthink of lying dunces jacking each other off constantly.
This lockdown is a powder keg ready to explode. Policy-makers are all over the place trying to juggle the economy versus the outbreak. It's an impossible task in the hands of incompetents.
The political divide is now chasmic. Each side blaming the other with only six months to go until the most important election in U.S. history. The fact that Herbert Hoover's approval rating among his base hasn't imploded yet is a testament to their depth of denial. He has a deathgrip on his base and they will follow him into the depths of hell at any cost to their health or wealth. Anyone who follows them down the Road to Perdition is doomed.
The combination of haphazard re-opening of the economy, denialistic views on the Coronavirus "hoax", non-existent safety net, sugar rallied markets, is a recipe for societal explosion and rampant panic.
These people have everything on the table now, letting it ALL ride on Trump Casino.
This is going to be one hot summer.
Any questions?
