Monday, June 8, 2020

1930 Fool's Rally

The 1930 rally continued just long enough to convince the vast majority that the worst was over. As it turns out, the worst hadn't even started yet...

Central banks are out of economic ammo aka. interest rate cuts. All they can do is bid up asset bubbles and create the optimal conditions for global asset crash. The banquet of consequences has been set. Meanwhile, as any blind man can see, social mood is turning down hard, amid protests and rioting. Archaeologists won't understand how mass protests due to extreme inequality attended a vertical stock market rally. They will conclude, as I have, that this society is a late stage Idiocracy in full blown self-destruct mode.

Good times.

Without getting too politically incorrect and risk pissing off everyone, I would suggest that George Floyd was not the first black man to suffer Running Man brutality, nor will he be the last. He was merely the catalyst for the latest round of race riots. In the American tradition. In the background is the unquestioned global "system" that exploits anyone and everyone who is in poverty. There is no ladder out of poverty under the current paradigm of economic oppression, regardless of colour or race. However, the system becomes inherently more oppressive the darker the skin.

Be that as it may, as with global warming, it took a virus hoax to collapse the carbon levels down to previously unthinkable levels. And it will take the lingering state of fear to now level the economic playing field between the "haves" and the "have nots". So far, so good. There are currently millions of low wage Americans getting paid almost double their working wage to enjoy a free vacation. And they well deserve it. Should Congress fail to rollover their benefits, we will see rioting that makes the current unrest seem like a picnic. 

Which gets us back to social mood. Any blind man can see that America's long overdue socioeconomic rioting is well underway. Attended by stock market gamblers going late stage manic due to stay-at-home cabin fever. Essentially losing their minds and throwing all of their stimulus money away in Trump Casino.

Which sets up a lethal finale, as this combination of melt-up events has created a massive air pocket beneath the casino, which as been backfilled by wholesale bullshit.

The global Dow is giving a very clear warning wave count, which is corrective at two degrees of trend. The lower high at red "c" in early 2020 WARNED that global markets were heading for a crash. This post-crash rally is also a clear three wave retracement. 

It's a bear market rally. Also known as a sucker's rally.

"Speculative excess has surged to the highest in at least 20 years among U.S. options traders"

Traders established fresh bullish positions last week by buying 35.6 million new call options on equities, according to Sundial founder Jason Goepfert. That’s up from a peak of 28.7 million in February, when speculative activity was rampant"

I call this next chart "Ponzi reflation". Because whenever gamblers get fully lathered up - as they are now - they create a three wave reflationary retracement due to their misallocation of capital. No ACTUAL economic reflation exists, however they throw enough money at the oil futures to give the illusion of economic reflation. In the process they get further self-lubricated and start to buy up banks and other cyclicals under the self-fulfilling illusion of economic recovery. 

Note the difference from 2009 when China was pulling the world out of deflation with 9% GDP growth, versus 1% today.

To summarize:

Gamblers are late stage manic, while broader social mood turns dark. 

In addition, central banks are totally out of interest rate cut ammunition. All they can do now is feed asset bubbles and create the optimal conditions for global asset crash. Good job everybody. 

However they can also monetize deficits and otherwise enable fiscal stimulus on a previously unfathomed scale. However, the current political environment ahead of the election is growing acrimonious to say the least. Both sides are slinging mud and otherwise maneuvering to inflict maximum pain. In the background is this thing called the imploded economy.

Bearing in mind that these political fools change their mind every second - at present there is no "agreement" on further dramatic expansion of monetized fiscal insanity. Which means that the current political environment is highly deflationary.

Once again, what I predict next is an epic crash and epic rioting. And then a newfound political consensus on further dramatic monetization of fiscal insanity aka. Heli money for the middle class.

All we are waiting for now, is the last glue fumes to wear off.