We are witnessing lethal amounts of monetary euthanasia papering over economic disintegration, in the Hendryite tradition:
"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"
This Jedi Mind Trick for weak minded dunces is reaching its apogee among those who foresee inflation amidst the most deflationary economy in U.S. history - including the Great Depression. The difference between now and every other recession, is that now the economic multiplier has been imploded by the COVID virus and the attendant fear, denialism, Trump incompetence, and mandatory economic quarantine. Now we learn that fully 40% of Americans are at risk of severe COVID complications all due to rampant morbid diabesity aka. personal irresponsibility. This virus selects against those who desecrate their own bodies and this planet. Once again, Mother Nature having her way with denialists.
Add in extreme election acrimony and the impending fiscal cliff is about to implode what's left of the disintegrating real economy. At this current rate, it could well be another full year before today's ubiquitous comfort seekers emerge from their bunkers intact, or not. The delusion of a near-term vaccine available in ubiquitous quantities, followed by a return to normal consumption patterns, is easily a year or more away. Most small businesses won't make it that long. In the meantime, the U.S. consumer is deleveraging at a frantic pace. Which is why the personal savings rate has soared to the highest level in history. All of which is why the economic multiplier has collapsed, and why the divergence between stocks and the economy has never wider. Meaning that the U.S. inequality gap - which was already at Third World levels pre-pandemic - has been achieving Banana Republican dimensions all year.
What will change, will the economy magically v-bottom out of this deflationary abyss, or will asset values collapse to meet reality? This is the question of the day, and the one that most of today's Idiocracy assumes will be the former, per their beloved Disneyland theory of markets.
Filed under, you can't make this shit up, this era's lead pump and dumpers Trump and Dave Portnoy met this past week to discuss how best to rig markets going forward:
The Fed meets this coming week, which is why FOMC: Fear of Missing Crash has reached a crescendo ahead of the meeting. Per tradition, there has been massive short covering in reflation trades ahead of the meeting. The June FOMC marked the NYSE rally peak, whereas this time around the Nasdaq is peaking. Also note that the market rolled over Feb. 20th and again July 20th, both dates were post-monthly options expiration - more proof that retail gamblers have been using options to move the market.
Here we see the double peak in call option exposure:
The state-sponsored melt-up in Chinese stocks during July was reminiscent of the January melt-up in 2018 prior to VixPlosion 1.0:
Tesla's blow-off top this month has mirrored the Chinese stock melt-up and is identical to the top in February of this year.
In other words the Chinese state media drove this entire global melt-up:
“There’s quite a long history of policy makers using the media to drive up the market. It doesn’t always end very well”
“We saw that back in 2015, exactly the same statements then. They tried to push the market higher. It worked for a while and then the market collapsed.”
Here we see via the solar ETF, the reach for risk this time around was far greater than the last top:
Bueller?
In summary, prepare for the LEAST expected scenario, broad based asset deflation: