Wednesday, July 22, 2020

The Virtual Simulation Of Prosperity

Tech Stock gamblers are betting on continued deflation, the other side of the casino is betting on continued reflation. As the economy implodes in real-time, what they ALL have in common is 100% faith in further dramatic monetary expansion. The jet fuel that drives ALL Disney markets...

Re: Hugh Hendry On Disney Markets
"Recently I have been asking myself if the equity market might have taken on the characteristics of the gold market...For me gold is the financial equivalent of Disneyland or perhaps a Platonic simulacrum (a false likeness). It is real and tangible, but it only represents reality when viewed from a particular perspective; in this case, what its believers saw as the inevitable inflationary consequences of central banks printing money"

Then, it crashed in 2011. Today's nascent reflationists see a repeat in the offing, this time with a happier ending. However, at the very same time as gold stocks are going parabolic, Tech stocks are going vertical as well. In other words, gold is no longer a safe haven, it's now a highly correlated momentum trade. As it was in February of this year, before it crashed. Per Hendry's musings in 2014, both of these markets are now the financial equivalent of Disneyland, evincing perfect faith in central bank stimulus, at the expense of the real economy.

What we have now is what I call Ponzi reflation. There is no economic activity behind it, it's merely assets bid up by central banks feeding back through the economy in the form of higher prices. From an economic standpoint, it's the worst case scenario. Think rising gasoline prices during an economic depression. Good idea? Not really. Inflationary? Quite the contrary. Absent higher incomes, higher prices of one commodity merely means less spending power available for everything else. 

Here we see the price of oil with Treasury inflation expectations. They are one and the same:

What these people all have to learn the hard way is that Republicans don't believe in economic reflation for the middle class, they ONLY believe in asset reflation for the wealthy. Which is why the GOP are about to reduce the current level of unemployment stimulus by -80%, from $600 per week to $100 per week:

This is the fiscal cliff I have been warning about and that is coming to pass at the end of this month. 

One of these is not like the other:

Which gets us to the Tech bubble. The narrative circulating this week is that this insane melt-up is nothing like 1999. Despite the fact that Mark Cuban opined this week that it's very reminiscent of 1999, Jim Cramer and the rest of Wall Street advise, don't worry. Be fat and happy.

"Expanding on a tweet in which he called the market moves “truly insane,” Cramer said that big surges by major stocks were unlike anything he had ever seen but were substantially different than the tech bubble of the late 1990s. 

“Insanity does not mean it’s over"

Let's compare 1999 to this current insanity:
GDP growth in 1999 was 7%. This year, the IMF puts U.S. growth at -6%. In 1999, the Federal budget was in surplus for the first time in two decades, whereas this year the deficit will be on order of 18% of the U.S. economy. 

"At 17.9% of GDP in Fiscal Year 2020, the federal deficit is almost twice as large than at the worst of the Great Recession in 2009."

In 1999, the employment population ratio was the highest in U.S. history. Today, it's the LOWEST in U.S. history.

There is literally no way to compare 1999 to now. The people who advance these arguments are shameless criminals. I expect there will be SUBSTANTIAL lawsuits when this crash ends.

In the meantime, insiders are hitting the bid at a decade high rate:

"Only twice in the past three decades has the sell-buy ratio been higher than now"

"a similar spike this year and in 2018 foreshadowed equity losses"