Wednesday, August 5, 2020

In Idiots We Trust

We are witnessing the inevitable endgame for four decades of Supply Side Ponzinomics - monetary-stoned gamblers piled into risk assets while the economy implodes in real-time. As predicted by Hendry:

"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"


Supply Side Economics is inherently deflationary, a fact that has been amply proven during four decades of non-stop middle class obliteration. Trump even based his 2016 campaign on economic disenfranchisement - the famous "deaths of despair" campaign strategy. However once elected, he instantly reverted back to the standard playbook of robbing the poor to give to the rich, which happens to be inherently deflationary. 

Fortunately, we have central banks to paper over this deflation with printed money injected straight into risk assets. Which generates the all-important trickle down fake wealth effect. Another key aspect of Supply Side Ponzinomics. 

At this latent juncture, we have never before seen such a chasmic gap between economic reality and the stock market. Now led by the junkiest and riskiest stocks in the market. The very stocks that "benefit" from economic implosion aka. The CNBC/Cramer COVID-19 indexThe celebration of economic implosion of the real economy to the benefit of the virtual economy has now reached manic ludicrous levels as exemplified by the online retail stocks:

Here we see the largest mall operator in the U.S. - Simon Property Group - hanging on for dear life.

As we see, Trump's policies have been a disaster for the middle class from the day he took office. Trump-o-nomics accelerated economic implosion.

Make drilling great again? Didn't happen. The U.S. energy sector is now on life support, monkey hammered by COVID:

All of which is why today, economic acumen has been fully supplanted by gambling acumen, and not so much of that either. What we have are serial amnesiacs who never seem to remember how every bubble ends.

The overriding belief now is that the U.S. dollar is imploding because bond yields are collapsing along with the economy - all of which is good for "stocks". Per Finance 101, every idiot knows that lower interest rates axiomatically means higher net present value. Right? 

For some reason, the world famous discount cash flow model never seems to accurately predict when in the cycle cash flows collapse to zero or worse go negative. Because Excel lacks the feature called "accurately predict the future". So what we are left with is Wall Street analysts competing to keep their Magic 8 ball derived earnings predictions ahead of S&P 500 melt-up. 

This firmly entrenched view that economic implosion is ALWAYS good for stocks is now going to come under its greatest test in history, as gamblers go late stage manic on risk assets into a greater depression:

"Hiring slowed markedly in July as a renewed spike in coronavirus cases prompted some states and companies to roll back reopenings, data released on Wednesday shows. It is the latest sign that the U.S. economic recovery is at risk of reversing."

Payroll provider ADP said companies added 167,000 jobs in July, far short of the 1.2 million economists polled by FactSet expected...the July reading versus expectations is by far the largest disappointment in ADP history"

As far as the dollar goes, I suggest via this chart below that gamblers who are piled into Trump Casino are soon going to find it significantly more difficult getting out, than it was getting in. Because when the dollar reverses, cross-asset volatility is going to explode.

Here is a little known fact that today's denialists STILL haven't figured out yet: When the Fed prints money, yields RISE, and so does the dollar. The worst part of the March decline took place when the Fed primed the pump and sent the dollar soaring. They monkey hammered global assets.