Friday, October 16, 2020

The Final Descent

The problem with the Banana Republican Party is that they've become far too enthusiastic with their great descent into squalor...

"What a fool believes he sees

No wise man has the power to reason away

What seems to be, is always better than nothing"

I've said many times that history will not be kind to this era, well we don't have to wait to find out because the first reviews are rolling off the presses. This article in Rolling Stone magazine: COVID Ended Exceptionalism, is brutal even by my standards. It reduces the Fox News led exceptionalism circle jerk to a conspiracy of idiots, now driving a relentless descent into depravity.

The article quotes Oscar Wilde:

"The United States is the only country to go from barbarism to decadence without passing through civilization"

From there, the historical indictment gets considerably less flattering, as the clear eye of history flushes the MAGA turd down the toilet. The problem for Banana Republicans is that they have become far too comfortable with their descent into depravity. These are the same people who re-elected George W. Bush AFTER they knew he lied about WMDs in Iraq. That fiasco turns 18 years old next year and the blunder in Afghanistan turns twenty. The two longest blunders in U.S. history without any comparison. According to today's historical illiterates, the U.S. can never leave these exorbitant wars of attrition because that would signal weakness. History will say those entanglements bled the country white:

"Bin Laden wanted to lure the United States into Afghanistan, which was already being called the graveyard of empires."

Wright, Lawrence. The Looming Tower


Of course COVID didn't cause U.S. downfall, it merely revealed what had been so carefully concealed from the rest of the world, beneath the Hollywood facade:

"COVID-19 didn’t lay America low; it simply revealed what had long been forsaken. As the crisis unfolded, with another American dying every minute of every day, a country that once turned out fighter planes by the hour could not manage to produce the paper masks or cotton swabs essential for tracking the disease. The nation that defeated smallpox and polio, and led the world for generations in medical innovation and discovery, was reduced to a laughing stock as a buffoon of a president advocated the use of household disinfectants as a treatment for a disease that intellectually he could not begin to understand"

"Evidence of such terminal decadence is the choice that so many Americans made in 2016 to prioritize their personal indignations, placing their own resentments above any concerns for the fate of the country and the world, as they rushed to elect a man whose only credential for the job was his willingness to give voice to their hatreds, validate their anger, and target their enemies, real or imagined"

The way back is long regardless of who gets elected, however the U.S. will not survive another four years of exceptional depravity.

Which gets us to the theme of the week, deflation. Everyone else talks about looming inflation, so I thought I would spell out what is actually coming - the exact opposite: Deflation.

The problem in a nutshell is that Republican Supply Side policies are inherently deflationary. Robbing the poor to pay the rich. They are all supply side, and nothing on the demand side, because that would be "Keynesian" or socialist, in the words of morons. 

Which is why the GOP likely blew the election when Pelosi offered them a massive $2.2 trillion dollar election winning stimulus package. If they had any brain they would have run to the bank with it, because surely that amount of sugar high would have kept this gong show going another two weeks. Instead they put their stalwart lack of principle ahead of commonsense. They were too eager to screw the blue states ahead of the election to realize they probably threw Big Donny under the bus. 

I put together this handy infographic to spell out the forces of deflation versus inflation. The top section represents deflationary factors: record numbers of layoffs continuing at a rate close to a million every single week. Widespread income insecurity, burgeoning insolvencies, the COVID lockdown, dwindled stimulus, political clusterfuck, and of course record corporate debt. The forces of "reflation" number: human history's biggest asset bubble, record misallocated capital, and of course rampant denial and bullshit. GOP tradition.

Hard as it may be to believe, but bidding up stocks in a pandemic depression is not "reflationary". Which means that until the GOP is replaced and/or we see mass rioting and hence "regime change", the deflationary paradigm will deepen.

If there was any sign of real reflation, bond yields would be spiking along with Treasury inflation expectations, however that's not happening:

Along with the collapse in global stock markets, the impending explosion will bring a dollar margin call, which will be highly deflationary. COVID forced the risk free rate to zero and thereby pushed global capital out into risky assets. Where it will implode spectacularly.

After that, there will be a glut of everything. How long this all takes is not for me to say. In the meantime, the political quagmire will deepen and the COVID pandemonium will continue, until there is widespread vaccination. 

The inevitable insolvency of U.S. states due to the unemployment burden will bring the rioters into the streets en masse. At which point, the Banana Republicans will finally flip from a deflationary stance to an inflationary stance.

And then the Treasury bond market will explode. After that, inflation is possible. However, we are a long way from that point in time.

As far as the casino goes, options expiration passed without major event, however it was a very ugly close. 

Here below we see Rydex asset allocation back to a familiar level.

As we navigate our way through this minefield, we must be ever mindful of the fact that there is ~$360 trillion of misallocated bullshit circling the globe. In an era of rampant sociopaths. 

Soon, thinking for oneself will be the only way to survive this train wreck. 

The chart of the week is the one we've been waiting for, showing record Nasdaq shorts wiped off the map. A necessary and sufficient event for wave '3' down, at all degrees of trend:

Fool me all the time, shame on me