Thursday, November 5, 2020

Now For The Real Crash

Conditions are eerily similar to March - escalating pandemic and oblivious gamblers. Except this time, there's no fiscal safety net...

The greatest risk markets face is Trump having an infantile hissy fit if he doesn't win re-election. Trump's good Christians are soon going to realize that they are following their avatar of hate straight down the toilet of history.

For 12 years those of us skeptics of Ponzinomics and Japanification have said that these stimulus-addicted policies would end abruptly and badly for the majority of people. During that time, more and more people went under the bus to feed quarterly profit, but there was never a dramatic explosion as expected. Which clearly proved us skeptics "wrong", as the euthanized zombies never panicked, they merely adapted to their new level of squalor. Then they elected Trump to fix it all with more tax cuts for the ultra wealthy. But the main thing that kept this gong show from imploding was the escalating abundance of McJobs. So abundant that some people now have two or three McJobs where they used to have one real job. As predicted by Future Shock

"People of post-industrial society change their profession and their workplace often. People have to change professions because professions quickly become outdated. People of post-industrial society thus have many careers in a lifetime. The knowledge of an engineer becomes outdated in ten years. People look more and more for temporary jobs."

California just held a referendum on whether or not gig workers should be regulated as employees, which passed in favor of Uber and Lyft. It was seen as a vindication for the virtual economy and "freedom" to work when and how one chooses. These gig workers have zero degrees of freedom. They live on a subsistence basis. Taking away that gig work would be a catastrophe. On the other hand, putting people in a no-win position of being forced to work as near slaves is not a vindication of the new business model. It's merely proof that the U.S. is becoming a Third World country.

Be that as it may, the ability of this CappuccinoConomy to create new junk jobs ended last March with the COVID onslaught. Six weeks of COVID obliterated TWENTY years of McJob creation. Yes, you read that right. At the nadir last Spring, the number of U.S. jobs was back at Y2K levels. The same thing happened to George Bush, his decade of transient jobs vanished in a matter of months during the Global Financial Crisis.

All of which means that, millions of people are now fully dependent upon ongoing stimulus and a functioning political system. However, we are now entering the lame duck session of Congress and possibly Trump's presidency, which will more than likely see the expiration of all stimulus. 

"America’s economy faces severe new strains in the two months between Tuesday’s election and January...m
illions of Americans are at risk of having their power and water shut off with unpaid utility bills coming due, while protections for renters, student borrowers and jobless Americans will expire by the end of the year absent federal action."

“All signs suggest that we’re in for the worst of this at the same time the situation in Washington is also becoming its worst and most horrible,” said Michael Strain, economic expert at the American Enterprise Institute"

Several million people will begin to exhaust their base unemployment benefits starting in the middle of December. Absent action, a separate federal unemployment program for as many as 10 million gig workers and others not eligible for traditional unemployment insurance will expire Dec. 31."

Among the biggest mysteries hovering over this uncertainty is what Trump and his aides will do after Election Day, particularly if he loses to Democratic nominee Joe Biden"

It's not a mystery at all. If he doesn't win, Trump is going to throw a big hissy fit and declare this election a coup d'etat. He is not going to sign any stimulus bills nor is he going to compromise with Democrats:

“I don’t think he’s got much interest in stimulus,” said Casey Mulligan, who served as chief economist for the White House Council of Economic Advisers until last year. “He doesn’t like to give anything for free, and I don’t think he’s going to start now. That’s not his style.”

None of this infantile behavior is priced in to Disney markets right now. We are currently having the biggest post-election rally in history compliments of a leaderless White House. So far, Noman is the greatest president in Dow Jones history. Next time, try Woman.

All of which sets up a repeat of last March, but this time with a hard landing. One fraught with record discord and gridlock. Under Hendry's immutable law of Disney markets, today's gamblers have been well-conditioned to ignore economic implosion. 

"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."