What happens when newbie Millennials go ALL IN their first ever asset bubble while pretending to be geniuses. And callous geezers throw young people under the economic bus in a weakening economy? You get copious fools bidding up stocks to record valuations in a depression, and no one sees it coming...
Gamblers are now officially over the fiscal cliff:
The premise behind Elliott Wave Theory is quite simple - emotions drive markets: A constant oscillation between greed and fear, with long periods of boredom in between. The EW charting method using numbers and letters merely attempts to codify the repeating fractals that signify bull and bear markets. The problem is that wave counts are only fully formed after the fact. Meaning they are generally not predictive. What appears to be a three wave bear market rally can easily morph into a five wave bull market. Or, as is generally the case, smaller wave counts are nestled within much larger trends. Which is why I seldom use wave counts other than identifying three wave corrective overlaps which tend to be very reliable in identifying a market burning capital and going nowhere.
For example it took banks six months to break through the June high on vaccine and stimulus optimism. Not a good sign. If any sector is sending a loud warning that the economy is not recovering now or in the future, it's banks. Today's gamblers need to stop using Netflix as an economic bellwether.
The other reason I don't slavishly follow EW Theory is because I believe that there are other factors that move markets. Most specifically central banks. Central banks have essentially reverse engineered social mood, and now they are actively manipulating investors. By artificially suppressing bond yields, they force money managers to onboard more risk. The implicit and delusional bet is that cycle default risk has now been eliminated. It's been a good bet to make for over a decade now. Now featuring the longest expansion in U.S. history in double overtime. This cycle can never "end" because it would obliterate Baby Boomer retirement. Which is why unlimited amounts of Federal debt is now conflated as "GDP" to pave over economic depression.
But it won't work. Primarily because now that Biden is president, Republicans have re-discovered their fiscal rectitude after four years of obscene profligacy for the rich. Which is why the economy is rolling over into depression. These GOP senators are what is called a "gerontocracy", and they are entirely out of touch with economic reality. What I call "Japanification":
"A gerontocracy is a form of oligarchical rule in which an entity is ruled by leaders who are significantly older than most of the adult population. In many political structures, power within the ruling class accumulates with age, making the oldest the holders of the most power." [And wealth]
"America in its present state of decline increasingly resembles the late Soviet Union, one of the most unsettling parallels is its unmistakable slide into gerontocracy"
The fragility of this gerontocracy has been ruthlessly exposed by the Covid-19 epidemic. The crisis has also shown the damage that can be caused by a ruling class more qualified to be in long-term care than to hold important and intensely demanding positions.
Aside from McDonald Trump never leaving the White House, the greatest economic risk for 2021 as I've said many times is the fact that the GOP Senate is constantly behind the curve on fiscal stimulus. They are totally out of touch with economic reality and their ideology does not include bailing out the middle class. They only bailout rich people. Which is why they are doing nothing to overturn Trump's recalcitrance on this stimulus bill. They are leading this country straight into economic purgatory.
Given all of these factors, it can come as no surprise that the economy and stocks are now negatively correlated. As the economy implodes, central banks increase liquidity, and stocks go higher. As stocks go higher, gamblers become more giddy, chase risk, and make up stories for why it's justified. Now, all of this financial alchemy has bid stocks to record highs on the precipice of a double dip depression.
Getting back to social mood, there were several factors that accelerated the manic reach for risk into the end of the year. First off there was the Biden election which gave a false sense of relief. Secondly there was the vaccine trial news in early December which gave another boost to risk appetite, followed by the vaccine rollout two weeks ago, and most recently the stimulus deal this past week. All of which led the various sentiment risk appetite measures to hit cycle highs.
I am referring to the equity call/put ratio, BofA sell signal, the NAAIM active manager asset allocation, the Rydex bull/bear indicator, the AAII individual investor sentiment. And of course the parabolic rallies in junk stocks and Bitcoins.
Wall Street con artists are having a hard time imagining a lower bonus in 2021:
By the way, there were "no foreseeable risks" right before the pandemic explosion either. Even though the pandemic had been raging worldwide for weeks:
All of which shows just how much social mood plays tricks on people. Bitcoin is in melt-up mode at the exact same time as every other parabolic risk market: Self-driving EVs, Solar/ESG, revenueless Biotechs, work from home Tech stocks etc. And yet we keep hearing all of these reasons why THIS TIME it's different. The only thing that is different this time around is that Bitcoin is going bonkers at the same time as all other risk markets. Crypto Ponzi schemes have now gone mainstream. Bitcoin being the biggest Ponzi scheme this side of the S&P 500.
Below is Bitcoin as of mid-day on Sunday. We heard the same narrative bullshit back in 2017 that the dollar is going to zero due to money printing. However, the only inflation under the current GOP paradigm is in risk assets. In a deflationary depression, the dollar will be gaining in value.
Notice the tall wick and daily candle (main panel) and the MACD in the lower panel. It's possible that Bitcoin is reaching its peak now.
For around a decade after the Great Financial Crisis, Millennials eschewed investing in stocks, because they had witnessed the trauma it caused their parents during the 2008 meltdown. However, all of that started to change after Trump got elected. Slowly but surely they got caught up in central bank FOMC: fear of missing crash. It started with forays into cannabis investing - aid to investment acumen presumably, and then moved on to Bitcoin, the Tesla bubble, junk Biotechs, bankrupt rental car companies, Artificial Intelligence and other things only Millennials can understand.
The ultimate irony will come when the massively leveraged Millennials showing up at the end of cycle to be Wall Street's bagholders, while pretending to be investing geniuses, FINAL implode the Baby Boomer retirement bubble. Then all sides will be pissed off. And geezers out on the golf course will find out they are not disconnected from reality at all.
One thing we know for certain, gamblers are ready for the Santa rally, because they've been front-running it for six weeks. The longest streak of the entire year:
