Monday, December 28, 2020

The Grinch Who Stole Christmas

Getting past Trump's latest petulant Christmas disaster, this scenario is reminiscent of 2008 only far worse. Bear in mind all of my predictions are subject to the vicissitudes of insane nutjobs. I'm doing the best I can under the circumstances...

For once we can be glad that McTrump was only lying as usual. We should know better than to take him at his word. I was too dire to assume that Donny would shutdown government all over again just to get his own way. It seemed like the right bet at the time.  It was Senator Pat Toomey who as we recall embedded the corporate bond time bomb into this newly passed legislation who helped convince Trump to sign the bill:

"The danger is he’ll be remembered for chaos and misery and erratic behavior if he allows this to expire”

Let's see: The decimation of Obamacare, the Muslim ban, Latino kids in cages, rigged elections, the conspiracy bullshit, four years of non-stop lying, record wealth inequality, all culminating with political brinkmanship at Christmas while millions go hungry. Sign this one bill that ruined Christmas a week late and history will forget the past four years of chaos, misery, and erratic behavior. Sure. Whatever his base of historical illiterates will believe. 

Trump's legacy IS four years of chaos, misery, and erratic behavor. However, the brunt of the misery is only getting started. Which gets us back to the 2008 analog. Deja vu of the TARP vote in 2008, this bill is far too little, too late. Too many golf games passed between the first stimulus and the second stimulus.

According to the 2008 analog when Obama faced a hostile Congress, it took a substantial amount of financial dislocation to get the GOP onboard. However, this economy is far weaker than the one in 2008:

Here we see Brent crude oil then and now. It's the same three wave corrective pattern at multiple degrees of bailout. Each fake recovery more pathetic and requiring less IQ in order to believe in it.

Similarly, looking at Treasury reflation expectations, compare the first 12 months of recovery in 2009 versus the past 10 months of this recovery. Despite the two month difference, this recovery benefited from far greater monetary stimulus, and yet has yielded far less economic reflation:

Gold gamblers should be particularly worried as to what the shiny metal is saying about the prospects for reflation. Gold peaked when the first round mega stimulus ran out at the end of July. Since then, non-stop weakening of the dollar has not held gold's bid. Rumours abound that Millennials are selling gold to buy Bitcoins.

Stock market gamblers have been told to look across the valley of COVID death to the vaccine nirvana that lies on the other side. Which means that stocks must maintain the permanent plateau of delusion until the second half of 2021. However, that assumes the current stimulus will be adequate to avoid wholesale small business decimation and mass corporate bankruptcy in the meantime. Which it won't. Most of the stimulus was already "spent" this year in anticipation of a second stimulus bill that arrived seven months late. Which means that spending now exists in the form of overdue bills. Sadly, paying down past due debt is not "GDP". Until COVID subsides, this locked down virtual economy will continue to have an economic multiplier at the limit approaching zero. 

Ironically, this "stimulus" bill contains a ticking time bomb that is about to accelerate financial dislocation. Thanks to Senator Toomey who feared unfettered socialism, this bill just removed the Fed's ability to buy corporate bonds in the secondary market. The Fed put is now gone from the debt market. Removed at the WORST possible time.

"Toomey said this would “preserve Fed independence and prevent Democrats from hijacking these programs for political and social policy purposes.”

Former Fed Chair Ben Bernanke issued a statement over the weekend warning about the potential implications of the GOP’s proposal. He stressed that it is “vital” that the Fed be able to “respond promptly to damaging disruptions in credit markets” and that such ability not be curtailed."

You know what that means. 

No more socialism for the rich:

In summary, the Santa rally is ending. Belief in fake reflation just killed it.

Picture the deflation trade getting monkey hammered just as deflation is about to return with a vengeance. 

All because morons trust criminals.