Tuesday, December 22, 2020

'Tis The Season For Global Asset Super Crash

You don't have to be a genius to see where all of this is heading, but you do have to be able to fog a mirror...

Global asset super bubble in a pandemic depression: as always in Disney World the burden of truth is on those who still believe in such a quaint idea.

Amid the impending holidays and lack of liquidity, all of the year's risks are coalescing in the final weeks of the year. The locus of risk emanating from the central bank manufactured global pseudo-recovery is the implicit dollar short trade that is underwriting this entire delusion. Going back as recently as 2016 and the "Shanghai Accord", global central banks decided they had a perfect formula for suppressing risk and creating the all important virtual simulation of prosperity. All they had to do was keep the dollar down. It all worked great until the tax cut came into effect and then the fairy dust wore off and deflation returned with a vengeance.

Now as we see below, they are doing it again during the pandemic depression. Every time the dollar is artificially suppressed by central bank coordinated magic, speculators decide that the dollar is heading to zero, so they bid up their favourite alt-currency Bitcoin.

"It’s not the first time bitcoin (BTC) has been named the most crowded investment of the year. The crypto asset also captured that position back in 2017 in Merrill Lynch’s December global fund manager survey."

As it was in 2017 when Jimmy Altucher predicted Bitcoin would reach $1 million by this year, the price predictions are now reaching the stratosphere:

"Guggenheim Partners CIO Scott Minerd told TV hosts last night that bitcoin was heading for $400,000...this has certainly captivated investors. And where do these sky-high bitcoin price predictions even come from?"

They come straight out of his ass.

I'm not saying that Bitcoin is going to zero, but just as it did in December 2017, it's going to explode spectacularly and wipe out most speculators.

Bitcoin of course was not the only beneficiary of central bank largesse and dollar suppression.

"Bofa strategists and Michael Hartnett detailed in the December survey that ever since fund managers exited cash positions, they jumped on emerging-markets and technology stocks."

Emerging markets are a clear beneficiary of dollar suppression, however when those massive fund flows reverse, there is risk of currency crisis:

I don't know if there is a connection between the dollar short trade and Technology stocks, however, I do know that Tech is a global asset bubble. The largest Tech stocks are bought and sold around the clock globally. 

This is why most/all pundits don't see it coming. They think that the economy is improving when it's merely seeing a bounce off of depressionary lows. Driving the car forward by looking in the rear view mirror:

In 2020, 15% of GDP was Federally borrowed money.

"It's a recovery!!!"

Next week, is seasonally one of the strongest weeks of the year. The mythical Santa Rally. However, if global markets go RISK OFF this week into next, then today's bad actors will be having a Santa Crash instead. 

Deja vu of the one in December 2018 after the mid-term election.

What I see over the holidays is a dollar reversal that monkey hammers risk in every time zone, including the ones that are not trading. All of that risk will accumulate off hours and greet traders at the open. It will be like skipping the foreplay in February and going straight into March meltdown.

As if the rally in 2020 had never even happened. 

In summary, the biggest risk we face and the lesson NOT learned from 2008, is this universal belief that we can always borrow our way out of a debt crisis.

The solution to a $1 trillion deficit last year that wreaked havoc in overnight lending markets, was a $3 trillion deficit this year:

December 23rd, 2019:

"Trading in stocks and bonds can become difficult. It can also pinch lending to businesses and consumers and, if the disruption is prolonged...September’s funding strains did not spread to other markets. However, a prolonged disturbance or a weak economy would increase the risks of contagion."