Wednesday, February 3, 2021

All Time High On Stimulus Crack

Picture the most brutal crash in history from all time highs that "no one" sees coming. Because that is what is going to happen...

The biggest risk to the casino happens to be the exact same factor that every Wall Street analyst currently uses to rationalize today's bull market - WAY TOO much stimulus. Unfortunately, today's gamblers have happily overdosed on monetary and fiscal crack, and of course lethal doses of bullshit, their other major addiction.

Which is why they have no chance of seeing this coming. 

There exists a belief globally that no amount of stimulus is bad for markets. Every central bank operating independently of every other central bank now believes this to be true. Speculators are merely along for the joy ride. 

Far worse yet, is the fact that every government wants their own currency to be suppressed relative to every other currency. A concept that in aggregate is impossible. Nevertheless, due to the global pandemic depression, there is now a race to the bottom for global currencies. The most common way to suppress a currency is to lower interest rates and flood the markets with new currency aka. Quantitative easing. 

Consider this message yesterday from the Reserve Bank of Australia:

"Reserve Bank of Australia chief Philip Lowe praised the country’s quantitative-easing program and warned it would be premature to consider withdrawing monetary stimulus when global peers are extending theirs"

The RBA extended its bond-buying program Tuesday to avoid a spike in the currency, following in the footsteps of the U.S. and Europe in prolonging stimulus."

Central banks are now locked in a vicious cycle of increasing monetary stimulus in order to keep up with other central banks. All while global asset prices go vertical.

In addition to insane amounts of global monetary stimulus, in the U.S., Democrats are pushing for a second much larger fiscal stimulus coming a little more than a month since the last stimulus was passed. Recall that Tech stocks were stumbling at the end of 2020. However, then the stimulus bill was passed they took off again.


Early last week, legendary investor Jeremy Grantham warned that this latest stimulus is the cherry on top of the global financial weapon of mass destruction. Since that warning, the plan has been moving forward at light speed:

"He said the "sad truth" about the last federal coronavirus relief package enacted in 2020 was that it didn't increase capital spending and didn't increase real production but certainly flowed into stocks"

Of course Grantham is not the official spokesperson for all of the families that actually needed that money in order to eat. Nevertheless, the point he makes is the same point I make all the time - soon policy-makers will face the hard choice between markets and the economy. If Grantham is right, that choice is near at hand, because this crack up boom is about to go bust.

I put this chart on Twitter today showing that the global Nasdaq just reached a new all time high. These are the riskiest momentum stocks in the world. The index is now 30% above the 200 day moving average, which means that even a garden variety pullback to support would mean a crash. The index has been above the 200 dma for nine months. There has been no major RISK OFF event since the rally started almost one year ago. 

All of which means that global RISK OFF is no longer an option.

Who did this?

My opinion is that last week's mini crash and 60% vol spike was the warning. And gamblers ignored that warning and instead bought the dip. This next leg down will be brutal.

Semiconductors have already left the party. Tech won't get far without semis participating in the rally:

Tony Dwyer of Canaccord lays out the lethal consensus viewpoint that will obliterate gamblers - a "correction" is overdue, but the bull market is just getting started.

“A mistake people could make here is by becoming overly negative in anticipation of a correction,”

He lists monetary and fiscal policies for a positive backdrop and the benefits of low interest rates.

“You want to add exposure into weakness,” Dwyer said. “We’re early in this economic recovery.”

We may be early in this recovery, however, the bubble from the last cycle never popped. The belief that it will keep growing to infinity is a first order fantasy. 

aka. Wall Street consensus

Currencies have likewise rolled over deja vu of last year:

The Global Dow would concur - "correction" has begun:

Appropriately, this delusional market is now being led by pot stocks.