As biblical irony would have it, socialism for the middle class will be the trigger that explodes socialism for the rich...
The key question every gambler wants to know is what will be the "catalyst" for exploding human history's largest monetary asset bubble. Great question. The answer is now obvious - the same thing that burst every other market bubble - higher interest rates...
"There is no means of avoiding the final collapse of a boom brought about by credit expansion" - Ludwig Von Mises
Today's economists and Wall Street forecasters are of the view that this is a new bull market in a nascent recovery. In order to propagate that view, they have conveniently forgotten that there was zero de-leveraging from the last cycle. Which if it were true would be the first time in U.S. history that an economic cycle seamlessly extended to another cycle without any deleveraging of risk. A bull market built on top of another bull market.
Here we see U.S. corporate debt (% of GDP) after every other recent recession returned to roughly the 40% baseline. We are to believe that won't happen this time. Or if it does, it will be painless.
The alternative view which I propose is that stimulus gimmicks have merely postponed the day of reckoning. The COVID crisis has clouded both the economic outlook and economic judgement. If this stimulus passes, then for the second year in a row, the U.S. deficit will be 15% of GDP. Yes, you read that right. Had this much money been borrowed in the Great Depression, it would have been a minor recession. And maintaining that level of borrowing in subsequent downturns, the dollar would be worthless by now. It's this society's infinite profligacy that has fooled the majority into believing this is all just recovery as usual. Debt is now conflated as "GDP".
I have long predicted a middle class bailout, and that is exactly what is taking place right now - even faster than I thought it would arrive. However, due to the COVID lockdown, the reflationary impact is still muted. By the second half of 2021 that will not be the case. Bond yields are not waiting around to price in rising inflation. Looking at the reflationary timeline, this current rise in bond yields and dollar rally are necessary and sufficient catalysts for bubble explosion and global credit crisis:
Where this all gets interesting of course is the fact that this week is the third anniversary of Vixplosion. Back then as now markets had been melting up into the tax cut, however as soon as the tax cut came into effect, global risk exploded.
In my view of the market, the Vixplosion in 2018 is the left shoulder of a three year topping process, and this impending implosion will be the right shoulder.
The World ex-U.S. best depicts my view of this topping process. Notwithstanding untold trillions of global monetary stimulus, the rest of the world in dollar terms is only now back to the levels of three years ago.
In summary, the consensus view is that this is the beginning of a new bull market. Whereas my view is that it's the end of the longest bull market in U.S. history. And therefore when today's useful morons realize they got conned into buying a market top again, there will be "societal acrimony" on an epic scale.
And the days of socialism for the rich will be over.
