We are witnessing record market manipulation by central banks, momentum algos, Reddit chat rooms, industry con artists, and of course Wall Street psychopaths. All of it is taking place in broad daylight and is assiduously encouraged by a populace desperate for this delusion to continue by any means necessary. When this super bubble explodes, regulators will be dealing with a collapsed Tech bubble, a collapsed echo housing bubble, a debt crisis, and a wiped out generation of Millennials who were too young to see the first renditions, so now they believe they are invincible to all of it...
Just remember: "No one did anything wrong"
I have written at length about the echo Tech bubble. Twenty years ago, excess monetary liquidity following the Asian financial crisis accelerated a brewing decade long Tech bubble which peaked at the end of the longest expansion/bull market in history. Deja vu, the COVID pandemic accelerated the post-2008 Tech rally, featuring a one year melt-up phase that peaked this spring at the end of the new longest expansion/bull market in history. The duration and magnitude of the two melt-up phases are virtually identical:
The key difference versus twenty years ago, is that back then the Fed was tightening policy whereas now they are still pumping record liquidity. Which is why the decline in February this year got bought with both hands. The fact that central bank invincibility didn't save the Nasdaq two months ago, has already been forgotten so many hours and days later.
Enter algo market manipulation which has created the largest divergence between mega cap Techs and rest of the Nasdaq we've ever seen. While the mega caps - all of which posted earnings this week reached for new highs, the rest of the index simmered in a three wave correction just off the lows of early March:
On the weekly chart we see that the breadth collapse (lower pane) two months ago was worse than last year and far worse than the decline in late 2018:
Next, there are the overvalued cyclicals which are priced on the basis of a record recovery. When in fact what we are seeing are year of year rates of change that are the highest since the dead cat bounce of the early 1930s. Most of the gains in economic "growth" we are seeing are due to one time effects. But don't take my word for it, here is a timely summary of this "record" earnings season from Forbes:
"Banks are killing it. In terms of rising profits, they are the #1 reopening industry so far. But most of their profits have nothing to do with reopening. They are coming from released “reserves”—which is the money banks had set aside for loan losses that didn’t come to pass. That’s a one-timer."
"Covid has disrupted the supply of raw materials. And now the supply can’t keep up with exploding demand from construction and homebuilding. The result: commodity prices are blowing up and certain sectors like materials are cashing in big time. How much of that is a result of Covid or of a reviving economy is up for discussion"
Indeed.
I posted this chart on my blog which clearly shows that lumber prices are entirely out of whack with housing starts. In other words, the widely feared "inflation" is mostly due to commodity speculation and short-term bottlenecks.
Another chart I posted on Twitter shows that cyclicals are massively over-leveraged to the economy due to the excess liquidity in markets. The "recovery" that is priced into markets far exceeds the one that is taking place in reality:
We see the same thing in retail stocks. The COVID pandemic brought local shopping malls to the brink of existence, but looking at this chart one would be led to believe that the pandemic saved them:
Another scam taking place is in the crypto market where fake "inflation" hysteria is a key driver of the crypto Ponzi scheme.
These opportunistic inflation scaremongers have driven the highest concern for inflation since 2008 which was the last time inflation predictions were catastrophically wrong. These con artists are doing their part to push everyone to the same side of the boat.
Which gets us to the housing market itself which is now having a moment deja vu of 2006. Then as now, low interest rates pulled forward demand and now we are told there is a "supply shortage". So what to do, but increase supply which is always the recommendation of the homebuilders and realtors. Curbing speculation is never part of the plan.
"While the pace of home price gains has been dizzying, it’s not hard to understand what is driving the frenzy. Mortgage rates sit near historic lows. Millions of millennials are entering their early 30s, the typical age of first-time home buyers. And the pandemic has spurred new demand: Some buyers want more space to work from home while others are willing to move farther from their offices"
The ultra corrupt real estate industry did the exact same thing during the housing bubble - they fueled the false perception that there is a long term housing shortage. When in fact, the housing "shortage" was driven by panic buying and speculation. In the meantime, housing prices got bid up to unsustainable levels, and when the bubble popped homebuyers were underwater by the millions. The lagged supply eventually arrived in time to put even more pressure on a collapsed market. Been there, done that. This is a society that can make the exact same asinine mistakes over and over again, each time telling itself the exact same lies.
In summary, we are surrounded by scam artists and industry salesmen. The Fed has provided the monetary heroin and the con artists went to town spinning the narratives to accompany this falsehood of recovery. The hangover from all of this fraud and delusion will be epic. This mega boom is merely a one time re-opening bump in demand that will prove entirely ephemeral. After this, "growth" will collapse back down to pre-pandemic deflationary levels. The fiscal "stimulus" is merely papering over the decimation of the travel and recreation industries that will take years if not decades to recover.
