Central banks are sponsoring mass stupidity and rampant fraud. The masses are now convinced it will continue forever. They are apparently unaware of the cardinal rule of pump and dump schemes - one must get out BEFORE they end, lest they become the greater fool of record...
One thing all of today's rotating pump and dump schemes have in common is that they are driven by fraudulent narratives. From Gamestop to SPACS, to Crypto Ponzi Schemes to Ark Funds, to economic cyclicals, they are all predicated upon a zero sum view of markets. One person's gain is another person's loss, and the losses are piling up silently in the background. Somehow this society's moral collapse has always remained one step ahead of the latent economic collapse, now papered over with 20% of borrowed "GDP".
We can blame central banks all we want, but no one forced these people to believe these fraudulent narratives. For example no one forced them to believe that the post-COVID economy will be better than the pre-COVID economy, and yet based upon valuations and investor positioning, that is the assumption.
Notice that the IMX positioning indicator is higher today than it was pre-COVID. Based on the ubiquitous view that only liquidity matters:
I read two bearish articles this weekend and now I understand why people are so one-sidedly bullish. Both articles cited various risk factors but then they concluded in a very ambivalent way that central bank liquidity can keep this party going indefinitely. In other words, today's "bears" share the consensus view that central banks are invincible:
MW: The Stock Market Has A 'Binary' Feel To It
"With all of that said, I could be wrong. This bubble-blowing bull market might rage on for three more years without looking back"
RIA: Market Surgest To Overbought As Investors Go ALL IN
"This does not mean “sell everything” and go to cash. We remain in the seasonally strong period of the year, psychology remains extremely bullish, and liquidity is still flooding markets"
"Over the next few weeks, there is little reason to be “bearish.”
If this is the bearish viewpoint, imagine the bullish views at this juncture. First off, given the murkiness of the economic outlook, today's forward P/E valuations are rife with fraud and deception. As far as technical overbought metrics, those haven't mattered since the election. And today's lopsided sentiment tells us that a lot of people will be wiped out by reversal, but it doesn't pinpoint the date.
Ironically, it's this implicit view that central banks are omnipotent that is by far the greatest risk to markets. This consensus view is encouraging people to do very stupid things with money right now under the belief they will get away with it forever.
In the corporate credit markets all manner of Ponzi borrowers are currently being funded. How bullish is it that central banks are now funding record junk bond issuance?
“It’s really hard to keep up with the issuance...Now the pendulum is shifting a little bit toward more aggressive behaviors”
In 2020, annual sales zoomed past the previous record by over $100 billion"
Emerging markets borrowed record amounts of money in 2020 and now they are facing rate hikes and currency declines, putting pressure on their ability to service their record debt load. All resulting from bullish "free money":
The SPAC market I've said many times is this era's stock market version of subprime, riddled with fraud. 2020 was a record year for issuance and 2021 has already surpassed 2020 on IPO issuance and doubled 2020 on impending listings.
The housing market is now back in bubble territory.
In other words, Gamestop and Bitcoin are chump change next to what is going on in large scale financial markets.
But the biggest fraud of all is this fantasy global recovery that consists of stock market prices front-running a fictional economy.
Deja vu of last time:
"On the morning after Lehman Brothers filed for bankruptcy in 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis"
"The transcript for that meeting contains 129 mentions of “inflation” and five of “recession.”
What the Fed didn't know in September 2008 is that the economy had already been in recession for NINE months. Why didn't they know that? Because their own crisis-driven policies were bidding up risk asset markets and commodities, creating a feedback loop of market-driven "inflation" having nothing to do with the real economy.
They fooled themselves.
