Central banks have gamified markets. Social mood has been reverse engineered to suck in as many risk takers as possible. Clueless newbies, propagating self-delusion, are right about one thing - this is nothing like Y2K. In this era there is 10x as much monetary heroin as there was back then. For addicted gamblers, the temptation to self-destruct is overwhelming...
One thing all of today's daytraders, gamblers, and 401k zombies have in common. They all believe that printed money is the secret to effortless wealth, and they've hit the motherlode.
Before I get to markets, I want to revisit the delusional assumptions that abide this fraudulent "recovery". First off, given the insane amount of combined stimulus, it's impossible to know the state of the underlying economy. It's impossible for economists to pinpoint the true beginning and end of the recession, because it's been papered over with 27% of GDP stimulus. Regardless of whether or not this is a continuation of the longest cycle in history, or we just experienced the shortest recession in history, what we know for certain is that for the first time in U.S. history there has been zero de-leveraging at the end of the cycle. Which is the key factor that separates this event from 2008. What until COVID was the longest expansion in history, is now officially the longest period of time between de-leveraging events. That distinction only matters if you're a bankster whistling past the graveyard.
Which is why in his annual shareholder letter Jamie Dimon posits that this debt-fueled "expansion" is only getting started. His unwritten assumption is that we are now Japan and therefore debt no longer matters.
The debt cassandras are wrong again:
What Dimon is describing is what I penned several weeks ago in what I called "The Wall Street recovery". It's another recovery for the rich at the expense of everyone else. Which means that it will not feel like a recovery for most people.
Dimon's critical miscalculation is to believe that the entire world is now Japan. Unfortunately however, Emerging Markets don't have reserve currencies and the ability to borrow infinite amounts of money.
We are already seeing the beginning of a deflationary impulse out of China as they tighten up liquidity. It's the key difference vis-a-vis 2008 when China pulled the rest of the world out of recession:
Can the U.S. borrow insane amounts of money from the rest of the world, explode global interest rates and global currencies AND pull the world out of recession? Surprisingly not.
Which gets us to the markets.
First, I will recap the first quarter. Markets got off to a vertical start in January fueled by stimmy 2.0. It was all going gangbusters until near the end of the month when the Gamestop pump and dump scheme almost imploded the global financial system amid record Nasdaq volume and widespread broker outages.
For some reason, that near disaster inadvertently caused an even bigger inflow of gamblers to the casino. The last week in January saw a 500% increase in Robinhood downloads to 2.1 million. However, other brokers saw even larger increases after Gamestop imploded:
"Week over week, Fidelity app downloads increased 900%, E*trade was up 720%, Ameritrade 575%, Schwab 339%"
All of that new money rushed into markets and pushed the Nasdaq to a new all time high in mid-February, and then it imploded giving back three months of gains in three weeks.
Then began a rally back in what is so far a three wave correction, fueled by stimmy 3.0. In other words, it's Groundhog day. Bulls are ready for new all time highs, except we see there are major breadth divergences developing on the right shoulder:
In addition to the divergences you see above, we have now learned via Ameritrade's proprietary investor movement index, what gamblers were up to during the month of March:
"The Investor Movement Index, or the IMX, is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of individual investors’ portfolios. It measures what investors are actually doing, and how they are actually positioned in the markets."
"For the fourth month in a row, exposure to equity markets increased in TD Ameritrade client accounts. During the March period the IMX increased 8.74%, or 0.66, from 7.55 to 8.21."
As the summary describes, gamblers put most of their money into Tech stocks in order to BTFD.
Now, we see below that the IMX is at the highest level in three years. Far from capitulating in early March, gamblers doubled down on the Dotcom 2.0 Tech wreck.
What could go wrong?
Now, compared to mid-February, the stakes are much higher. Nevertheless, bulls are recycling the same lies and bullshit that didn't work the last time. This time, there is no stimmy 4.0 to bail them out. This time, Nasdaq new lows will explode. This time NYSE new lows will also explode, as cyclicals will not save the broader market as they did in February.
This time, gamblers will come to realize they bought the dip for the last time. In Elliott Wave parlance what is coming is known as a third wave down. It means panic mode.
And it most likely means a re-test of last year's lows, just to make sure everyone wants to own over-valued stonks, in a global meltdown.
Sadly, the myth of central bank invcincibility dies at the hand of the margin clerk.
