Thursday, June 24, 2021

No Refunds On Delusion

In a nutshell, this society is a very useful Idiocracy...

First I will sum up the events of the past two weeks:

Going into last week's FOMC meeting, inflation hysteria was reaching a zenith. The WSJ warned that the Fed was leaning hawkish into the meeting, yet somehow the Fed's shifting forward the schedule on tightening STILL shocked markets. The very same pundits who had been screaming the Fed was behind the curve somehow didn't see the Fed changing course, even though it was their hysteria that forced the Fed to pivot their stance on rate hikes. There were many reasons why today's pundits were biased towards the inflation hypothesis. CEOs were using inflation as an excuse to raise prices. Billionaires were using it as an excuse to deride wage hikes. Ponzi schemers were using inflation as a reason to bid up over-priced homes, cyclical stocks, and Bitcoins. As always, there was plenty of conflict of interest to go around. 

Since that Fed pivot, there appears to be a lot of confusion over what just happened. Some pundits are of the mind that a Fed tightening will be good for cyclicals, however, that is not the case. Their argument is that higher interest rates are good for financials and other "short duration" trades. However, what the Fed-speak did was to flatten the yield curve meaning short term rates rose and long term rates fell. Future growth rates declined at the prospect of a tighter Fed. None of which is good for cyclicals. Which is why over the past week Wall Street has been rotating back to "long duration" trades - what I call deflation trades. This means long T-bonds and long Tech stocks.

It turns out that the cure for high prices is high prices. Inflation scaremongers should remember that fact, but they won't. So we will see this movie again no doubt.

These are not bright people. But they are useful idiots.

Here we see what "inflation" looks like on an absolute basis instead of the year-over-year pandemic comparison that has generated so much hysteria:


This is all very much deja vu of 2018 when the Trump tax cut came into effect and the global reflation trade imploded. Today in addition, we got news that Biden reached an agreement with the Senate on an infrastructure bill - one more thing that is fully priced into "momentum value" stocks. 

The entire rest of the world ex-U.S. is effectively part of the reflation trade. From Emerging Markets to the commodity heavyweights (Australia/Canada). While European value stocks are the best performing market year to date. 


All of which is why the Dow has yet to confirm the new all time high on the S&P and Nasdaq. Not only is the Dow heavy on cyclicals, but it's price weighted so it's not as overly influenced by the mega cap Tech stocks. Apple, which is the largest market cap stock in the world, is only weighted 20th in the Dow 30 index.

Here we see that breadth and new highs on the S&P 500 have collapsed. Only a very few massively overvalued and overbought mega cap Tech stonks are holding up the index.

Even within the Nasdaq breadth is abysmal

What's so good about conning people into believing something that isn't true?

It's extremely lucrative for those who are looking to sell things to unsuspecting sheeple. 

In summary, overnight risk has increased exponentially over this past week.