The reason why this society doesn't see this ending is because they are now fully addicted to cheap money. This latest global housing bubble is exhibit A of a gambling addiction that has far more fear of missing out than of bubbles crashing. This week, global risk markets had a taper tantrum over the prospect of higher Fed interest rates TWO YEARs from now. What a joke. At any other time in history, these interest rates would be considered a disaster from an economic and financial standpoint. Dire emergency measures indicative of ZERO future economic growth. Today these record low rates are considered an opportunity to ignore valuations and bid asset values to infinity. The value of a perpetuity over 0% is theoretically infinite according to Finance 101. Unfortunately, in the real world there is no such thing as a perpetuity. When the cycle ends, the cash flow on insolvent assets turns negative. The value of an insolvent asset at the end of the cycle is ZERO. Today, as the global economy struggles to re-open amid massive amounts of new debt, gamblers are bidding up their own assets like it's 1929. There is now an entire generation of gamblers who believe that bear markets are a relic of the past. Defeated by free money and infinite leverage.
This week the Fed monkey hammered the reflation trade by merely suggesting that a rate hike could happen in 2023, almost two years from now. Never before has there been such a long runway given for a planned rate hike and yet it still caused a major market selloff. The question on the table is, did it kick off the final meltdown? Gamblers are now caught between the Scylla and Charybdis of a moribund economy and risk assets bid to record valuations in anticipation of strong economic growth. There are two paths this can take - imminent economic collapse to justify low interest rates, OR sustained growth justifying higher interest rates. These monetary addicts want low interest rates and high growth and now they're having a temper tantrum because both does not exist in the real world.
I leave to CNBC, Wall Street, economists, inflation assholes, and politicians to lay out the case for owning massively overvalued risk assets. Basically all of the people who benefit from the monetization of useful idiots.
Fortunately, I don't have this conflict of interest, so here below is what could go wrong:
First off, now a small handful of massively overbought and overowned Tech stonks must carry this entire market. The Nasdaq has made three attempts at a breakout since February, each time amid weakening breadth.
Here we see via the (inverse) dollar, the $USD is carving out a similar pattern as last year. Basically a headfake selloff followed by a face ripping rally.
On Friday, the global Dow closed below the 50 day moving average for the first time since the election:
The stock / bond ratio is rolling over hard from record overbought:
As bond yields roll over, cyclicals are going bidless due to the FOMC meeting commentary and also due to late week hawkish comments from St. Louis Fed President James Bullard.
FYI, Bullard is giving another speech on Monday.
An astute observer will notice that last June when cyclicals rolled over, the 50 dma and 200 dma were at the same level. This time, the 200 dma is a bear market away and cyclicals have been above the 200 day for an entire year:
