Thursday, July 15, 2021

Level "11" Market Risk

History will say that at peak Baby Boomer retirement there was not enough buying power to fund their market exodus so the geniuses of the day turned to money printing to get them over the cliff. The ONLY inflation these serial morons don't fear is stratospheric asset valuations...

This week, Fed Chief Powell gave gamblers the green light to party like it's 1929. The concepts of moral hazard and conflict of interest are now entirely foreign to this latent Idiocracy.

As against all of today's Ponzi schemers, the only ones who don't believe in Ponzi reflation happens to be the entire Treasury bond market. Copious morons bidding up their own assets versus the most liquid market on the planet. Who to believe? Given the asinine size of the deficit, it indeed seems axiomatic that inflation should be the dominant concern right now, however the fact that it isn't causing sustainable inflation should be of even greater concern.

It points to the fact that the fiscal multiplier has collapsed. 

My hypothesis is that with each successive recession and attendant mass layoff over these past decades, the Federal government has become  a far greater share of the overall economy. Which means that what would formerly be considered "stimulus" at any other time in U.S. history is merely backfilled GDP. In other words, absent this massive deficit, the U.S. would be in depression right now. To that point, the U.S. debt will grow at a 13% rate (vis-a-vis GDP) this year while GDP itself will grow 2% annualized vis-a-vis 2019 levels. A staggering gap that can only be rationalized in the context of 100% Japanification.

All of which means that "inflation" now depends far more on what is happening globally versus what is happening solely in the U.S. If the dollar soars, then deflation will be the end result as everything in Walmart will be much cheaper. And we all know these zombies love lower prices, EXCEPT when it comes to asset prices. When it comes to asset prices, they love hyper inflation. Why? Because they STILL can't remember how this movie always ends.

Picture a global housing bubble now BIGGER than 2008:

A Tech bubble that now exceeds Y2K:

“The problem with this setup is that tech sector profitability and earnings are vulnerable,” wrote Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management. She sees “unprecedented headwinds” for the group"

A reflation bubble the likes of which has taken valuations to unprecedented levels by any measurement: Earnings, sales, market cap/GDP etc.

Dow Autos and Parts are just one example of the post-pandemic rally that was predicated upon ONE TIME earnings effects as compared to last year's lockdown depression. In other words, the same extrapolation that has abided the extreme "inflation" hysteria is now embedded in stock multiples.

"Sustained inflation"

And of course we must not forget the crypto Ponzi bubble and all of the other speculative pump and dump schemes that adorn this era. All coalescing during the tenuous re-opening phase of a global pandemic in which global mass unemployment has sky-rocketed. A minor detail in the overall "reflation" calculation, so we are told. 

And now the fiscal stimulus is unwinding as well. Which is a far greater factor for true economic reflation than monetary policy and the beloved asset hyper bubble. Gamblers are SOLELY fixated on Fed policy and ignoring the fast receding fiscal impulse which is driving the underlying economy.

In summary, this was a one time post-pandemic re-opening party. And sadly, the Fed can't bail out everyone who believes any different.

They are collateral damage, and despite watching the same movie over and over again, they haven't learned anything in the past twenty years: