Friday, August 20, 2021

Fool Me All The Time, Shame On Me

Blogging in a denialistic society is like pounding sand up one's own ass. The lonely sheeple are on a permanent vacation from reality. They have outsourced all thinking to their trusted psychopaths. Millennials at least have an excuse for not seeing this coming, this will be their first margin call of a lifetime. Very exciting. The rest of this society has made a way of life out of ignoring risk, and central banks have ensured they are highly incentivized to do so...

Mid-week the Fed minutes monkey hammered markets when it was "revealed" the Fed plans to taper their asset purchases starting this year. Deja vu of the retail sales "shocker" earlier in the week, this "news" should have come as no surprise to markets and yet it did. Why? Because there is nothing priced into these markets except for fantasy, delusion, denial, and misallocated capital on a biblical scale.

Even before the Fed actually tapers, this shift in policy means that U.S. monetary policy is now out of synch with the rest of the world. This is putting a strong bid under the U.S. dollar to the detriment of Emerging Markets which were already weak in the first place.

Here we see the Hang Seng has ended this week in a very precarious position, which is highly reminiscent of late August 2015. The combination of ever-increasing restrictions placed on Chinese companies by Chinese authorities and the U.S. restrictions on Chinese companies is shellacking Sino-Asian markets.

And, as we see, the contagion is spreading:

On the tapering news, U.S. bond yields collapsed as inflation expectations fell in anticipation of tighter monetary policy. This decline in T-bond yields is the opposite of what most pundits expected since they assume the Fed is the only one buying Treasury bonds. In other words they STILL don't understand the bond market.

Then there is the issue of the impending fiscal cliff which will further monkey hammer already collapsing consumer sentiment when Federal unemployment benefits end on Labor Day of all occasions.

You can't make this shit up. 

Here we see a death cross of the 50/200 dma on the Thirty Year Yield:

Oil was crushed on the week and oil stocks rolled over into third wave down. A very good indicator of where we stand on this economic delusion. 

While the Nasdaq aka. Microsoft, continues to retain its bid, I noted yesterday that the divergence of stocks BELOW their 50 day moving average with the index ABOVE the 50 day average is at a 20 year high (life of dataset), only eclipsed by the breakout last April. Meaning that record breadth divergence now bookends this entire central bank fabricated rally.

Here we see a weekly view of Nasdaq breadth which is at the lowest levels since March 2020:

In summary, the risks and divergences coalescing at the end of this summer far exceed those we witnessed one year ago when the market tanked in late August/early September.

Next week is the Fed's annual symposium in Jackson Hole Wyoming. A chance for the Wizards of Oz to communicate their money printing plans for the future.

Ironically, the topic of this year's annual symposium is how to address the income inequality that is the intended outcome of monetary policy. We know one thing, there will be no "solutions" offered at this year's symposium, which means it will be left to markets to "fix" inequality.

The same way that financial stability was "fixed" in August 2008:

The hard way.

"It’s a risk that many investors appear to be overlooking ahead of the annual conference for central bankers

“Markets abhor equality to the extent that it stands in the way of rapid earnings and dividend growth”