Wednesday, September 29, 2021

Global Warning Ignored

Denial is now the most popular ideology. It's the only "principle" that Democrats and Republicans share in common. Only the details around avoiding reality differ...

The World ex-U.S. has rolled over every three years for the past decade. This year it finally eked out a new high above the 2008 prior all time high, and now it's rolling back over again. Everything about the past decade+ since Lehman has been a con job propagated against the middle class by the very people they bailed out post-Lehman. A mistake that won't be repeated.

China's honeymoon with crony capitalism is ending in real-time. Whereas U.S. policy-makers give scant lip service to tackling wealth inequality, the Chinese government is taking definitive steps to close the gap. Will it work? Yes, but the exact opposite way they expect. Sadly, Ponzi schemes don't go in reverse, therefore they will be successful in wiping out the majority of investors. 

In my last post I asserted that the greatest market risk is due to the moral hazard arising from continuous monetary bailouts. Now, in relation to this Evergrande collapse the PBOC agrees:

"China has sent a “clear message” over its disapproval of expansionary monetary policies, especially the asset purchases widely favoured in major Western countries"

“The long-term deployment of asset purchases could harm market functions...blurring of the boundary between tackling market failures and monetary policy could trigger moral hazards”

Too late. There have already been far too many monetary bailouts during the past decade, and the PBOC participated in the majority of them. Where do they think the name "Ever Grande" came from? At the end of the credit cycle they have decided now is the right time to remove QE asset value support. 

As Warren Buffett says, the wise man does at the beginning, what the fool does at the end.

The U.S. on the other hand is pursuing a model that I call "transparent criminality". There is an abiding belief that as long as everyone knows the system is rigged then it's ok. Everyone knows QE is welfare for the rich. Everyone knows that wealth inequality is at a record high. Everyone knows that Fed members are front-running the stock market. Everyone knows that Robinhood is a front-end to Citadel's HFT dark pool.  Everyone knows that Wall Street is profoundly corrupt and rife with conflict of interest. 

Therefore, it's all ok.

Case in point, housing bubble 2.0 has now achieved dimensions that dwarf the first bubble. But everyone knows it's a bubble, so it's apparently not a problem this time around.

"It's surprising the timing of this," Shiller said. "It came starting in a recession. We're supposed to be depressed and yet we seem to be exuberant in the market."

I have spoken many times about the "politics of inflation". Those seeking to cast aspersion on Biden's policies have succeeded in convincing the masses that prices will ONLY go higher from this point forward. And therefore, buy NOW before it's too late. Coming at the end of the cycle this widespread buying panic can only backfire in the worst way possible.

Any questions?

Similarly, in the oil market we hear the same thing about record inflation. Here is a note from Morgan Stanley claiming that these current oil prices are stifling demand.

However, the inconvenient truth is that today's oil prices are HALF what they were in 2008, not adjusting for inflation. Adjusted for inflation, today's "recovery" oil prices are the lowest since 2008. Meaning this is by far the weakest oil price recovery in the past decade despite RECORD stimulus.

In this geriatric old age home of a society, the bar keeps going lower, and lower and lower. 

Which gets me to this backup in yields that is taking place this week. We've seen this movie before and a few of us even remember the ending.

Specifically, the last time oil stocks led the market such as now was June 2020 just as yields peaked and then imploded.

As yields climb however, they have had the effect of monkey hammering Tech stocks. Here we see that the IBD 50 is back below the February breakout line in what can only be described as a very violent reversal of fortune aka. bull trap:

Has there been a time when reflation plays, Tech stocks, and safe havens rolled over at the same time?

Not since March 2020.

We learned recently that year to date NET stock market inflows in 2021 now exceed the past two decades combined. All it took was a global pandemic. 

What the wise man does at the beginning, the fool does at the end. 

In summary, inequality in the U.S. is going to get "fixed" the same way it's going to get fixed in China - the exact opposite way anyone expects. 

China's crackdown on crypto Ponzi schemes, stock market scams, over-leveraged property developers, Tech oligopolies and wealth inequality is a widely ignored warning as to what is coming worldwide. The U.S. ideology of mass denial is lethal when combined with the policy of transparent criminality. 

The policy and ideology divergence that has opened up between the Fed and PBOC will be a critical factor in this impending meltdown. Per the rules of Globalization, the supply side (China) must not grow slower than the demand side (U.S.), otherwise the currency flows ("hot money") will implode Emerging Markets: