Thursday, September 16, 2021

The Fool Or The One That Follows?

Sadly, in an Idiocracy, there is no strength in numbers. Far too many people nowadays are seeking consensus from like-minded fools. On the 13th anniversary since Lehman, these corruption zealots STILL haven't learned that con men can't be trusted. The revelation will be biblical in scale and impact...

As the world implodes in real-time, led by the second largest economy and the most important economy from a marginal demand standpoint, still there remains a steadfast belief in "inflation", bought with both hands by true believers in serial fraud and criminality. 

In my last post I laid out the case for why we will soon see record deflation as China implodes for the last time in this "cycle". Ironically, it was the U.S. property market that imploded in 2008, while China led the world to recovery. This time around, China is the weak link as their property market has continued to become ever more over-leveraged since Lehman.

Too many people nowadays have been convinced that a collapsed standard of living is driving "inflation". They believe that losing a full time job with benefits and turning to gig work is driving up their cost of living. Hence they believe the inflation hysteria. However, on a macro level, millions of people losing full time benefits and turning to marginalized "gig jobs" which generally pay a fraction of the wages and ZERO benefits, is highly deflationary. It takes a huge chunk out of long-term demand. 

Nevertheless, the inflation hypothesis is rampant and of course it's politically motivated to cast aspersions on Joe Biden's economic program. And therefore it's self-fulfilling, people are told there are shortages so what do they do they hoard merchandise - homes, and cars, and AR15s etc. In the process THEY are creating the self-fulfilling "inflation". Nevertheless, it's not sustainable by any means. It's solely a function of cheap money and record leverage and collapsed morality.

"Never seen anything like it," Musk tweeted on Wednesday. "Fear of running out [of computer chips] is causing every company to overorder — like the toilet paper shortage, but at epic scale."

"That said, it's obviously not a long-term issue".

There is nothing obvious in an Idiocracy. They specialize in ignoring obvious risks and they've been incentivized by central banks to do so.

Semiconductors are at the intersection of the spike in car prices and the spike in Tech stonks. Last week, China fined three auto parts distributors for hoarding semiconductors in order to drive up prices. I know. 

When semis reverse this rising wedge, the auto bubble AND the Tech bubble will explode at the same time. There is no way a hundred dollar part is worth an additional $8k for a $35k car I was checking out recently.

In the deflationary collapse, cars will be selling for cents on the dollar.

There are only two real sources of sustainable inflation in this  pseudo-economy - college tuition and healthcare. These two eminently corrupt cartels have far outstripped the rest of the economy in price increases year after year. And in doing so they have forced the middle class to cut costs in every other part of their lifestyle. Again, that is not overall inflation.

This hoarding obsession at the brink of the most deflationary crisis in world history can only end catastrophically for those people who believe in it. The deflationary instinct is to cut debt and leverage and reduce lifestyle, which is what the masses should be doing right now if not the past decade since the Lehman warning. The inflationary instinct however is to expand debt and hoard merchandise, which is what the sheeple have been doing. Once again, Wall Street's penchant for being wrong at the end of the cycle is coming around one more time for bailout. And this time who can the sheeple blame but themselves for believing today's ubiquitous con men. The inflation hypothesis which is spewed forth by Faux News, is now rampant. Aside from politics which infects every viewpoint nowadays, the reason so few investors see this coming is a function of lack of empathy for the working class who are now drowning in this post-COVID virtual economy. Removing unemployment support while there are near record numbers of long-term unemployed is greatly exacerbating the deflationary impulse. Add in impending Fed taper, the debt ceiling stalemate, record asset valuations, record IPO issuance, and record leverage, it's a disaster wanting to happen. Decade low consumer sentiment can only go lower from here, which portends badly for bailout addicts.

The fact that markets are already overweight Tech stocks while this fake inflation thesis abides, is a glaring warning as to what happens next. When the deflation freight train arrives from the other direction, there will be NOWHERE to hide.

As I pointed out recently on Twitter, the low vol recession "safe havens" have seen the lowest realized volatility in three years:

While U.S. gamblers have been buying the overnight dip every day since the Jackson Hole high, Asian markets have been rolling over again, led by Hong Kong.

The IBD 50 growth index is carving out the same pattern as 2018 the last time global deflation was ignored in the U.S.:

Overlaying the IBD 50 behind the MSCI China stock index shows the magnitude of denial.

In summary, it's FOMC time again: Fear Of Missing Crash.