Wednesday, October 6, 2021

The China Lehman Moment

The China Lehman event came and went but this society was too stoned on monetary heroin to notice. History will say that as the world fell apart, this generation did nothing to stop it. Convinced it was just disintegration as usual...

The universal ideology is denial. It's the one thing both political parties have in common - central to their party platform. Both sides are now playing the victim card. One side blames the past for the problems of today, the other side blames the problems of today for erasing the past. Neither side has a path to the future beyond pointing fingers and accepting zero responsibility. 

Denial of course extends beyond politics. It affects the environment, the economy, mental health, physical health, mass shootings, and of course Ponzi markets. Denialists inform us that the problems of today are no different than the problems of the past. Which is true. The only difference is that now these problems can no longer be ignored. They are all backing up like a sewer at the same time. But these hoarders revel in squalor so they don't really notice.

Taking the easy way out is now the universal way of life. 

Case in point, there has never been so many shit jobs in U.S. history. The number of shitty jobs now outnumbers the people who want a shitty job by 10:1. Yet no pundit can figure out why so there are so few takers. The Bureau of Labor Statistics (BLS) doesn't include gig jobs in their payroll tally, and yet roughly 60 million Americans now have gig jobs. Which means they are contractors and hence not picked up in BLS surveys. In addition, the younger generation aka. "Generation Gamble" has figured out that it's more lucrative to gamble in Bitcoins and Reddit pump and dump schemes than to work a dead end job on a fast food assembly line. Add in the millions of women who left the workforce during the pandemic, and the millions more older men who took early retirement, and how about all those job stealing Mexicans who headed home during the lockdown. I bet those GOP governors wouldn't mind getting a few of those people back now. There's your "labor shortage".

Zerohedge posited that the labor shortage was all due to pandemic unemployment benefits, but that turned out to be just another massive lie. In my next life I am going to monetize useful idiots and then I will never have to be right in markets ever again. Which gets me to the point of this post, denial is an extremely lucrative business. There is no demand for truth and reality. Which is why we are now surrounded by industry sociopaths inventing whatever delusional theory will make them the largest profit.

As it was in 2008, these sociopaths have successfully convinced the masses that we are in a highly inflationary environment. Which per Econ 101 SHOULD be a warning that it's the end of the cycle. Commodities are leading which is another end of cycle indicator. Oil peaked in September 2008 right as the wheels came off the Lehman bus. This highly successful disinformation campaign and its attendant misallocation of capital, will ensure that the impending dislocation is far worse than it otherwise would have been. These people have created buying panics in everything from Bitcoins, to McMansions, cars, commodities, and of course stonks.

Unfortunately, with capacity utilization at an all time low and monetary policy solely welfare for the rich, it's impossible to create sustained inflation in this economy. The speed limit for the economy has been falling for decades and now the bond market controls monetary policy not the economy. The downside of this multi-decade supply side economic catastrophe is that we now have a lost generation attempting to gamble their way to prosperity. 

Given this society's addiction to denial, it can come as no surprise that this meltdown in progress will come as a complete surprise.

There have been three China-led global implosions over the past six years - one every three years. And each time, U.S. gamblers have increased their allocation to risk:

The IMX index indicates how a large sample of Ameritrade investors are actually positioned in risk assets. We see in the lower pane that while there is a general understanding that risk has increased over time, it's currently deemed to be low. 

This chart shows via real copper prices that reflation peaked in 2011. Wave 'a' was the 2018 tax cut, and wave 'c' is now. China led the world out of depression in 2008 and now they are leading the world back into depression by taking a laissez-faire attitude towards the Evergrande collapse.

China is now more capitalist than the U.S. where continuous monetary bailouts for the ultra-wealthy are expected. Now Chinese authorities chide the U.S. and Europe on creating extreme moral hazard. 

As we see above, it's way too late. 

As far as Tech stocks go, Cramer is exhorting his followers to BTFD. He says the market is finding a bottom right now.

Here we see deja vu of 2018 that Nasdaq new highs peaked this past February, and October was not a good time to buy Tech. Or anything else for that matter.

In summary, ALL of the risks from the past decade are now concentrated in this month. Add in a super Tech bubble and a super housing bubble, and there has never been as much denial as we are seeing right now. Nothing even comes close.

What once was deemed an asset - ignoring risk - will soon turn into a life long liability.