Policy Error 2.0 aka. SUPER CRASH

This will be the fastest demand collapse in U.S. history...

Zerohedge and their vast array of useful idiots won. Their success is self-evident in the number of fools to follow. Testament to the strength of numbers. Ironically, they DOOMED their own prediction of runaway inflation by luring the ultimate fools - the Fed itself. In the event, they officially assisted the Fed to make the EXACT same mistake they made post-Lehman 2008 which is to believe that inflation is the greater threat to the economy and therefore ignore all of the risks that have coalesced at the end of the cycle. These people don't know that inflation ALWAYS peaks at the end of the cycle, because they banished cycles with printed money. Be that as it may, inflationist pundits can now take FULL pride in having trapped a generation of gamblers in dead end trades that are set to explode with extreme dislocation. A true measure of success. Now Powell is OFFICIALLY boxed into the fake inflation narrative. He is at least two steps away from realizing his colossal mistake as he contemplates accelerating the taper:

"The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,”  Powell said in testimony before the Senate Banking Committee.

In a sign that elevated inflation could persistent for longer than expected, Powell conceded that it was “good time to retire that word [transitory].”

I was wondering today how many GOP Senators pounding the table for a tighter Fed right now are about to get wiped off the map financially? All of them. And the other side of the aisle won't be spared either.

Which raises the question, how DO we measure success under this form of casual fraud? I suggest this will be a Pyrrhic victory. 

To be sure, Zerohedge is the Jim Cramer of financial blogs. They are ad-sponsored entertainment and they reserve the right to change their mind with every trading day to ensure they are always "right". They are not per se "macro tourists", they are macro tour operators, because why pay for the ride when you can be the one leading it?

Unfortunately, this type of casual deception is now commonplace across the financial culture due to the fact that capitulating to this tsunami-magnitude mega bubble and ignoring risk is by far the most lucrative path forward. Which unfortunately leaves the sheeple ONCE AGAIN at the mercy of known con men. History will say that in the year Bernie Madoff died, the sheeple having been skeptical of markets since 2008 then crammed two decades worth of cash into stocks at the end of the cycle. Proving that in 2008 policy-makers took down Madoff's petty theft while bailing out the much bigger crime. The magnitude of which will now be revealed in biblical fashion to a society assiduously ignoring "corruption as usual".

Not only is inflation transitory, but all real-time indicators show that it has already peaked and is very quickly receding. The CPI that so many bloggers today refer to is stale data, weeks and months old. There are several indicators that track much more closely to inflationary trends.

First and foremost is Treasury inflation expectations themselves.

These have already peaked and they are starting to head in the direction of EM currencies which are collapsing like a cheap tent. 

Pundits appear to forget that it was EM currency collapse - led by China that caused the Fed to pause their tightening campaign in September 2015. Then they raised rates in December and exploded global markets. 

Here we see Brent Crude is deja vu of Q4 2018. Earlier on Twitter I showed Nat Gas getting monkey hammered the most since December 2018. This is the longest weekly losing streak for Brent since December 2018.

And why is December 2018 important? Because that is the last time Powell was forced to reverse policy and stop tightening because markets were imploding.

He will ultimately be forced to do the same thing all over again, but today's events just doomed bulls trapped in the casino unknowingly.

The correlation between oil and inflation is lock tight:

Here we see Gold / CPI. Is this a good time to buy?

According to those who believe in inflation...

YES it is!

The Baltic Dry Index is another leading indicator of inflation.

We just got news that Black Friday in-store sales were down -28% versus pre-pandemic and we also got news that online sales for Cyber Monday fell for the first time in history.

Which means it's becoming clear that the consumption orgy that fed back into inflation via the fake wealth effect, was merely demand pulled forward at the behest of con men looking to make sales. 

Consumer sentiment has only one way to go.

In summary, the Fed and the majority of consensus pundits were wrong last time when it hurt the most. The question is will their strength in numbers come through for them this time?

Or, will the sheeple FINALLY learn that the REAL policy error is trusting proven psychopaths.

"The transcript for that meeting contains 129 mentions of “inflation” and five of “recession.”

MAXIMUM EXCESS

Fittingly this orgy of consumption is self-destructing due to maximum excess. Far more biblical is the fact that most gamblers don't see it coming. Why? Because they expect infinite return on inequality.

ROI...

For a multitude of reasons, the pandemic took World inequality from asinine to lethal levels. Most pundits today blame central banks for pumping liquidity into bond markets and setting off a global hunt for yield that has bid up every asset class on the planet. They assiduously ignore their own role in embracing this asset bubble and informing us that anything that goes wrong with it is a "policy error", their legal escape clause from culpability. However, we know that these people are addicted to monetary stimulus. Had QE not been used then there would have been a lost decade for stocks post-2008 and there would be a retirement crisis right now. Therefore the ONLY risk that gamblers today worry about is monetary policy. They are now of the belief that the Fed alone controls the stock market. Which is why small increases in inflation set off mass hysteria within the financial community. At the 0% bound, asset prices have a theoretical infinite valuation, and per the textbook discount cash flow (DCF) model the only risk is rising interest rates. The bubble can grow to infinity so long as interest rates never rise again for any reason. The growth of said bubble does not in and of itself pose any risk. All of these investors and pundits are of course assiduously ignoring default risk. They ignore the fact that this so-called model puts all of the burden of deflation on the middle class. These bubbles increase the wealth of the rich while increasing the liabilities for everyone else. So why would the wealthy see default risk if they have been bailed out every single time that markets crash? The belief is that lenders can be bailed out every time while borrowers take on ever larger debts. 

I put my chart on Twitter of the OECD price/rent ratio as a means of showing the RELATIVE increase in the global property bubble over time. One troll said that rents will rise and flatten the curve. That's my point. The landlord receives the asset increase and the renter gets the liability increase. And we are to believe this can continue indefinitely. As I said in my last post, today's pundits are blind to risk. They are pandering to their audience which sees this consumption orgy continuing forever. We learned this past weekend that consumption among the wealthy has DOUBLED since the pandemic began, while consumption among the less well off has been reduced by HALF. Which absolutely proves my hypothesis that the wealth effect is driving consumption, NOT wages as is widely assumed.

"Higher-income households in the U.S. plan to spend five-times that of lower-income households this holiday season"

“While everybody is going through their day-to-day, super excited about this holiday season, we have a whole community of folks who are stressed out,” said Hilliard in a phone interview. “We’re seeing more [charity] demand this year than we’ve ever seen.”

“What starts off as a health crisis turns into a financial crisis if you’re in the lower-income [bracket].”

Now that the rent moratorium is gone, folks are freaking out.”

There are two sides to the price/rent ratio. One side is partying like it's 1929 and the other side is skipping the holidays this year.

And of course what is taking place within the U.S. is also taking place across the entire planet. Developed world nations are enjoying a massive recovery while Emerging Markets are imploding in broad daylight.

"Emerging market equities are now trading at their deepest discount to developed markets since 2004"

"The latest survey showed 37% of investors expect emerging market growth to accelerate over the next 12 months, down from 60% in July"

Here we see Chinese stocks are deep in the red zone on Monday morning, even as the major U.S. indices are bid. Nasdaq breadth (lower pane) is as of Friday close. 

Getting back to the casino:

Writing on Monday (mid-morning), the S&P futures bounced Sunday night at the 50 day moving average. We've seen this movie before several times this year. Each time, bulls won the battle of the 50 day and the market made a new all time high. Therefore the 'BTFD' team is betting it will happen again as complacency is rampant. 

Most of my technical indicators won't update until after the close, but I will give a sample at what I am looking at now.

For the record, Friday's crash was the worst post-Thanksgiving stock market implosion since 1941.

Per the theme of this post, "inequality", the Russell small cap VIX just saw its largest one day rise on Friday since 2018. In addition, the growth index is camped right at the 200 dma on Monday morning:

You will notice that Cloud stocks have a familiar pattern deja vu of this past February. A high, a higher high and then implosion  down to support, which is where we are now. After that another leg down. It's extremely rare to see two Tech tops in one year. I'm sure it will end happily every after.  

Note the expansion of new lows this time versus last time:

Oil is bouncing back on Monday, but last week oil vol reached the highest level since April 2020 as WTI crude pounded the 200 day. 

This chart of Tesla shows that the current blow-off top is deja vu of the one in February 2020: A 3 sigma high early in the month, a lower high late in the month attended by numerous Hindenburg Omens. 

And then the wheels came off the bus.

Biotechs are in late stage meltdown mode:

And fittingly, on Cyber Monday, online retailers are imploding, which can only mean one thing.

BTFD.

The Edge Of The Abyss

My euphemism for market crash is "Policy error". Meaning forty years of failed Supply Side economics, ending in rampant denial with NO WAY OUT...

I don't normally seek affirmation for my point of view, because I am usually disappointed at what I find. However, from time to time in a moment of weakness I will head over to John Hussman's site for validation. This past week his post was called "The Motherlode".  

"Across four decades of work in the financial markets, and over a century of historical data, I’ve never observed as many historical indications of a market peak occurring simultaneously"

Emphatically – and this is important – my intent here is not to “call the top” of this bubble"

So let me get this straight, we have the most concurrent indications of a market top in decades, but you are NOT calling the top. Why? Because to do so would risk credibility if the melt-up continues, that's why. 

To be fair, Hussman has been consistent in his view that this is the most overvalued market in history and hence the least investable long-term. However as we see, he is far too circumspect with respect to describing the current level of market risk. His viewpoint is almost entirely directed at market valuation and technical indicators. He scant mentions the economy, nothing on China, nothing on global currencies, nothing about crypto, nothing on the housing market, nothing on corporate debt and where we are in the cycle, nothing about consumer sentiment and no mention of inflation hysteria.

He is not alone. Most of today's stock market pundits are blogging in a vacuum. Without considering these other factors one would conclude this is a stand-alone stock market bubble, not so risky after all. When the Dotcom bubble burst, recession began a full year later. On the other hand when the housing bubble burst, recession began immediately. This time we have both - a stock bubble and a housing bubble. However this time the Fed is ALREADY AT 0% on the Fed funds rate. So they have no dry powder to resuscitate the economy.

Worse yet, he gets defensive about being a “perma-bear”. He apologizes for not taking part in this festival of idiots. Make no mistake,  I may be a perma-bear now, but I will gladly use the buy order when valuations return to earth. I call it buy low and sell high. It’s an old fashioned concept that today’s speculators have never heard about. What it comes down to is that no money manager would ever say “sell”, because as they always say if you get out you don’t know when to get back in. Hussman asserts that a universal sell order is not possible since all shares must be owned by someone. Every seller has a buyer. I suggest that is not true. Most share issuance over the past decades was corporate issued stock to cover options dilution. So no, the sheeple didn’t need to plow their life savings into human history’s largest pump and dump scheme. Of course everyone can’t sell in the middle of a meltdown.

Which is why on Black Friday yesterday there were blue light specials in aisle 11 of the Dow, but no takers. Cyclicals were bidless as there were concerns over a new mutant virus. Remember COVID-2019? That was two years ago. Two years later and we still can’t find our ass with both hands. At present, the people who are fully vaccinated want everyone to wear masks and lockdown at a moment’s notice. While the people who are unvaccinated don’t believe in masks or social distancing. It’s the full retard approach to pandemic management.

And remind me again the last time the market was melting up into a pandemic lockdown and got monkey hammered? Oh right February 2020.

Deja vu.

You cannot be too bearish right now nor too critical of this festival of idiots. But you can put your capital and credibility at risk by having ANY part in it.

It’s clear that the Fed has fully euthanized this society and now even the bearish are complacent. Ironically what this inflation hysteria has done is to take another Fed bailout off the table. The FOMC minutes this week indicated many Fed members believe QE should be rolled off FASTER. In 2018, the S&P was down -20% before the Fed reversed policy. This time the market will be down a multiple of that amount. Meaning way too late.

And then the REAL acrimony will begin. Record inequality will ensure that policy-makers are highly constrained from implementing a 2008 style bailout.

Another massive risk that is in no way priced in.

The worst approach of course are those pundits who claim we have runaway inflation but caveat every single article with asterisk “policy error”. Meaning this can all end suddenly and abruptly, and hence economic reflation is binary. Which is what we saw on Friday with the Dow down 1,000 points.

What all pundits have in common is that they are ignoring the reverse wealth effect and how it will impact already collapsed consumer sentiment when the air comes out of the bubble. They’ve been ignoring the role of the wealth effect on the way up and its effect on consumption. So no surprise they are ignoring what will happen on the way down.

In summary, today’s market commentary is fucking pathetic. Weak and idiotic. Grade F all around. A festival of idiots with the only concern being left behind.

THE CURE FOR HIGHER PRICES IS ON THE WAY

Panic buying in autos, homes, durable goods, commodities, cryptos, and Tech stonks is the overwhelming cause of today's "inflation". It's called the trickle down fake wealth effect and that premium is going to come out of markets via margin call. 

Lower prices are coming, and when they do liabilities will exceed assets and the sheeple will quickly realize they are bankrupt. At that point EVERYONE will understand the difference between inflation and deflation, however that lesson will have arrived 40 years too late...

This week the money printing cargo cult is going late stage euphoric on news that their Kool-Aid serving cult leader Jerome Powell has been re-nominated to lead money printing operations. On the one hand they embrace everything he does for them in casino markets, on the other hand they excoriate him constantly for economic inflation. You can't turn on the TV or radio these days without hearing about the "inflation" crisis. These people are plowing their life savings into the most overbought and overvalued asset markets in human history and yet all you hear about is the price of eggs going up 50 cents. 

No question, at the bottom of the wage scale, a combination of factors have made even relatively small price increases seem insurmountable. However, maybe it's time to consider the fact that working wages have been suppressed by mass outsourcing and mass immigration for forty years straight. As I showed in my last post, wages are going up the LEAST of all other types of prices. Which in aggregate is deflationary.

Now we learn that Biden is following Trump's (mistaken) lead in releasing oil from the Strategic Petroleum Reserve. Which is ironic, because it's highly likely that oil prices have already peaked. Any blind man can see below that oil is far lower today than it was in 2014, 2011, and 2008, none of which times oil was released from the SPR. Meanwhile, Trump released oil from the SPR in September 2019 which was only a few months before oil crashed the most in history - going negative in April 2020. I predict that will very likely happen again.

More importantly, note that oil demand is STILL only at 2013 levels (lower pane).

EIA data is here: 

https://www.eia.gov/petroleum/weekly/

Brent crude was down five week straight as of last week, which is the longest losing streak since March 2020 and before that Q4 2018. So far this week, it's bid as of Tuesday close.

So far, the Q4 2018 analog continues to loom large. Back then fiscal AND monetary stimulus were waning and global markets were rolling over.

This chart shows BOTH India and China getting in synch to the downside.

This chart shows that through Monday, there were five Nasdaq  Hindenburg Omens in a row, which is the most since Q4 2018.

Yesterday, new lows at an all time high (lower pane) set a new record going back to 1978:

Here is Nasdaq breadth relative to Q4 2018:

How's that for bullish?

Of course this implosion will make Q4 2018 seem like a good time by comparison.

Why? Because three years ago, positioning was cautious compared to today's absolute faith in printed money.

In summary, the cure for higher prices is coming. However, I suggest that most people won't be in a position to take advantage of them when they arrive.

Here we see that the U.S. aggregate bond index is highly correlated to Chinese risk assets:

Which makes THIS is a far more relevant Q4 analog:

"Sumamabitch!!!"

THE BIG LONG 2021

Momentum is building towards the day of reckoning. The magnitude of fraud in this era dwarfs any other period in history since 1929. It's clear that the Casino class is fully euthanized by the virtual simulation of prosperity and its acolyte QE. And so it is apropos in the year of Madoff that Michael Burry of "The Big Short" fame has just now capitulated. Whereas in 2008 waiting for subprime to explode he had adequate patience, this time around, history's largest bubble forced him to submit to central bank obeyance. The ultimate irony would be if THIS is the top...

Two Hindenburg Omens on the Nasdaq in the past week as new lows are accelerating each day. Today was the second highest number of new lows attending an all time high in Nasdaq history going back to 1978. The highest number (so far) was in July of this year. 

I've been pounding the table recently on this Ponzi reflation theme. Retail sales out today indicate there is no way to explain this level of consumption based upon wage gains alone. It's clear that the fake wealth effect is feeding back into the economy on an epic scale. That combined with "shortage" hysteria is creating a feedback loop of accelerating demand, which I call the Ponzi Hype Cycle. In order to understand this diagram first we must revisit the wealth effect:

"The wealth effect is a behavioral economic theory suggesting that people spend more as the value of their assets rise. The idea is that consumers feel more financially secure and confident about their wealth when their homes or investment portfolios increase in value. They are made to feel richer, even if their income and fixed costs are the same as before"

The central banks create the bubble, the bubble creates the wealth effect, wealth-driven consumption inflates earnings, and inflated earnings accelerate the stock rally. THIS is what is driving today's "inflation": 

This chart I created indicates that wages in no way explain the level of super-normal spending taking place right now. Everything is up across the board, EXCEPT wages, which are up the LEAST and below the rate of CPI.

We now have simultaneous pull forward in demand across retail sales, durable goods, housing, autos, and technology. ALL at the same time.

It gets worse.

Economic opportunism and inflation hysteria has triggered panic buying and thereby pulled forward consumption from 2022 into this fourth quarter. Consumers have been told to expect "shortages" during the holidays, and they have responded by panic buying. Ironically, they have made shortages a self-fulfilling prophecy. Which is a disaster waiting to happen. 

One would think that economists would realize that wages in no way explain this level of consumption, but they don't. Instead they are wed to their traditional models which link the unemployment rate to the level of inflation. Due to the high level of long-term unemployed following the pandemic, the  official (U3) unemployment rate is artificially low right now. In addition, the combined effects of mass outsourcing, mass immigration, and mass automation have lowered capacity utilization to all time lows for this point in the cycle. While the trade deficit is record wide.

Meanwhile, the collapse in consumer sentiment taking place in broad daylight has been assiduously ignored. Today's pundits are more interested in using stale economic data from last quarter than to look at what consumers are saying now. 

Got that? 

The outlook is bright, just as it was in 2007/2008. These people have a history of being wrong when it hurts the most, so why stop now?

 

In summary, this is now officially the Big Long.

Wall Street already has one foot out the door on this gong show vis-a-vis their "policy error" narrative. Meaning no matter what the Fed does, if it implodes they will just blame the Fed. Nevermind that this approach leaves their clients death trapped in the casino hoarding inflation trades. 

There is no point in being overly academic at this juncture. The policy error was believing that printed money is the secret to effortless wealth. Binary outcomes that turn from extreme inflation to biblical deflation overnight are the domain of proven con men.

Melting-up To Melt-down

The common investment theme for 2021 is rampant fraud. Below I delineate the stocks/ETFs/sectors/assets that are most likely to implode the market. Any one of these alone would not likely be enough to create a meltdown, but if they all roll over at the same time the HFT algos masquerading as market makers will go critical mass. Today's pundits are sanguine because markets are at all time highs and the Dow/S&P in no way convey the risk that lurks beneath the surface. Whenever markets are going up, everything is bullish. But, what's the "catalyst" for meltdown? The catalyst is "Sell"...

First place of course goes to Tesla, EVs, green Energy and the entire auto sector, all of which are hyper overbought.

The melt-up started three weeks ago with Tesla's third quarter results which beat expectations (Oct. 20th). Then it got a boost when Hertz announced they were buying 100k Tesla's for their rental fleet (Oct. 25th). All of that sparked a Reddit-driven options "gamma squeeze", which is a short squeeze using call options. That melt-up in all things EV/Auto continued up until the COP26 conference this past week and the passing of the Clean-Energy infrastructure bill which gets signed tomorrow. In my opinion all of these catalysts are capping off a mega melt-up in Tesla that started two years ago in Fall 2019 and went parabolic during the pandemic. 

If Tesla folds back below the blue line then this entire blow-off top is a bull trap that will get fugly. Note that the clean energy ETF is three wave corrective. 

On a related subject, as I've shown many times the entire auto sector - including Ford, GM, Auto Nation, Car Max, and of course Avis is ludicrously overbought. 

This is all driven by the "car shortage" fraudulent narrative:

Next, the semiconductor sector has also seen a late stage melt-up. The leading stock is Nvidia which is a heavy hitter in terms of market cap and daily dollar trading volume.  Nevertheless, the entire sector is now massively overbought.

This sector has been melting up due to the "semiconductor shortage" false narrative. This era has seen record semi demand now conflated as a supply shortage. I also believe this to be the blow-off top phase of a decade long rally:

Also on the topic of Tech stocks, yesterday I showed a chart of "TRINQ" on Twitter indicating that there has been no RISK OFF in Tech for the past decade since the 2011 debt ceiling. Ironically, another debt ceiling debacle is only weeks away. That long-term chart is by no means a precise timing indicator.

Nevertheless, here we see Microsoft the most valuable company in the market right now is the most overbought since the Feb. '20 high:

Transports are also hyper-overbought. Some say it's because of Avis, but Railroads are at new all time highs and below we see the Trucking sector is parabolic. Meanwhile, I showed a chart on Twitter yesterday indicating that this is the largest coincident melt-up between Tech and Trucking since the January 2018 blow-off top.

No discussion of meltdown risk would be complete without a discussion of the $2.8 trillion crypto sector which now equals 2 x 2008 subprime in magnitude. Roughly half of that market cap consists of shitcoins which everyone KNOWS are pump and dump schemes.

The other half is Bitcoin which has now seen widespread adoption, institutional buying, and multiple ETFs. I showed a chart on Twitter yesterday indicating that Bitcoin is highly correlated to the NYSE Composite. And yet, these cryptos are all getting bought with both hands under the fraudulent "inflation hedge" hypothesis. If there is one asinine hypothesis that this society must live with for the rest of time, it's that one. And many other dumbfuck ideas these morons accept without question.

This article in National Affairs magazine argues that Bitcoin is safer than gold and should be considered by the U.S. Treasury. You can't make this shit up. I will not rebut the entire article because he includes some currency history which I happen to agree with, however, I will say that the author has never heard of Japan, their record deficits and record money printing and their currency which 30 years later is STILL viewed as the global safe haven. All due to the power of deflation which is about to get far worse before it gets better.

The main problem with Bitcoin is that it can't scale. It has the carbon footprint of Pakistan. Every Bitcoin transaction consumes $100 in electricity, even just buying a cup off coffee. Yes, you read that right:

  

For the record, the top performing sector year over year is the fossil fuel Energy sector. Ironically, these stocks languished under Trump who was pro-fossil fuel and then they sky-rocketed under Biden's green energy plan. Mostly of course due to the pandemic unlockdown. Year over year most Energy ETFs are up well over 100%. However, there are few if any Energy stocks at all time highs since they were the worst performing sector in 2020.

Therefore, instead of showing oil stocks I will show the construction/infrastructure sector which is the most overbought since the Fall of 2008:

Finally, I show the Nasdaq with breadth and down volume. The market is Jan. '18 overbought, breadth is the worst at an all time high in history. And as we see, down volume has been increasing with each selloff since 2018.

In summary, 2021 will forever be known as the year when fraud and criminality were "democratized" amid rampant cynicism, greed, and denial.

Capping off over a decade of non-stop monetary bailouts for the rich. 

Common Prosperity

It's been a long time since I baselined my predictions and assumptions, therefore in this running post I will document my overall hypothesis towards the economy and markets. These assumptions and predictions are not bounded by any specific year/timeframe unless otherwise noted. Therefore I will continue to revisit and refine them over time. My use of charts will be sparse if any, since the goal is to document my underlying assumptions. If people don't want to believe them that's their decision. If it's one thing I've learned all these years it's that no amount of facts and data can overcome denial...

First off, it's already been a crazy year and it's not over yet. The second stage post-pandemic melt-up began a year ago when Joe Biden was elected. Year over year, the S&P is up 48%, which compares to Trump's 38% melt-up into late January 2018. Then as now, the pot of gold at the end of the rainbow was fiscal stimulus - tax cut v.s. infrastructure bill. The market is equally overbought now as it was at the end of Trump's rally. However, for most of Trump's rally the Fed was tightening short-term rates and QE, whereas for the past year the Fed has been pedal to the metal on both ends. They are just starting to taper this month and that will continue through May 2022 at -$15b reduction per month. 

The Ameritrade IMX positioning indicator is equally RISK ON now as it was at the end of the Trump melt-up. Although it's been at the same extreme level now since July. 

CHINA:

I believe China is the new Japan. They've had their supernova real estate melt-up and now they are morphing into a dwarf star emitting continuous deflation. Unlike Japan however, the Chinese government is making serious and painful reforms to their economy instead of merely relying on fiscal and monetary stimulus ad infinitum. So far only their stock market has imploded, but I believe it's only a matter of time before their property market explodes as well. Evergrande being the canary in the coalmine. I believe that China is leading the world towards what they are calling "Common prosperity". Which means that bailing out rich people is a thing of the past. China's nascent Evergrande response is to attempt to protect small investors and households while allowing their oligarchs to go under the bus.

Meanwhile, wealth inequality in the U.S. is reaching its zenith amid the largest global asset bubble in history. For now U.S. policy-makers are ignoring the political risk of this equation. It's only a matter of time before they follow China's lead. 

GLOBAL REAL ESTATE:

I believe the global real estate super bubble is on the verge of final explosion. In each cycle it has grown larger and required more stimulus to bail it out. Nevertheless, in keeping with the "Common Prosperity" theme, I believe this crash will be sufficiently large to convince people enough is enough. Of course if I am right then there will be many more dominoes to fall as global central banks which are currently in the process of tightening, will be forced to reverse.

U.S. ECONOMY AND FED POLICY:

I doubt the Fed will ever increase rates in this cycle. They are now between a rock and a hard place. The lagged data is coming in hot, however consumer demand is likely on the verge of collapse. My deflationary hypothesis - as everyone knows - is that this post-pandemic consumption binge is end of cycle and it's obscuring economic weakness. The middle class is over-leveraged and recent wage gains are not keeping pace with prices. For the moment it's "stagflation" - stagnant economy with inflation. However, this is not an equilibrium state. It will soon morph into outright deflation amid asset collapse. The common belief that wages will spiral out of control is part of the Supply Side mythology that has held this country in a deathgrip since 1980. High debt, low employment, low capacity utilization, record trade deficit, and extreme overinvestment in technology are all structurally deflationary. 

On the long end, the Fed will be forced to reverse their recent taper decision, but they will be (too) slow to react. Back in 2018 Trump forced the Fed to reverse. Biden won't intervene this time.

Bad news for bulls, Powell isn't going to stop mass margin calls. 

U.S. FISCAL POLICY

No surprise, I view this gridlock in Washington as being deflationary. The economy is now dependent upon continuous and ongoing combined fiscal and monetary "GDP". Without both, it will collapse back into deflation. The parties are at ideological loggerheads, however, during crisis they usually come to some short-term agreement. And that's what it will take. Crisis.  

STOCKS AND RISK ASSETS 

In keeping with the theme of no bailouts, the pain in markets will be like nothing we've ever seen before. Most Millennials will be wiped out financially. Robinhood will be sued out of existence. Liquidity will be non-existent. Confidence in markets overall will collapse. 

I predict that Tesla will lose 90% of its value, as will Bitcoin. The idea of a crypto Ponzi scheme being a safe haven from inflation is the height of asinine. Then again, we will never find out, because it's extremely highly correlated to stocks and other risk assets on the downside. These people are ALL looking the wrong way down the tracks for inflation, but the freight train of deflation is coming from the other direction. But it's only been 40 years straight of Supply Side economic failure, so how would they know?

My last prediction: The sun will still rise, life will go on.