Tuesday, November 16, 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.