Tuesday, December 14, 2021

Conditioned To Implode

This set-up has the potential to be the fastest and most violent high-low crash in history, and yet investors are buying it with both hands. Why? Because in the era of psychopaths, they've been conditioned to implode...

These are the primary factors that will drive record crash:

1) Largest annual inflows on record

2) "Cash is trash" inflation hysteria

3) Accelerating monetary liquidity reduction

4) A Fed boxed in by inflation

5) Record asset over-valuations

6) Mass complacency

Deja vu of 2008, history will say that pundits and the Fed were far too concerned with economic inflation and far too ignorant of asset inflation. The "cash is trash" mentality that is now ubiquitous will drive record wealth destruction. 

"That tops other worries, like outliving their money, increased health-care costs or job security"

The greatest risk to retirement plans - monetary asset inflation - didn't make the list. Why? Because it's not viewed as a risk it's viewed as the secret to effortless wealth. 

Here we see that investors are buying asset inflation with both hands, as "BTFD" just hit a record Google Trends score:

Those who don't believe inflation is transitory were not around in 2008, or they have amne$ia. Back then inflation was far worse than it is right now. Oil prices were DOUBLE in 2008 ($150/bbl) versus now. However, the year over year increase is larger now due to the pandemic oil collapse so the % CPI is higher now, which is a very misleading indicator.

Back in 2008, China was booming. That country led the world out of recession in 2009. Now China's GDP is at a multi-decade low and the country is facing a nascent real estate crisis that will make the U.S. housing bubble seem like a picnic by comparison. Construction equals 25% of China's GDP versus 6% in the U.S. This past week Evergrande was finally deemed to have officially defaulted on its dollar debt by ratings agencies after having missed several payments. And yet the Chinese authorities still believe they have this situation under control - or at least that's what they tell investors. It's a slow motion train-wreck that is about to pick up speed during the impending global margin call. Pundits will be shocked at how fast a major risk that has been on their radar for months all of a sudden exploded.

The locus of risk of course is EM currencies which are now hanging by a thread ahead of the key FOMC (double) taper decision this week.

Meanwhile, Millennial Margin Call is already well underway in crypto currencies, SPACs, EV/Tesla, Ark ETFs, Biotechs, Cloud internets, Fintechs and all of the other junk assets they love to buy on maximum margin.

Fittingly, the pump and dump stocks that got 2021 off to a start are now final imploding, led by Gamestop, the stock that "democratized" pump and dump schemes. 

Back during the Gamestop debacle last January, the CEO of Interactive Brokers warned that these types of flash mob pump and dump schemes could bring down markets. His warnings of course were ignored, as Congress instead wanted to know why newbie investors were prevented from taking part in the Gamestop frenzy. 

Feb. 2021:

Now, the Fed is about to reduce liquidity to the lowest point in the cycle at a time when S&P futures liquidity is at a DECADE low.

Which will trap investors in the Hotel Californication. 

In summary, this cycle is ending the exact same way the last cycle ended - with the Fed ignoring a collapsing asset bubble.

For some reason investors bought the first taper event with both hands. Then it imploded. Now, they've bought the second taper event with both hands, this time expecting a different result. Why? Because they've been conditioned to implode. And the only warning they've received and heeded, is NOT to own cash.