THIS is what happens when investors are bailed out too many times. They see a Fed aggressively raising rates at the end of the longest cycle in U.S. history in the largest asset bubble in world history, as a reason to buy stocks. All under the assumption that if they get into trouble they will once again get bailed out. The fact that the Fed is heading in the exact opposite direction doesn't seem to make any difference. Which is why we are seeing EPIC mass complacency during a global meltdown. Already in progress...
This lethal juncture checks every box for an end of cycle. I would argue that the cycle was likely ending in 2019, however the pandemic and its attendant super bailout extended the longest cycle in U.S. history by two more years. Now, at the crest of the breaking deflationary tsunami we are to believe that the Fed which has ended EVERY cycle in post-WWII history, will not end the longest cycle in history. All because Wall Street has decided that bear markets can no longer exist.
It just so happens that among the many current indicators screaming end of cycle, one of the key indicators is a Wall Street crime syndicate lying constantly.
So it is that we find ourselves on the cusp of a Federal Reserve meeting to decide the future course of liquidity tightening, that investors are buying the dip on the assumption of another Fed bailout when in fact nothing could be further from the truth.
Over on Twitter I have shown many charts that indicate this current crash and bear market rally is essentially identical to the March 3rd FOMC bounce that occurred just before the wheels came off the bus. To be sure, back then there was a pandemic spreading worldwide. However, this time around we are dealing instead with the pandemic HANGOVER, which will be far worse from an economic and markets standpoint.
Wouldn't it be nice if we could all just "pivot" from the unquestioned inflationary hypothesis to the recession hypothesis overnight? Unfortunately, only Zerohedge and Jim Cramer are intellectually "flexible" enough to have their transitory opinions marked to market every single day.
Therein lies the problem. While pundits eager to maximize their subscriber base can leapfrog from hyperinflation to depression overnight. Most investors can't. Which is why they get demolished at the end of the cycle by believing they can ride out a recession in massively over-leveraged "inflationary" assets.
Of course this market didn't just roll over and implode from all time highs. The Nasdaq and small caps have been forming a top for one year now.
Today's collapse in breadth (highs-lows) was the third worst since 1978, BEFORE the market bounced ahead of tomorrow's FOMC meeting. I included the list of worst breadth dates, which includes March 12th and 16th 2020 then today, March 18th, 2020, then October 10th, 2008 during the worst part of the Lehman meltdown.
As we see, positioning (lower pane) is fully delusional:
The bulls at this lethal juncture all believe this is under control. But it's not under control. It's merely a massive delusion working it's way to a point at which markets get totally out of control.
Ultimately, the Fed will be forced to realize that the markets now pose a risk to the economy. At what point that happens is anyone's guess, but at the current rate it may only be days away.
When they do however, they will only make things far worse. Why? Because by reversing policy now, they will be slamming on the reflationary brakes, and all of the useful idiots who bought and believed the reflation hypothesis will go through the windshield. Cyclicals will be bidless.
And you know that means.
It means it's the end of the cycle. And Powell can't bail out everyone.
