Monday, January 17, 2022

The Party's Over

Imagine if today's pundits ran a headline like the one above. They would lose 80% of their subscribers in a minute. So they don't. But, we know the party is over, because the Fed is taking away the punch bowl. This entire rally from the COVID low was about NOTHING except printed money. The Idiocracy's secret to effortless wealth. The great "democratization" of markets was nothing more than the latest generation getting muppetized by global central banks and Wall Street...


Gamblers don't want to be told the party is over. Which is why today's pundits never say it. Even though every seasoned market veteran knows full well that the S&P 500 is now 100% correlated to the Fed balance sheet. In this era, it's all that matters.

Over on, one pundit asserts the Crypto bull market is not over. 

Yes it is over, because the Fed said it's over. Crypto is the ultimate useless asset that is solely dependent upon monetary expansion. 

Crypto fanatics inform us there is this reason or that reason to own one of several thousand shit coins proliferating like gerbils. There was only ONE reason to own these things. Monetary heroin. And now that that's going away, we can put away the false pretense that these are actual currencies. In the real world, no currency is 100% correlated to every other currency. The dollar is not 100% correlated to the Yen, however, every single Crypto currency is correlated to Bitcoin. When Bitcoin implodes, they ALL implode at the same time. There is no safe haven Crypto currency. On the other hand, try shorting the Yen in a global meltdown. You'll get your face ripped off.

It appears that a lot of people didn't get the memo. One of the dominant memes of 2021 was the Powell money printer meme. Remember that one? That was the number one reason to own Crypto. We don't hear to much about that one anymore. It appears that triple tightening put a damper on that hypothesis. 

Is it any wonder that Millennials are getting wiped out en masse? They have been told they can "Hodl" through global depression. And in this era there aren't three wise men and a virgin to tell them any different. 

Take a look at this chart of Schwab in the top pane and Interactive Brokers' daily average trades in the lower pane. Schwab's daily average trades peaked last February also, but I don't have their data going back several years, so I use IBKR data instead. It's the same idea. The key point is that Financials are getting bid up by this late cycle rotation due to Fed tightening, but the underlying fundamentals are growing weaker. 

This week, Goldman Sachs earnings are on tap. Does anyone honestly believe that Wall Street will have ANOTHER record IPO year with the IPO market imploding in real-time?

Global IPOs peaked a year ago and yet broker stocks are still at an all time high. 

Why? Fed tightening is driving a late cycle rotation into the worst stocks to own at the end of the cycle. But it's not the end of the cycle, so don't worry about it. 

That's another term you will NEVER hear anyone mention, the end of the cycle. It's strictly verboten, because it would mean that ALL rosy economic predictions are wrong. And, it means that deleveraging is about to occur, hence extreme economic dislocation. In a society run by and for salesmen, these are not ideas to be bandied about lightly. Almost every major corporation sees a profit decline in a recession. 

Nevertheless, I don't get paid to blow smoke up people's asses. And the 80% who don't want to hear what I have to say, left a long time ago. My user base is net of denialists.

If you want to see end of cycle in real-time, take a look at this chart of Emerging Market currencies. It exhibits a repeating pattern of three lower highs followed by a major deflationary crash. The last one being 2015, not including the pandemic. The 2018 debacle touched the line but Powell reversed just in time. Had he not, then 2018 would have been the explosion that this one will soon become. Because this time he is boxed in by "inflation". 

The Fed and China are now diametrically opposed on monetary policy. China led the world out of the pandemic and ironically, they are leading the world INTO recession. The Fed divergence is only making the probability of a major global financial "event" far more likely. 

The one thing that the Fed and Chinese leaders have in common, is that they are BOTH throwing gamblers under the bus. Something we haven't seen this past decade. China's policy of "common prosperity" could be more aptly called "common poverty". And the Fed is going down the exact same path. 2022 will see the largest combined fiscal and monetary stimulus reduction in U.S. history. 

So it is that gamblers find themselves BTFD a Fed-imploded Nasdaq at a time when they are the LEAST likely to get bailed out. 

Because who would tell them any different?