Friday, January 14, 2022

Whatever It Takes To Explode

“The arc of the moral universe is long, but it bends toward justice.” - MLK 

This era is the sum total of the idiocy of the past decade+ since Lehman. Never before have we seen so much mass stupidity parading around as smug and over-confident as now. Belief in the impossible is now mandatory. The Fed has convinced investors they can reduce economic inflation while keeping asset inflation at all time highs...

"Investors should favor U.S. equities this year even as valuations are historically high and the Federal Reserve moves toward tightening its monetary policy"

While many investors point to similarities between today’s U.S. stock market and the dot-com bubble of late 1999, Goldman sees significant differences, including the breadth of the rally...To be sure, the S&P 500 is concentrated in a small group of stocks"

With logic like that, who needs enemies?

This market's breadth is the worst since March 2020 and before that October 2008:

Nowhere in Powell's Senate confirmation hearing this week was there any mention of a "cost" associated with reigning in inflation. It was all upside. One GOP senator after another was pounding the table we have to do this. Subsequently, multiple Fed members have made public statements reiterating they will do whatever it takes to bring down inflation. Not one mention about asset prices. 

Why? Because if they did, the reception they received would be not nearly as gleeful. Picture this scenario:

Sen. Shelby: "The Fed has lost credibility. You need to do whatever it takes to bring down inflation"

Powell: "We will slash the balance sheet and raise rates. This will cut the Dow in half by April. 

Sen. Shelby: "You know a little inflation isn't the end of the world"

Shelby's ilk believe they can implode Millennials but their investments will remain fully intact. It's a fool's errand of the highest order. Nothing could be more lethally delusional.

Back in 2015 when the Fed attempted to raise rates off the zero bound for the first time in SIX YEARS the market imploded in August 2015 before they got the chance. So they backed off for a few months and then they raised rates in December and the market imploded AGAIN in January 2016. After that they stopped raising rates for A YEAR.

Back then of course markets were not nearly as leveraged as they are now and the Nasdaq was technically much stronger in terms of breadth and participation. Similarly, China's stock market was imploding as it is now, however this time their real estate market is also imploding and the pain is spreading to the top tier developers. As I've said, this is THEIR Lehman moment. Meanwhile, their ZERO COVID policy is a total disaster for the economy. Hong Kong is on the verge of total collapse, due to the combination of One China rule, COVID restrictions, and real estate collapse.

Here we see Chinese junk bonds are bidless:

Walking into the grocery store this week, every tabloid had the headline "Bidenflation at 40 Year High". The worshipping of markets has been going on for 40 years at the expense of the middle class. Each iteration has led to a new low in interest rates and total employment (capacity utilization). It appears that the people who believe that markets are more important than people have finally fooled themselves.

Where I truly part company with today's inflation pundits pounding the table for higher interest rates is what happens NEXT. 

I have been adamant that the FASTEST means to bring down inflation is via the asset markets, as we've ALREADY seen multiple times since 2008. And that's where the first order effect of Fed policies are taking dramatic effect on growth stocks. To date, Chinese Tech stocks and now Biotechs have given back ALL of their pandemic gains. Next will come Ark ETFs, Cryptos, Fintechs, Cloud internets, IPOs/SPACs, Social Media, EV/Clean Energy and then the mega cap Techs.

As we see above via Goldman Sachs, year over year the bullish market predictions have not changed one iota. Last year the reason to buy was a loose Fed. This year the reason to buy is a tight Fed.

All of which means that very soon Millennials will be fully imploded.

Why that's good is not for me to say. Only a morally void society throws its own children under the bus using the same means of  criminalized pump and dump schemes that we've already seen TWICE in the past twenty years. 

This week we learned that the Ameritrade investor movement (positioning) index came down slightly in December. But nowhere near the levels it was at in December 2018 when inflation was FAR lower and the Fed was NOT boxed in. 

These people actually believe that economic inflation AND a tight Fed are good for asset prices.

It's a lethal delusion. 

One year ago, the Gamestop pump and dump scheme lured a generation into the casino for the first time. Subsequently, they have been financially obliterated.

I'll leave it to today's bulls to explain why that's good. What it all comes down to is that this society EXCELS at ignoring other people's pain.