The Netflix movie, "Don't Look Up", is a timely analog for the monetary euthanasia that has a death grip on society. Fortunately, this impending reset won't be a world ending event. But for consumption addicts forced to go cold turkey, it will feel like it anyways...
I finally got around to watching "Don't Look Up", which is essentially a slightly more intelligent version of "Idiocracy" i.e. a society of idiots hellbent on self-destruction. A very timely movie clearly targeted at climate change, but equally relevant to all other aspects of society that are currently imploding in broad daylight amid mandatory denial. Since the pandemic collapsed the carbon level down to decade lows, I've started worrying more about this society's latent mental breakdown than the environment. Why? Because once this monetary illusion implodes, the overall carbon level will collapse like a cheap tent.
Case in point, in the same week we learned that consumer confidence has collapsed, we learned that retail sales are skyrocketing. This only makes sense in a society of hoarders fretting about inflation while their overall sense of economic confidence implodes. These people are hoarding merchandise going into a deflationary depression. Something we never saw in 2008. It goes without saying that the hangover will be brutal.
But really, who could warn them?
This hoarding/asset bubble scenario has created the perfect set-up for a bidless market and the fastest demand collapse in modern history. There is no way this could be more cataclysmic than this unique combination of idiotic events.
As we see below, the inflation hypothesis is now universal consensus. Even though at this latent juncture neither gold, nor oil, nor Treasury bonds are confirming it.
On the subject of timing, we have now entered the ninth consecutive week of short-term treasury bond yield rise. The last time we saw that was back in February of 2000. Which made me realize that the set-up now is eerily reminiscent to that one. Back then, the Fed kept the spigots open through the Y2K date change because they were worried the world was going to end, computers offline, planes falling out of the sky etc. When all of that turned out to be a non-event, the stock market bolted higher. At that point, the Fed realized they were way behind the curve on tightening policy. So what did they do, they started hiking rates as fast as possible. And then by March 2000 the Tech bubble exploded. Which when you think about it is very similar to the current scenario. The Fed has been preoccupied with the pandemic and the various mutations. Which left them way behind the curve as supply bottlenecks grew and pent-up demand exploded. So now, in this new year they're making up for lost time.
The main difference is of course that now yields are far lower than in 2000 because that was the strongest economy in decades. Whereas this is the weakest economy in U.S. history. In Y2K, GDP growth was at 7% and the U.S. budget was in surplus. Now, GDP growth is at 2% and the deficit is 6%. In any other era that would have been considered a 4% recession.
Putting it altogether and we now have end of cycle inflation hysteria worse than 2000 and 2008, attending a 100 year asset bubble. Which means double policy error. However, the populace is far more concerned about the price of eggs than sky high asset prices. One is expensive short-term. The other costs everything long-term.
Once the global margin call reaches its crescendo, there will be no possibility for central banks to stop it. The Fed is now boxed in by the lethal inflation narrative. In 2008, it took four months and -40% for the Fed to arrest the decline of the stock market. Albeit there were some massive short-term rallies along the way.
Today’s pundits are 100% convinced the Fed can save every market despite the fact that the collapse is already well underway.
In summary, the consumption-addicted masses are now hoarding insolvency heading into a depressionary asset collapse. On the other side of which there will be a glut of EVERYTHING. Which is apropos for a society that trusts opinion over fact every single time without the slightest question. A society of dedicated denialists placing ALL faith in their overwhelming strength of numbers.
On the topic of the casino, this week the Nasdaq has round-tripped back to the high of last February, while breadth has collapsed for a YEAR straight:
Since the top on January 5th (yes my birthday), the Dow is declining faster than it did in 1987. Today's Dow has already tested the 200 dma three times. Back then, a solid break of the 200 dma is when the crash got out of control.
Rally volume as we see has been abysmal:
The broad based Wilshire has the clearest wave form. It peaked back in November and it's now exhibiting nested "1s" and "2s". This is my interpretation and it implies the most bearish of outcomes.
Suffice to say, bulls can't afford for this to be accurate, because it implies the end of mass delusion.
Don't look down.
