Really, where to begin...
Geopolitical RISK:
We can all hope this current blunder in the Ukraine doesn't escalate to WWIII. The only way such a scenario is even possible is when one nuclear superpower intercedes in another superpower's backyard. The most likely escalation scenario would occur if one of the NATO allies bordering Ukraine was drawn into the conflict. As much as I like Ukrainians, I don't believe that one country is worth the entire planet. Unfortunately, the only things both the GOP and Democrats agree upon is the need to always go to war and the need to day trade stocks.
Putting aside hopefully remote doomsday scenarios, in the meantime, economic sanctions and a threat of an energy (natural gas) pipeline war with Europe are now on the table.
Economic Risk:
We are now informed that oil prices could further fuel "inflation" if the price of oil spikes to $120 as expected, which happens to be less than it was at in 2008 - far less in 2008 dollars. Be that as it may, this inflation hysteria serves to tie the Fed's hands with respect to an expected financial bailout. Which will be THE critical RISK factor in the days ahead. Something today's bulls don't acknowledge because they are currently in unanimous agreement that inflation is the greatest risk. There is an enormous amount of pretzel logic taking place right now, as today's bulls will believe anything, except the truth.
What today's inflationists are ignoring is that absent continued wage increases, higher oil prices merely shift consumption away from other areas of the economy. I would point out that record high oil prices in 2008 took place six months into recession and amid collapsing consumer sentiment. It's highly likely that today's "inflation" is masking a weak economy right now as well:
FOMC Risk:
Many of the trolls on my Twitter feed inform me that the Fed can bailout markets at any time, unfortunately, inflation hysteria guarantees that won't happen. Just yesterday amid rising tension in Ukraine, Fed member Bowman reiterated that she believes a half point rate HIKE should be on the table for the March meeting. If we go back two years to the pandemic meltdown, it was exactly next week when the Fed CUT half a point in interest rates. Current CME Fed futures indicate a 100% chance of rate hike in March. Which apparently leaves today's bulls plenty of leeway to fantasize over non-existent rate cuts. Worse yet for bulls, the Fed is hellbent on tapering balance sheet expansion to ZERO by the end of March.
So, from a positioning and mass complacency standpoint, we see that bulls are far more delusional than they were in December 2018 and February 2020:
Social Mood risk:
Few of today's market pundits ever discuss social mood even though everyone knows that greed and fear are the primary emotions that drive markets - especially at extreme turning points. These experts prefer to guess where S&P earnings will be one year from now while making simplifying assumptions for the several million variables that could affect that outcome. What they call "fundamental analysis". Of course if they're wrong, it's not their problem, so they are free to extrapolate last year's earnings at a metronomic 10% rate that would make Bernie Madoff proud.
Here we see the Bitcoin Trust is camped at key support. It has a very clear corrective wave count indicating that risk appetite peaked one year ago this same month. And made a lower high in November. Interactive Brokers trading activity confirms this interpretation.
Which means that Global Margin Call is now on deck.
Bullshit Risk
What today's market pundits all have in common is that they don't predict bear markets, they only predict bull markets. Just as us bears are derided as perma-bears, the same can be said of today's bulls. They have no RISK OFF switch, and they never say SELL. They didn't in 2000, 2008, 2018, or 2020.
It's not called bullshit for nothing.
This time however, the stakes are much higher than any of those previous bear market non-calls. This combination of risks will lead to what I call "MAXIMUM GONG SHOW". Meaning central banks caught off guard by the severity of collapse, delaying their response, and then inevitably crushing the massively over-crowded reflation trade when they finally take action.
Picture commodities going bidless along with every other "reflation" sector: Energy, Miners, Transports, Financials, and Retail.
Because that's what the next Fed "bailout" will entail.
Believe it, or NOT.
In summary, I see strong similarities and strong divergent risks relative to two years ago. Which was the last time that no one was allowed to see it coming.
One thing bulls might want to take note of is the fact that the .5% rate cut in 2020 ACCELERATED the market decline.
Now THAT's what I'm talking about.
