Never in history have so many people been conned at the same time...
Today's bulls have now bought the war in Ukraine, extreme Fed tightening, China Implosion, Tech Wreck, and cycle high inflation with both hands. Which makes them fully complicit in what will soon be revealed as the crime of the century.
Why the crime of the century? Because when this hot air bubble explodes, there will be NOTHING left to show for it. Corporations will be mass insolvent, households will be mass insolvent, state and local will be insolvent and many global governments will be insolvent. It will be a very hard landing back to the zero bound with non-existent monetary stimulus. The liabilities that attend this delusion will remain at all time highs while the assets collapse. Of course when Fed and Congress are trading stocks along with everyone else, then it's easy to overlook the level of chicanery accompanying this sugar bubble. Nevertheless, the level of widely accepted fraud and criminality in this era exceeds all other recent economic cycles combined. The pandemic spawned a late cycle blow-off top in speculative mania which unleashed unfettered greed, fraud, and corruption. The fullness of time will reveal this sugar rally to have been a fool's rally of epic proportion. One by one all of the global markets are collapsing back below the 2020 pre-pandemic high: Chinese/Hong Kong stocks, Biotech, Fintech, Global IPOs, Ark ETFs, now German stocks are flirting with breaking the 2020 support level.
This week, the impending war in Ukraine caused a global selloff earlier in the week and then the actual start of the war got bought with both hands. Optimists could point to the 2003 analog when the war in Iraq ended a recession and sparked a massive global rally. On the other hand, the 1990 analog was a war and oil shock that exacerbated a nascent recession. Which story to believe?
We can see via consumer sentiment that this era bears greater resemblance to 1990 and 2008 than the Y2K recession-lite scenario. However, there are far more risk factors to consider - as listed in the graphic above.
Why these people are still living in the 1970s is beyond all comprehension. It's as if they don't remember the sequence of events that took place during the 40 years since that time. Or they don't want to remember. In any case their inflation hysteria has now reached lethally binary proportions.
Commodities are now FORTY years overbought. Today's pundits haven't the slightest clue how fast the inflation premium can disappear from this market. The fact that nominal commodity prices are lower than 2008 has somehow escaped the attention of ALL of today's complicit pundits.
I and a few others remain of the minority opinion that buying ALL of these risks only serves to amplify the final explosion.
That said, my theory has yet to be detonated.
Up until 2022, bulls operated under the steadfast belief that only monetary policy matters. Now that monetary policy is working against them, they are under the belief that nothing matters.
There are currently NO risks priced into this market:
S&P futures net speculative as % of open interest ended the week at CYCLE HIGH:
Clearly, today's stock bulls have zero clue how close we came to global meltdown this week:
"Equity positioning showed "zero signs of capitulation despite flows and price disconnect"
Among notable flows, investment grade, high yield and emerging market debt saw a seventh consecutive week of redemptions"
In summary, history will say the crime of the century took place in broad daylight, because criminality was de-regulated.
Go figure.
