History will say the Ukraine war hid the collapse of the global economy behind an end-of-cycle commodity shock. Wall Street now has their excuse to run the herd over the cliff with the Fed now tightening into depression. With their only question being...
"What stocks should I buy in a nuclear depression?"
"WASHINGTON — Senators reacted with alarm to a new report that suggested Russian President Vladimir Putin could deploy a small, targeted nuclear bomb as his troops get bogged down in a costly, drawn-out battle against defiant Ukrainian fighters"
Where to begin...
First off, I will discuss the "nuclear" economic option of a Russian oil embargo:
A commodity spike at the end of the cycle is ultimately deflationary, because it's yet another shock to an already tapped out consumer. First consumers endured all of the pandemic-related supply chain shocks for the past two years, next they endured interest rate shock for the past six months, now we're having commodity shock. There is only so much pain consumers can take, which is why recession odds are sky-rocketing. When people see high prices they view it as inflationary, because they assume these prices will stay high forever. However, the definition of "inflation" is not prices that spike and collapse. When oil spikes, it means less purchasing power for other parts of the economy.
The West's Russian oil embargo drove oil prices to a manic peak two weeks ago. However, that "embargo" turned out to be a soft embargo, because most of Russia's oil is still expected to reach the market whether through Europe, India, or China. Which is why many speculators got dumped when commodities crashed -27% into bear market. Now commodities are making a second lower high.
In addition, we can see that crude oil demand in the U.S. is beginning to roll over in line with collapsing consumer sentiment. The hyperinflationary depression fantasy propagated by Putin and Zerohedge, is running on glue fumes.
aka. "Pravda"
Nevertheless, all of today's pundits are ignoring the bond market and yield curve inversion. The stagflation hypothesis is consensus. Even the Fed believes it now.
Which is why a hard landing is becoming far more likely:
The Fed is collapsing the global bond market, but they are not concerned because investors are still in RISK ON mode and hence collapsing risk premiums. Which is why market duress is not showing up in any of the Fed's key indicators. That lack of market stress ironically makes further rate hikes and further market collapse likely. Investors are in what I call a "Moral Hazard" death spiral. They are front-running the Fed into collapsing markets on the basis that the Fed will bail them out.
Meanwhile, the Fed is using their positioning as a rationale for tightening liquidity:
March 23rd, 2022:
If the Fed raises rates .5% in May this year, it would be the first double rate hike since May 2000. Back then the Fed kept raising rates until the DotCom era Nasdaq was collapsed -80% and the economy was in recession.
Looking at the chart above, it's hard to believe the Fed will get that opportunity, this time around. The market is way ahead of them on rate hikes as we see below with the two year now above the Lehman level of 2 year minus Fed rate:
Which gets us to the casino:
Three waves are now becoming visible on the S&P 500. Confirmation is provided by NYSE new lows and the breadth oscillator.
This is a very weak retracement, but it's also a long retracement in terms of duration. When it started the S&P was two years oversold. And now it's two years overbought:
As one would expect, the Nasdaq is in far more dire condition. This wave count which is similar to the S&P's is extremely weak. And yet it's confirmed by the volume oscillator as a three wave correction. Normally wave 'b' above wave '1' and wave 'c' is above wave 'a'.
In summary, this decline and correction has been more about time than price. However, the next leg down should be more about price than time.
Gamblers who wait too long, are going to find out it's their bailout that gets delayed this time around.
