Investor confusion is extreme, making this a con man's paradise, exploited for maximum profit. Which is why this is the worst case scenario - a maxed out consumer hoarding merchandise ahead of a binary asset crash into extreme deflation at the zero bound. This event will make 2008 seem like a picnic by comparison...
When the housing bubble crashed, the Fed had 5.25% of interest rate cushion. Now, when this global hyper bubble implodes, the Fed will have .25% of rate cushion.
Making this the HARDEST landing:
Watching CNBC this morning ahead of the CPI report, I couldn't help but be amazed at the level of idiotic hubris in comparing this current set-up to the 1970s. The middle class has been systematically demolished by Supply Side policies for the past four decades, and yet conservative pundits are in unanimous consensus that we're in for stagflation.
And then Reagan gets elected, in their acid trip flashback.
The sickest part is when they say they are only concerned for the middle class in regards to inflation. Where have they been for the last four decades while the economy was outsourced to Asia? You have to have late stage hubristic dementia to believe any of it. Worse yet, now hyper-partisan politics are driving this mass deception ahead of the mid-term elections. Which is another key factor that has trapped record capital in dead end inflation trades.
In other words, the Fed are by no means alone in their epic fool's errand. The conservative media are deeply complicit in forcing RECORD policy error. Any dunce can see this is nothing like 1980. Nevertheless, Powell is going to slam on the brakes and then all of the inflation acolytes will go straight through the windshield in their cyclical inflation trades.
All of which makes this by far the worst case scenario: Consumers came out of the pandemic beset by supply chain shortages. Then they started panic buying during the end of cycle inflation phase. Now they are facing wholesale asset collapse and extreme deflation amid EXPLODING real yields. Which means the burden of debt will grow inexorably. Soon they will be wishing they had inflation back to boost wages relative to nominal debts.
Meanwhile, pundits who think this is 1980 deja vu will be shocked to learn its 2008 sans bailout. The hardest landing since 1930. To be sure, the White House has fallen for this frat boy prank. Unlike in 2018 when Trump demanded the Fed reverse policy, Biden is on board with MAXIMUM tightening. It's all a big conspiracy of dunces.
Exhibit A of mass deception, consider this article today from Zerohedge:
"The disconnect between global growth and equity allocation remains staggering. Investors got slightly more bullish on equities"
First of all, it's not their money so why would they sell? Secondly, as the article goes on to explain, they ALL believe the Goldilocks stagflation hypothesis which means high prices of everything and continuing strong consumer, and low growth. BUT if they are wrong, they assume the Fed can bail them out on a timely basis.
In other words, never before have so many investors been so delusional amid positioning diverging massively from reality. It's called conflict of interest compounded by bailout-driven moral hazard.
Worse yet, the ad-sponsored media is propagating this mass confusion because bullshit is the most lucrative business model, and the role of the financial media is to spread it far and wide.
All of which means the consensus of 7, 10, 16 rate hikes - whatever it is today - is absolute and total bullshit.
It's groupthink on steroids.
Getting back to the casino...
This is a technically driven market now. What does that mean? It means that algos are desperately trying to generate momentum at key support levels however the disintegrating breadth is working against them. Today when the CPI number came out there was a violent vertical algo rally, but by the end of the day the market was negative. We saw the same action in wave '1' down in January - strong opens, weak closes. Bear market action. There is always a headline to attach to these selloffs that allows the Jim Cramer's of the world to say this is why the market tanked in the afternoon when they gave an opposite reason for why it was strong in the morning. Today it was Fed vice-Chair Lael Brainard who tanked the market, deja vu of last Tuesday. Now that's news.
The S&P is between the 50 dma and the 200 dma which is why there is so much two-way volatility. Once it clears the 200 dma on a closing basis, things can get seriously fugly.
The corrective nature of this most recent bounce is clear when compared to the rallies in 2019 and 2020:
Going into the long weekend, risks could not be higher. The market has sold off every week after a holiday since Thanksgiving i.e. Christmas, MLK, and President's Day. In particular the Nasdaq.
Meanwhile, global markets are even weaker than U.S. markets.
Here is a look at the Nikkei:
In summary, investors are getting buried in level '11' bullshit right now. But they don't mind because they far prefer opinion over fact. You can see that plain as day on any partisan news channel aka. talk show.
Unfortunately, it's highly unlikely this gong show makes it to the next FOMC. Which means instead of sixteen rate hikes, there will be the one wafer thin mint.
The fewer people who see this coming, the higher will be the "yield" of the detonation. At this stage we're looking at 2008 x 1929 megatons.