Thursday, May 5, 2022


The mainstream financial media deserve the majority of credit for the masses NOT seeing this coming. Zerohedge deserves credit for excellence in generating mass confusion. No one does it better. In summary, end of cycle GREEDTHINK is driving the most expensive circle jerk in human history:

"Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms or supports one's own views"

Reading the news THIS week one would never know that in April the Nasdaq had its worst month since 2008.

How soon they forget:

Two things are killing Tech right now, one is DECLINING growth as described in the article above, which is the death knell for momentum trades. The second factor is higher interest rates which are the death knell for high valuations. This week, the Fed raised interest rates .5% which is the most since May 2000 when the DotCom bubble imploded. The Nasdaq finished that year down -60%. This current Tech wreck started over a year ago and now it's spreading to the mega cap names as well. 

After Y2K, the Nasdaq didn't make a new high for 18 years. The 2008 crash required a maximum Fed bailout, but still the Nasdaq fell another -40% before hitting bottom AFTER October 2008:

In addition to the Nasdaq being down the most since October 2008, the S&P 500 was down in April the most since March 2020. This time of course, the Fed is tightening at the fastest rate in history whereas back then it was easing at a record pace.

Which means that this set-up is March 2020 deja vu EXCEPT this time sans bailout. Anyone can see that breadth during this period of time in no way resembles 2018 and 2020. 

Right now investors are piled into LATE cycle inflation trades because the stagflation hypothesis is unanimous. Here we see that commodities are the most overbought in four decades.

In addition, the stock/bond ratio is at the highest level in history, and yet today's pundits claim that investors are "too bearish" for a continued stock market decline.

Stagflation is a "RISK ON" trade. 

What today's pundits never admit is that "stagflation" is temporarily evident in EVERY late cycle just prior to recession. It just means slowing growth and high prices. Only in the late 1970s was stagflation NOT transitory. So therefore this must be the late 1970s. 

It couldn't be for example 2008 deja vu:

What these stagflation pundits forget is that Powell is doing his best imitation of Paul Volcker who KILLED stagflation in 1980.

What makes THIS situation uniquely lethal is the fact that the housing market has yet to implode. Whereas during the prior two housing bubbles (1980/2008) the housing bubble had already imploded BEFORE consumer sentiment collapsed. 

Which means THIS Fed is raising rates into an impending housing collapse at the ZERO bound which will make this recession far worse than 2008 and 1980.

When the Fed's first rate hike didn't collapse global markets (ALMOST), they decided to double down on collapse:

In summary: A Tech wreck in progress, record overbought inflation trades, collapsing Emerging Markets, and a housing  super bubble with a Fed hellbent on maximum tightening.

All of which means that the biggest policy error in market history is attended by the WORST positioning by investors at any end of cycle in history. Why? Because today's pundits are groupthink idiots and the masses wouldn't have it any other way.