DANCE WHILE THE MUSIC IS PLAYING

Back at the market top in 2007 Wall Street was making all manner of excuses for investors to stay the course. They are doing the same thing right now. Trying to keep the sheeple from bolting...

July 2007:

Citigroup's Chuck Prince Wants To Keep Dancing. Can You Blame Him?

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance"

THIS is how the era of continuous monetary bailouts and extreme moral hazard was doomed to end - with an Idiocracy now questioning the definition and even the possibility of recession while the walls are closing in on them from all sides.

This chart shows that the two quarter moving average of GDP decline now exceeds Y2K, which was an "official" recession. 

Most young investors are of the belief that the 2020 v-bottom recovery was typical - a four week recession and bear market followed shortly after by new all time highs. CNBC and Zerohedge pundits apparently don't have any recollection earlier than December 2018 which was the last time the Fed successfully "pivoted" from tightening to neutral and the market took off. The difference of course is that this time the economy is now in a confirmed recession. Stock valuations are higher now, the housing market is imploding, the car market is imploding, and inflation is at a 50 year high. Meaning consumers are TOTALLY tapped out. Which is the message coming through this quarter's earning announcements, however CNBC and Wall Street have done a great job of putting lipstick on the pig. The mantra of the day is: "Not as bad as feared". Meaning the company "beat" collapsed expectations. Bearing in mind that most of the guests on CNBC are money managers who have to put money somewhere. So all they care about is which stocks will go down the least in a recession. Apparently they've forgotten the lesson from Y2K.  

Back in the Y2K bubble, first the profitless junk stocks imploded. When that happened money rotated to the mega cap stocks: Microsoft, Intel, Cisco, and Dell on the assumption they were Tech safe havens. As a result those stocks became massively overvalued as growth slowed. And then those "safe havens" imploded. The same thing is happening now.

Meanwhile, mega cap Tech stocks remain top holdings in every portfolio.

Apple is an excellent example of Wall Street smoke and mirrors. We were told the company "beat" earnings expectations, but profit was down -11% year over year. If you take into account CPI however, REAL profit was down -20% year over year. 

CNN Business: Apple Profit Declines -11%

In other words, it was a very bad quarter and the company is using inflation to hide how bad it was.

Despite lowered expectations vis-a-vis last quarter, Microsoft missed, Google missed and Facebook missed. Amazon took expectations down to rock bottom ahead of the quarter, and Apple covered up a year over year profit collapse with the assistance of media con artists.  

Zerohedge: Apple Beats On Top And Bottom Lines

"AAPL did not disappoint...easing concerns that supply chain snags and a shaky economy would ravage the tech giant’s sales"

Sure. 

The CPI is hiding economic collapse in broad daylight. 

Here we see real wages have collapsed -3%, the most in 20 years and more than 2008. It's fortunate that so far GDP is only down -1%. Clearly consumers are digging into savings. 

There are eight weeks until the next FOMC. In the meantime, the economy will be weakening as the lagged impact of these most recent rate hikes takes effect. Meanwhile economic reports which operate on a lag will continue to show elevated inflation and economic activity while the real-time indicators are collapsing. During this lag period, Wall Street will be doing everything possible to paper over collapse with their standard end of cycle chicanery. 

Pundits are already telling people that inflation has peaked and it's time to pile back into the market:

“When the Fed gets out of the way, you have a real window and you’ve got to jump through it. … When a recession comes, the Fed has the good sense to stop raising rates,” the “Mad Money” host said. “And that pause means you’ve got to buy stocks.”

Here below we can see that when the Fed stopped raising rates and began lowering them in 2007/2008, that was the period of maximum drawdown. We also see that it took the National Bureau of Economic Research a FULL YEAR to declare official recession. By that time the market was down -50%. When the Fed met at their fateful Lehman meeting in September 2008 they had no idea the economy had already been in recession for nine months. 

Going into the steepest part of the decline, only 5% of Wall Street recommendations were sell:

Ritholtz May 2008:

Only 5% of Wall Street Recommendations are "Sells"

In summary, this is a BULL TRAP of biblical magnitude.

One thing I agree with Cramer on is that the Fed is likely done hiking rates. Which means they are now going to "pivot" at a 2.5% Fed funds rate. In other words, Wall Street’s best case scenario is actually the worst case scenario. Non-normalized rates in a deep recession.

How the age of MORAL HAZARD was always going to end. With investors believing that global depression was their last buying opportunity.

Because they trusted proven psychopaths. AGAIN.