"What a fool believes he sees
No wise man has the power to reason away
What seems to be
Is always better than nothing"
The pandemic super bubble was the first global bubble in history. It was inflated by the largest coordinated global fiscal and monetary stimulus, without any comparison. The problem is that it was far too much stimulus. Coming out of the pandemic many pundits claimed that the pandemic unemployment programs were creating inflation. There is only one issue with that theory - those programs ended almost a year ago (September) which is when inflation accelerated. It turns out the biggest accelerators of inflation were corporate profits, commodities, and the housing bubble. The prime beneficiaries of Quantitative Easing. Once again, it was socialism for the rich which was driving inflation, not the middle class. Something to keep in mind when this hyper bubble explodes. Because this time there will be no bailout for the wealthy.
No bailout means there will be tremendous de-leveraging of the corporate sector in this impending recession. A lot of investors don't seem to know that after the pandemic, Congress removed the Fed's *special* bailout powers.
"Toomey said the deal achieved his four goals: to sweep out $429 billion in unused CARES Act funds allocated for Fed lending and repurpose the money, to shut down the four lending facilities, to forbid the reopening of those facilities, and to ban future clones of the program"
The pandemic was the first time in U.S. history when corporate debt actually grew during recession. Bulls are therefore betting this will be the SECOND recession in a row with no deleveraging. Sure.
From a valuation standpoint, during the pandemic stocks reached a record over-valuation relative to GDP. A ratio called the "Buffett indicator". As we see, prior to the pandemic stocks were bubbling back up to the Y2K record over-overvaluation level. And then the pandemic caused a breakout above that prior peak valuation. A return back to a 1:1 market cap/GDP ratio would imply a -50% drop in stock prices ASSUMING GDP does not collapse. Which is an asinine assumption. Given the attendant collapse in GDP, stocks could easily fall -75%.
That said, central banks will do everything possible to prevent true valuation. Which is why I say that stocks will ultimately become dead money, because they will not reflect proper valuations. Which is something the Japanese and Chinese have already learned the hard way.
Home sales are already collapsing.
Prices will soon follow.
Nouriel Roubini calls today's "Soft landing" proponents totally delusional:
The problem of course is that Nouriel Roubini has acquired a bearish reputation, hence he is called "Dr. Doom". Which is why many people ignore his warnings. He has always been right of course as to where this monetary orgy was heading, but it took the pandemic blow-off top to coalesce all of the risks he has warned about for years. Meaning it took a pandemic sugar rally to convince the masses to fully buy into virtual prosperity.
Make no mistake, the magnitude of this meltdown will ensure that anyone deriding Dr. Doom in the days to come, will have ZERO credibility.
In summary, U.S. gamblers are now addicted to VIRTUAL prosperity. Japanese investors were the first to learn the hard way not to trust printed money illusions. Next Chinese gamblers learned the hard way. Japan's market peaked in 1990 and China's market peaked in 2008.
What today's Fed pivot zealots don't understand is that after Y2K and 2008, when the Fed began cutting rates, the market STILL went down. The pivot was not the end of the bear market, it was the beginning.
