"As the endgame approaches, those still nominally in charge of the collapsing empire resort to all sorts of desperate measures—all except one: they will refuse to ever consider the fact that their imperial superpower is at an end, and that they should change their ways accordingly...Because, you see, if they had an inkling of what's going on, they wouldn't take their jobs seriously enough to keep the game going for as long as possible."
I've been too bullish. Like many investors, far too focused on markets. What's happening under the surface of the Disney markets is far more dire than what's happening on top. This "Everything" bubble is a multi-pronged attack on the middle class. We are witnessing the final meltdown of the U.S. middle class at the zero bound.
The greatest risk isn't even currently acknowledged by anyone in the mainstream media - monetary policy failure at the zero bound. This Volcker gambit has no chance of succeeding. Not only does it wrongly assume the Fed will have sufficient rate cut powder it ALSO ASSUMES the middle class is as strong now as it was in 1980 when the middle class was at its apex of power. Whereas, now the U.S. middle class is at the lowest share of GDP in history. No unions, no labor protections, no pension plans, no job security. All strip mined and fed into the stock market and out to the Cayman Islands. A multi-decade crime spree capped off by a COVID-driven monetary sugar rally. Because we are to believe a pandemic improved the economy.
This belief in the enduring strength of the serially laid off and underemployed "consumer" is the greatest fantasy underlying this era. The magnitude of this disaster far exceeds the ability of central banks to "fix" when it explodes. Ironically, the stock market's durability to date has been covering up the carnage taking place below the surface. As is end of cycle inflation. Sales VOLUMES are collapsing, but prices are staying high. For now. This is how every bubble crash begins - buyers and sellers move further apart. At first sellers are reluctant to lower their asking prices. But then the market slows down to a point at which they have to sell. And then the race to the bottom begins.
I call this period the apex of criminality. The full weight of super cycle criminality is now arrayed against the general public. From the S&L Crisis in 1990 to the DotCom bubble in 2000, the housing bubble in 2007, and on to now, we have witnessed serially greater widely accepted corruption in financial markets. Bernie Madoff's Ponzi scheme was a rounding error compared to the losses in Ponzi crypto markets - less than one hundredth in size. And yet there is STILL no regulation around Crypto currencies. It's fucking ridiculous. However, on an even larger scale albeit more insidious, today's economic "soft landing" predictions are totally driven by conflict of interest. No one on Wall Street wants to be outside of the consensus. On Wall Street, the people who make these forecasts are called "the sell side". And the people who are to believe these predictions are "the buy side". Except Wall Street doesn't believe their own hyperbolic bullshit, which is why THEY are all sitting in cash right now. Not their clients however.
Throughout this time, the public has come to believe that all of this is now just "corruption as usual". Robert Prechter of Elliot Wave International informs us that ignoring and embracing malfeasance is common in boom times. However, when boom turns to bust, social mood turns dark and what was generally accepted during the good times is generally rejected during bad times.
Given that there were NO major prosecutions on Wall Street arising from the 2008 subprime meltdown, this time we will see a level of public rage that is hard to fathom. Basically, the industry that got bailed out by the middle class in 2008 is the one that is now leading to their final destruction.
History will not be kind.
From a markets standpoint, getting the T-bond market and the stock market under control will be the Fed's top priority. However, in the meantime, most other markets will collapse to levels currently unthinkable - I am of course referring to cryptos, housing, commodities, muni bonds, corporates and Emerging Markets.
When that happens, confidence will collapse like a cheap tent.
Even zombified down -60% the stock market will in no way convey the full extent of the economic damage.
Ultimately there will be far more "value" in other types of investments than the ones directly manipulated by the Fed. When the BOJ zombified the Japanese stock market, the public abandoned it en masse. They found far greater value in markets that were not manipulated by central planners.
In summary, the contrarian view at this juncture is NOT for a rally. The contrarian view is for monetary failure at the zero bound.
And no, they don't see it coming.
To today's experts now looking in the rearview mirror, this is a "six sigma" Black Swan event that is outside of their purview. Their entire baseline is wrong.
NOTE: Past performance is no guarantee of future results.
