Investors have been conditioned to believe that prices of everything are going higher. They will soon learn the hard way that while liabilities are "sticky", asset prices can collapse...
Pundits are just starting to realize that recession is inevitable. Most believe that it will happen in 2023. The technical definition of a recession is two quarters of negative growth. This week, final Q1 GDP came in at -1.6% and Q2 real-time GDP crashed down to -2.1%. Which means that technically we've already met the definition of a recession. Theoretically, Q2 could pull out of the nosedive, however Q2 just ended, therefore only backward data revision can save the quarter. In other words, recession will very likely be backdated to the beginning of 2022 and yet most pundits see it happening in early 2023. They are a FULL YEAR off from reality. With forecasting like that, who needs enemies? Somehow, the Fed is even more clueless because they are still holding out hope that recession won't happen at all.
Then there are the pundits who are saying, Ok recession is inevitable but it will be a "soft landing". They never quite explain what that means. The difference between a soft landing and hard landing is whether or not there is deleveraging of households and corporations. Because mass deleveraging implies major job cuts. Most stock forecasters remain sanguine on further market downside, because they assume a "soft landing", despite the fact that the Fed has the least amount of dry interest rate powder in history. This key assumption makes it easy for them to data mine the past 50 years and find the LEAST painful recessions and bear markets for comparison to the current market. Which has become a very common practice lately.
We are to believe that the LARGEST asset bubble in human history will require the LEAST amount of Fed rate buffer and will be a soft landing.
You have to be brain dead to believe that, hence it goes largely unquestioned.
Unfortunately for investors they were led to believe that inflation is NOT transitory. However, inflation ALWAYS collapses in a recession. There have been no examples in the past 100 years where it didn't. Which means that inflation IS now once again transitory, only the pundits and the Fed don't admit it.
Basically they've all been conned by their own cycle denial.
Worst of all, inflation is a RISK ON paradigm. It means crowding into commodities, carry trades, and cyclical stocks. This year, investors have been dumping Treasury bonds en masse and buying stocks. In particular they've been buying Cyclicals which are now imploding.
Much has been written about the imploding Tech bubble, and most pundits are in agreement that it will continue collapsing.
However, what they deny is the fact that Cyclicals are now imploding FASTER than Tech stocks. And now THOSE stocks have the MOST downside.
Here we see Q2 relative performance for key sectors. The S&P 500 declined the least because recession stocks kept it from imploding. Tech stocks performed the next best. Followed by Cyclicals and Consumer Discretionary. We've been told all this time that the consumer is strong, but we just learned it was a widely believed fabrication.
June 29th, 2022:
"Consumer spending was weaker in early 2022 than previously believed, a sign that cracks may be forming in a crucial pillar of the U.S. economy."
Amazon, Walmart, Target, Nike and every other retailer ALREADY warned that consumer spending is slowing, but economists like to wait until everything implodes for confirmation. Imagine, as an investor if you had waited for EconoDunces to confirm that consumer spending had slowed more than predicted? You would get obliterated.
Why did so many economists happily ignore the COLLAPSE in consumer confidence that has been taking place throughout 2022? It's because they believe they are far smarter than the average consumer, whereas the opposite is true, they are as dumb as a brick.
Another lie we've been told is that there are shortages of everything, especially semiconductors.
This week we learned that there is now a massive glut of semiconductors.
No surprise, semiconductors were the WORST performing sector of Q2 since they are at the intersection of Tech AND Cyclicals.
Commodities of course are a huge part of "inflation". June saw the fastest collapse in copper since 2011, and before that 2008.
Copper is a key bellwether of the global economy:
Which gets us to the imploding housing bubble.
This news came out two weeks ago:
The Fed's own housing data shows new home prices collapsing at the fastest pace since 2008:
In summary, there are no shortages of ANYTHING. Soon there will be oversupply of EVERYTHING. The shortage lies were told so that companies could jack up prices and create a buying frenzy to pull forward demand.
It worked great. What's coming is an everything deflation, that will be out of central bank control. And it will give lie to all of the sugar coated bullshit that investors have been SOLD in 2022.
This past week, the $USD hit the highest level in 20 years. So far, Emerging markets and the rest of the world are bearing the brunt of outflows to the U.S.
However, June saw the largest overnight S&P futures selloffs since March 2020. Ex-2020, the largest since the Asian Financial crisis:
You don't have to be a genius to figure out what's coming, but you do have to be able to fog a mirror. Which appears to be a bridge too far for most people.