This is not the end of the world, this is the end of a Kardashian society doing everything possible to keep their facade from crumbling.
We are witnessing escalation towards all-out war in Europe (U.S.). Escalation towards war between China and Taiwan (U.S.). The total destruction of Ukraine. The end of Russia as a functioning nation state. Mass shootings not just in the U.S. but worldwide on an unprecedented scale. Political bifurcation bordering on civil war. 40 year high inflation. Societal breakdown reaching a boiling point. And of course environmental apocalypse in real-time.
To top it off we are now in recession with a Fed still in tightening mode and Wall Street telling investors THIS is the start of the new bull market. When this gambit fails, don't worry about Wall Street, there won't be one.
If you want to see a prime example of epic mass confusion, look no further than Zerohedge who have the unique ability to contradict themselves continuously and yet always be "right".
In other words the disinformation overload worked great. Mass confusion has led to mass financial complacency.
I would caution anyone who believes this Wall Street fairy tale that there will be recession for the middle class at the zero bound and a bull market for stocks. The CPI is now the biggest enemy of the economy AND stocks. It precludes the Fed from bailing out ANYONE on a timely basis. Which means that BOTH markets and the economy are at a high risk of crash. Which will be deflationary.
In this chart we see the level of option hedging in the top pane is lower than all prior market events. And we see the CPI in the lower pane. In ALL prior Fed bailouts, the CPI had been falling for at least six months and was below 2%. Except, the pandemic when markets were limit down six times in two weeks. THAT is what it will take for another bailout.
Unfortunately, this whiplash u-turn from an inflation narrative to a recession (deflation) narrative has come far too fast for investors as a whole to adjust. It ensures that hardcore inflationists are about to go through the windshield.
This week's confirmation of recession means that it's now clear for institutional investors to rotate from stocks and cash back to Treasury bonds. Whether you believe in Wall Street's "soft landing" fantasy or the hard landing reality, Treasuries SHOULD rally. However, unlike Treasuries, in the hard landing scenario, stocks will crater. Treasuries are a safe haven from deflation and global meltdown. Whereas stocks are massively overvalued relative to Treasuries and in recession, earnings AND profit margins will implode.
As we see from 2018, after the Fed pivoted both performed the same. However, at the start of the pandemic, stocks crashed while T-BONDs continued to rally. I see 60% or more upside from Treasuries in the next 12 months which will take yields back down to the zero bound.
Why am I telling you this?
Normally, I don't give financial advice. However, I feel an obligation to point out this one time that T-bonds present a rare opportunity for outsized gains over the coming 12 months.
Here are my caveats: One, I have a core position in Treasuries that I plan to trade around. So, you know I have a bias. Secondly, if you notice above, Treasuries crashed in the early part of the pandemic for a very brief amount of time. That's because a lot of institutions panicked and sold everything to go to cash.
I suspect they will do the same thing this time around, to gain liquidity for the impending avalanche of redemptions. You see the problem is that due to the inflation narrative, most investors are far too light on cash. And that poses a huge liquidity challenge for the Fed. It means that markets are about to get out of their control.
If the Treasury market crashes, two things will happen. First stocks and everything else will go limit down. Second, the Fed will panic and Japanify the bond market back to 0%. Personally, on a crash I will back up the truck to buy Treasuries.
The third and last caveat of course is what if inflation continues to escalate. I have every confidence the Fed knows how to implode markets and the economy to bring down inflation. So far, I give them an A+ in 2022. Their level of recklessness is insane and the bond market happens to agree with me.
In summary, if you think that the system is rigged and you want to stand as close to the printing press as possible, buy Treasury bonds and wait until the Fed has no choice but to take you out of the trade at a much higher level. And don't tell anyone you are now part of the "elite".
GAMBLE AT YOUR OWN RISK.