Saturday, August 6, 2022


Doom and gloom is pervasive across a variety of risk factors, which is why this society excels at ignoring it. There is a belief now that as long as everyone sees something coming, it can't happen. Which is sheer denialistic fantasy of course. This society now specializes in talking about problems full time while doing nothing about them. Always taking the easy way out. Which means that all of the "change" has been delayed and therefore all of the various crises will come crashing down at the same time...


Fortunately, I did not shred my credibility by attempting to guess Friday's jobs report which came in more than double what economists expected. These are the people that this society depends upon as experts. They've been substantially wrong for every jobs report in 2022. In just one week, the odds of a .75% rate hike in September jumped from 28% to 68%. Remember the Fed pivot? That is history. 

The pivot theory actually started back in June with the first .75% rate hike. The theory was the Fed would "front load" all of the rate hikes in June and July and obviate the need for further rate hikes. Here we are in August and the theory is already dead. 

Far too many bulls are STILL trying to front-run the Fed which has the effect of compressing risk spreads and otherwise EASING financial conditions. Which forces the Fed to keep tightening. 

From an economic standpoint, the Fed remains fixated on lagging indicators while ignoring leading indicators. The number of McJobs created in any given month has no bearing on inflation. During the 1970s, job creation continued well after the economy was already in recession in 1970, 1974, and 1980.

We are still struggling with the after effects of the pandemic when job openings sky-rocketed. But now we see they are beginning to roll over:

The labor participation rate for the key younger demographic still hasn't recovered to pre-pandemic levels. Which means that a lot of people are now going to be long-term unemployed. 

Now on to everyone's favourite topic - Disney markets and imagined realities. 

This is now the second headfake rally in 2022. 

There is now a desperate belief that institutions which have been selling all year long will soon be bidding up the stocks of retail bagholders. That has NEVER happened in the history of markets. What happens next is that retail bagholders puke out stock into a collapsing market, the Fed is forced to reverse, and THEN institutions come off the sidelines. This idea that the dumb money is now the smart money and vice versa is the height of desperation. 

This second rally of 2022 looks almost identical to the first one, and shares many of the same attributes: Extreme low volatility, overbought oscillator, overbought volume momentum, three wave retracement and of course it confirms the second quarter in a row of negative GDP. Qualitatively it's clearly different than the rallies that attended Fed bailouts in 2018 and 2020. This rally has yet to take back the 200 day moving average. Which means bulls are now facing the second failure at the 200 dma - something that has not happened since 2008. 

All of which is why I call this the "recession confirmation rally".

If you can't understand it, it's because your IQ hasn't collapsed like a cheap tent. 

Here is the Nasdaq on the weekly. This rally percentage wise is basically identical to the first one:

This week, crude oil decisively broke the 200 day for the first time since 2020:

Here we see stocks are tracking copper very closely as the world economy implodes in broad daylight:

In summary, by the time we get official confirmation of recession, bulls will be officially buried.

Like last time, except far deeper and with no hope of bailout.