Thursday, October 6, 2022


So far, the 2008 analog is continuing on schedule...

There was a lot of trolling of bears at the peak of the failed pivot rally this past summer and I've noticed that it has come back into style. Charles Hugh Smith who wrongly predicted new all time highs in the summer, is back for another bullish swing at bat. He asserts that everyone should "Play Devil's Advocate" to what he believes has become the new standard (bearish) consensus. I'm not going to refute the hard facts because there are none to refute, but first off I will say that any active trader who is down in 2022 needs to reassess their trading strategy in a down market, NOT try to pretend this is still a bull market. That is a dangerous game to play. He asserts that there is no analog for the current market and therefore one can evince "near ZERO " conviction. The article is a love affair with denial. 

"Very simply, nobody knows what's going to happen"

Anyone who doesn't understand the current level of asset deflation risk is the investor equivalent of JFK Jr. flying upside down into the ocean, unwilling to trust what their cockpit instruments are telling them. I can never understand how so many people have absolutely no memory that Fed over-tightening collapsed BOTH prior asset bubbles. During which time the CPI was lower both times. This current market is the sum total of every risk that has EXPLODED in the past two decades WHILE central banks were actively arranging bailout:  EM currency crisis, Tech bubble, housing bubble, Europe crisis, China meltdown. This time, all of those same risks are now attended by central bank coordinated tightening. So now we will find out what WOULD have happened all those other times had bailout not taken place. The irony of finance is that the less you know, the more confidence one can place in sheer fantasy. For example believing that the dollar and interest rates can both go higher indefinitely when they've already monkey hammered the Global Dow -30% amid the worst bond market in 100 years.

In 2022 financial reality has come home to roost. The cost of capital is sky-rocketing globally. Real yields are rising at the fastest pace since 2008. The Fed is boxed in. All of which means that risks have NEVER been clearer. But even more importantly, they will NEVER be clearer. So if you can't handle this type of market you should be playing Canasta with the girls on Thursday. This is a bear market and the trend is down. The decline to date equals the decline in the S&P 500 just prior to the October 2008 collapse. 

Now compare the "Devil's Advocate" view to Michael Burry who asserted this week that this set-up is now WORSE than 2008. The exact same "lone voice in the wilderness" in 2008 is pounding the table all over again in 2022. What people forget is that Burry lost a lot of money before he made a lot of money in 2008. Many at the time questioned his sanity. But he was adamant he was right and of course in hindsight it's his detractors who look like idiots NOT HIM. The fact that he was ever "wrong" has been long forgotten: 

Wall Street NEVER sees it coming. They do not try to predict Black Swan events or predict anything outside of their cozy consensus. Above all, they never say anything that would ignite widespread investor panic.  

In 2008 there were buy ratings on almost EVERY stock.  

May 16th, 2008:

We just learned that the British pension system almost collapsed last week:

"A large quantity of gilts (UK Treasury bonds), held as collateral by banks that had lent to these Liability Driven Investment (LDI) funds, was likely to be sold on the market, driving a potentially self-reinforcing spiral and threatening severe disruption of core funding markets and consequent widespread financial instability.”

There were several bear market bounces in 2008 and then all hell broke loose in October. It's highly likely that this Pound "bailout" bounce is the 2008 equivalent to the early October TARP bailout rally. The last chance to get out. 

In summary, questioning the bearish narrative this month is tempting fate on a BIBLICAL scale. The number of people who would like to admit they ignored the EXACT same warning TWICE by chance happens to be the exact same number of people who "know what's going to happen". 

No one.