This will be the first RISK ON recession in world history...
Here we see the Baltic Dry Index and Global Dow. Every other time the BDI was at this level, global risk markets were selling off.
This week, global stocks are back near their all time high.
Which means we are VERY LATE in the Ponzi cycle and all warnings have been totally ignored.
The standard narrative for the past year is that the Fed kept interest rates too low for too long which caused rampant inflation. This narrative is totally unquestioned and yet a total fabrication. During the 2008 Global Financial crisis, the Fed lowered interest rates from 5% to 0% and kept them at 0% for SIX YEARS. In March 2020, the Fed lowered interest rates by 1.5% to 0% and kept them there for two years. Subsequently, they have raised interest rates to 4.5% which is 3x the pre-pandemic level. If interest rates were causing inflation then why hasn't inflation come back down to the pre-pandemic level? It's because in the meantime, they have only brought their balance sheet down by a minor amount (see chart below).
This massive policy error has caused markets to remain in RISK ON mode throughout the end of the cycle. Which has never happened before in market history. Usually the prospect of rate hikes and a recession have caused markets to de-risk and de-leverage. Not this time. Throughout the past year, investors have been continually buying every dip in order to front-run what they view as the inevitable bailout. However, the irony is that THEY are the reason why the Fed can't stop raising interest rates. They are the reason this will be a depression instead of a recession. Granted, they were conditioned by Fed bailouts.
In other words, via misallocated capital, investors have created their own illusion of solvency which is now totally divorced from the economy. Friday's blowout jobs number caused the bond market to finally price in a 5% rate by May. Pundits can rationalize the seasonality of that massive jobs print all they want, but the fact remains that the Treasury market is starting to believe the Fed when they say that interest rates are going higher. However, risk markets are STILL in total denial.
As a measure of misallocated risk capital, here we see the high yield spread is HALF the level it's usually at when the leading indicators are at this level.
Those who believe the U.S. can't go into recession when the jobs market is still strong, don't know their history. During the inflationary recessions of the 1970s, the jobs market always rolled over long AFTER recession had already begun:
1970-1980:
Sky-rocketing credit card debt and interest rates shows that consumers for now still maintain an inflationary mindset. However the belief that this can continue indefinitely is totally fantastical.
Credit card carrying costs:
The rest of the world is making the same massive mistake of keeping risk markets elevated via their bloated monetary balance sheets while imploding their economy.
This week, Europe's market round-tripped back to the all time highs of a year ago right before the Ukraine war:
All of which means that bulls are now trapped by their own greed and hubris.
The dominoes have been falling for two years now since the February 2021 melt-up which imploded IPOs, SPACs, Meme stonks, and Emerging Markets.
This is a two year head and shoulders top as indicated by "Momentum stocks" which is a basket of the top performing stocks.
Oil stocks rolled over hard this week. Oil is already down -40% from the March 2022 highs (not shown). Clearly late cycle Energy stocks are rolling over later in the economic cycle than they did in the last major recession:
In summary, we are very late in the Ponzi cycle. And all warnings have been ignored.
"Shares crash, hopes are dashed. People forget it's bullshit"