I don't know exactly what combination of factors keeps stocks magically pinned to all time highs at this time of year, but we can be sure it's some quasi-criminal combination of low volume, low volatility, option market manipulation, and most importantly investors wanting to avoid taxes. That's right, all of the big winning stocks of 2023 - meaning mega cap Tech - will be held right up until the end of December and then dumped in January, so that those massive 95% gains are not taxed for another full year. That is the major factor holding this market higher, for now and it portends badly for a hyper-speculative market.
Meanwhile, this past week, we got news that housing prices accelerated in October to their fastest pace in 2023. Which adds fuel to the ongoing policy disaster that I discussed in my last post. Real estate gamblers are betting that as soon as rates come down, there will be a mad rush to buy real estate. However, history informs us that the opposite occurs. The chart below clearly shows that home prices are positively correlated to interest rates, meaning they are pro-cyclical and massively levered to the ECONOMY, not deflation. In addition, consider what home prices were doing at this point in the last cycle when rates were falling - home prices were already going DOWN. However, even though the Fed has now raised rates an equivalent amount as 2007, home prices are still going up while the economy is already rolling over. Meaning, that housing liabilities are increasing even as the economy is weakening.
From the stock market perspective, the last time the stock market got the totally wrong message from a Fed pivot was Q4 2007. Which happened to be the market top, as we see below.
Many pundits are saying the Fed is being political by not raising rates now due to the oncoming election in 2024. Which is reminiscent of Trump when he said we are in a big, fat, ugly bubble back in September 2016. Little did he know, the bubble would continue growing for ANOTHER seven years after that. Which in today's way of thinking means it has no possible end date. It's human history's first ever perpetual asset bubble.
The real bet isn't whether markets are overbought and overdue for a correction - even bulls are hoping for a pullback so they can add leverage - the REAL question is whether or not central banks still have control over the monster they've created.
The real answer is unconditionally, no - which is the opposite of what almost every investment advisor, pundit and media mannequin in the business world is saying right now. Central banks no longer have the means by which to resuscitate the economy when their super bubble explodes. Monetary policy alone will not be sufficient. Which means that in 2024 politics will determine the state of the economy, and we are entering a period of MAXIMUM political acrimony. One in which neither party will want to be seen as ceding ground to the other party. One in which neither party will want to be seen as bailing out the wealthy. Which means the Fed can "monetize" debt as much as they want, but if there is no big stimulus to monetize then it will make no difference. Then there is the unresolved matter of the insolvent FDIC, as a result of the 2023 bailout. Which is already long forgotten.
We are now at the point in the super cycle when the Idiocracy finally realizes that they are NOT in control and they were never in control in the first place. They were merely making convenient assumptions while the level of unsustainable liabilities reached proportions that were finally beyond central bank control.
They are the children of the bailout. And they have to learn once and for all that printed money is not the secret to effortless wealth. And they will all say, "who knew?".
Lastly, as far as the Santa Pause rally goes, this is now officially the longest daily overbought streak on record going back to 1970 (life of data).
Got low rates?
