2023 is coming to a close amid giddy optimism in markets. Pretty much every piece of junk that got bought in the past three years of pandemic asset bubble, is now hot again...
Dec. 1st, 2023:
"Stocks that got slammed amid fears of higher-for-longer interest rates caught a second wind during the roaring November market rally. The S&P regional bank index (KRE) rose more than 16% during the month...Cathie Wood's flagship Ark Innovation ETF (ARKK) gained more than 34%. Meme stocks are soaring too"
"Traders have decided that even though it’s still earning nearly 5%, cash is trash compared to quick profits in a wide variety of risk assets," Interactive Brokers chief strategist Steve Sosnick wrote in a research note on Wednesday"
Sosnick adds that the root of what he described as a fear of missing out, or "FOMO" rally, is the "expectation that rates will be coming down, and that is indeed a solid reason for a rise in risk assets."
This article came out on the exact same day that Powell warned that interest rates are not coming down any time soon:
Dec. 1st, 2023:
This is all very deja vu, because one year ago, stocks were rallying on the prospect of imminent rate cuts. Back then as well, the Fed was trying to tamp down expectations, but clearly they didn't do a good job of it because here we see that for over a year the Dow has been rising inversely to National Financial Conditions, since the lows of October 2022. Risk markets are unwinding the Fed's tightening.
Which means that the Fed is nowhere near cutting interest rates.
Nowhere is there more interest rate cut FOMO than there is in the housing market. Recently we learned that pending home sales have collapsed to multi-decade lows, but homebuilder stocks are at all time highs and leading the market. This week, Toll Brothers reported that their unit home sales collapsed -27% year over year and yet the stock went vertical. They "beat" Wall Street's negative expectations.
It's abject criminality on an epic scale.
If there is a recession in 2024 - which most economists are now predicting - then it will be the first back-to-back recession since the early 1980s. A mere two years between recessions. Normally, in a recession there is de-leveraging of debt, however, during the pandemic initially there was de-leveraging, but central banks created such an instantly massive asset bubble that by the end of the pandemic there was a massive RE-leveraging of debt. Which is what we see in the graph below. That has never happened before in U.S. history.
Which is why we are now facing a second recession, but this time at astronomical levels of debt. And yet today's pundits are telling people to buy stocks ahead of this recession. It's fucking ridiculous.
This week, Moody's downgraded China's sovereign debt from stable to negative. Which is the EXACT opposite of what happened a year ago when everyone widely expected China to lead the world in economic growth in 2023.
And yet we see below via the ISEE call/put ratio that speculators are MORE euphoric going into 2024 than they were going into 2023. What it comes down to is that investors have been hearing about the China economic implosion for so long that they no longer fear it. Even when it's happening in real time. Why? Because they have been convinced over and over again since 2008 that they will always get bailed out by central banks.
But remind me again which is the only major central bank right now that's easing?
China. And they have the worst performing stock market in the world. A harbinger of what's coming for every other risk asset market IN THE WORLD.
