COVID Is 2008 Subprime Deja Vu

Picture no economy, no stimulus, no vaccine, and a petulant fraud barricaded in the White House while thousands are dying. Because that is what's coming. When they finally remove him, he will make Herbert Hoover seem popular by comparison...

Deja vu of subprime circa 2008, COVID is a massive wrecking ball that is being assiduously ignored by the GOP, the White House and Disney markets.

Denial is their entire way of life.

Way back in late February, the COVID pandemic had been spreading globally for an entire month since late January. COVID cases were beginning to appear in the U.S. and the experts were warning it was about to get far worse. However, the denialists in the GOP, the White House, and in Disney markets ignored the warning signs. 

When the lockdowns arrived "unexpectedly", the market exploded. 

Good times.

Right now, the COVID pandemic has been raging for ten months, and is entering "the winter from hell" according to President Biden's COVID expert. However, the pandemic experts in the GOP, the White House and Disney markets are in signature denial.

Good times.

For months, the alt-right and other make-believe pandemic "experts" have been saying that this is a "casedemic" meaning, much ado about nothing. And thanks to all of that denial which reached its apex last week at the election, COVID hospitalizations are now skyrocketing to new record highs.

I watched a young guy on TV recently, he had believed that COVID was a Democrat hoax, until he got his grandmother killed "by accident". Shit happens man. Some people run red lights, some presidents cheat on their wives and taxes, and some people get their relatives killed because they're lifelong idiots. 

THE BIG SHORT 2020:

Back in late February, hedge fund billionaire Bill Ackman made a $27 million bet in the credit default swap market - the same private market used to bet against subprime in 2008. That bet turned into $2.6 billion within a few weeks, for a 1,000% return. Now being called the greatest trade of all time. 

Now Ackman is putting on the exact same bet, albeit on a smaller scale, because he sees the same risks and complacency:

"What’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”

When Ackman took his profits on March 23, there were just over 10,000 new cases of COVID-19 nationwide. On Tuesday, new cases were just shy of 140,000, a dizzying number that has stoked fears of a second lockdown."

What Ackman calls "fascinating" is the same ridiculous greed and complacency that exploded markets in 2008. Clearly some dumbfuck investment bank is willing to take the other side of a failed trade a second time in a row and on the exact same terms. It would be like an insurance company selling fire insurance in a wildfire at discount rates.

What we notice vis-a-vis the cyclical sectors such as airlines, is that all year up until now, they rallied into a falloff in hospitalizations.

Except, this time they've rallied into a spike in hospitalizations:

Adding to the insanity is the manic reach for risk amid record risk. Also deja vu of February:

Step back for a moment and consider this past week of market madness. Last week, markets ramped higher into the election. Then on election eve when the blue wave failed to materialize, the deflation and reflation trades went in polar opposite directions. The deflation trade ripped higher into the end of the week, and reflation trades got monkey hammered. Then this week, the exact opposite took place Monday and Tuesday, the reflation trade ripped and Tech traders got monkey hammered. 

In other words, algos were merely causing the most pain to the most people. Which is what I said would happen post-election. Run the stops in both directions. Now, Wall Street is loaded up on reflation trades, which is why today those trades started to roll over again, and Tech caught a bounce apparently thanks to Millennials buying the dip. 

Bear in mind the bond market was closed today for Veterans Day, so we didn't get a good look at bond yields.

Here we see banks stalled at the same level as June, despite record call option speculation all year long:

“Until our political leaders force bars and restaurants to close, I don’t see how we can get this thing under control,” Cramer said. Investors have rotated out of stocks associated with the stay-at-home theme on Covid-19 vaccine optimism, but experts are warning that the winter months could be brutal as cases continue rising."

Uncertainty surrounding pending stimulus talks is also on the host’s mind...[Trump & Co.] denying the legitimacy of the election and trying to fight it any way they can, they’re certainly destabilizing the situation,” he said. “From the stock market’s perspective, that’s a problem.”

The Invisible Hand Of Implosion

Denial will forever have a name: McDonald Trump...

Throughout this entire slow motion trainwreck the burden of proof has been on us realists. The denialists and con artists got a free pass. The bill for mass fraud will be overdue upon receipt...

"We can't be socialist"

Indeed that option is now off the table. 

Many of us former conservatives recanted many years ago when we realized that the system of capitalism was morphing into a zero sum con job known as "Globalization". Instead of raising the standard of living in the Third World, it was lowering the standard of living in the developed world. Thereby creating a more "equal" workforce for the multinational corporations to prey upon. I wanted no part in this entire con job. 

And yet, it's amazing how as people are being lowered slowly into squalor they continue to cling to the myths of the past. To roll this model back even by ten years would now be called "socialist", in the minds of the easily fooled. Once upon a time, U.S. companies provided full time jobs and generous benefits for their employees. Families lived on one income, and employers provided healthcare and pensions. Over time, the job security and benefits were systematically stripped away to make the quarter. Now, few corporate employees have traditional pensions, and amid exploding healthcare costs, a dwindling number of employees have employer-provided healthcare. And yet, this pathetic version of what abided in the past, remains the "best" model in the world. So say those who know absolutely nothing about the rest of the world. 

For forty years "free trade" was signature GOP policy, and then at the very end McDonald Trump was tasked with rolling it all back when they realized the true cost of the devastation. They had been adamantly right all along, but then at the end, the all-knowing idiots reversed course. Too late. 

COVID of course pulled back the curtains on this failed model, stripping away employer healthcare for millions in a pandemic. Twenty years of McJob gains wiped out in six weeks to protect the bloated balance sheets of insolvent corporations. So what to do, Republicans nominated a far right conservative to replace Ruth Bader Ginsburg and strike down Obamacare in the midst of a pandemic. A gambit that hopefully will fail. 

"Chief Justice John Roberts twice saved Obamacare, and he appears ready to uphold it again. But Roberts is growing weary of it all"

His message to the many parties represented at the court on Tuesday was essentially: Just stop."

Roberts is the conservative exception that proves the rule. He will now be relentlessly attacked by cave trolls as a traitor to their cause of ever-expanding squalor. 

History will say that the people behind the attack on the ACA (Affordable Care Act), were CINO: Christian In Name Only. Using their fraudulent beliefs to commit atrocities both in their own country and abroad. 

These are people who themselves have been strip-mined by the very system they love unconditionally. To the point that they now exhibit the morality of a refugee camp. And yet operating under the well-cultivated belief that they are following the American "tradition". One they've been told consists of continuously strip-mining the middle class to make the quarter. As the saying goes, history is watching, but sadly useful idiots are not watching history. It all speaks to the power of mass brainwashing. For the rest of time, they will forever be known as Trump acolytes: sociopathic liars and con artists. Third World in every respect. 

And now true to form, resolutely unwilling to allow their beloved tinpot dictator transition power peacefully.

Where this gets interesting from a casino standpoint, is that the stock market has become more and more central to this entire Ponzi con job. As pensions were stripped away, and as zero interest rates evidenced the destruction of the economy, the denizens looked more and more to the virtual simulation of prosperity. The monetary MEGA bubble known as the Dow Jones Illusional Average. Now, entirely decoupled from the real economy. 

As we know, this past few days there has been a manic rotation into cyclical stocks under the auspice of renewed "reflation". There have been so many fake reflation rallies this year and this past decade, I can't keep track of them all. This latest rally was due to one vaccine headline coming amid the largest COVID spike to date. A vaccine that remains half a year away.

And yet, we are now entering the COVID winter from hell:

"There’s been an “unprecedented spike” in Covid-19 hospital admissions in Ohio. ICU beds in Tulsa, Oklahoma, are full. North Dakota’s hospitals don’t have enough doctors and nurses. And hospital administrators in Iowa are warning that they are approaching their limits."

Also with regard to the fake reflation trade, we learned yesterday that:

Inmarsat, Nov. 10th:

83% Of Americans Do Not Plan To Return To Normal Travel Patterns Even AFTER The Pandemic Ends

So what does it all mean? It means that gamblers are buying bankrupt companies. And it also means that new COVID hospitalizations will continue to skyrocket until states reinstate lockdowns. Which will monkey hammer the stock market. The same way it did last February.

All thanks to denial. 

And as far as this current political gong show, the markets will send an unmistakable message to the controlling greed mongers in the GOP that it's time to escort their dictator from office.

But, that will only come AFTER the meltdown.

The bottom line, is that we are returning to the scene of the crime. And this time there will be no bailouts for criminals.

Goldilocks And No Bears

We have no economy, no stimulus, no vaccine, and no president. So instead we get bedtime stories with happy endings, in the Wall Street tradition...

The great rotation to value continued for the second day today. How many times just in the past year alone have we heard this story? Recall not even a month ago, the entire "blue wave" fantasy was going to bring endless reflation. Then, that crashed ahead of the election, as the odds of a contested election increased. Last week, we got the Goldilocks fairytale via Zerohedge:

Friday, Nov. 6th

ZH: Gridlock = Goldilocks

"So what about the reflation rotation - is that dead? Well, according to BofA, yes"

That prediction had a shelf life of hours. Not to be outdone, Barron's had an article over the weekend saying that Tech stocks are the new safe havens. That trade has been getting monkey hammered this week. 

Now, of course all of the dumbfucks have raced BACK to the other side of the boat. Embracing the vaccine reflation trade and dumping Tech deflation trades en masse.

Fast Money started out with a segment tonight on where bond yields are headed. The unanimous consensus was higher. Meaning buy banks, industrials, hotels, airlines etc. Every time Tech pulls back, the value rotation hypothesis comes back in fashion. Go figure.

CNBC: Prepare for Bond Yield Breakout

Anyone who trusts people who can invert their entire bedtime story in a matter of hours deserves their fate.

So, what's the answer, deflation trades or reflation trades? The answer is NEITHER. Cash is king. 

First, I will revisit the reflation trade which I touched upon yesterday. Here we see the thirty year yield with Treasury bond shorts (lower pane). As we noted last week this is the most crowded trade in human history. The net speculative as of the most recent CFTC data is from one week ago. However, anecdotally one could make the case that this is still a crowded trade. 

All it would take is one state-wide lockdown and this trade will explode, meaning bond yields will fall.

Backing up this hypothesis is the fact that the equity option call/put ratio is back at the all time high from June, which is when the entire reflation trade spiked and then exploded:

Of course, when the reflation trade exploded back in June, there was a MASSIVE rotation back to Tech stocks. Because those are safe havens, remember? Why can't that happen this time around?

After June, Tech continued climbing and then had a blowoff top back in September. Since that time, the sector has been trending down. Each rotation to "reflation", has led to a lower high in Tech. 

We learned today that Millennials are now doubling down on work from home stocks as they take profit in cyclicals.

Which explains why there has been no panic. Yet.

All of which leaves Utilities holding up the Casino:

Gamble at your own risk.

Winter 2008 Deja Vu

After more than a decade of monetary Japanification topped off with four years of Circus Donny, one thing we've learned with certainty is that an aging society can no longer accept the truth...

The World's handling of this pandemic has been all wrong from the start. Trump's handling of it was the worst in the world. I seldom agree with Bill Gates, but he has said from the start that testing was key to keeping the economy open. He was spot on. However, Trump in his infinite denialism put all of his eggs in the vaccine basket. And many people believed it would be a silver bullet panacea. Even now, with Pfizer's most recent 90% efficacy indication, it won't prevent the winter from hell. What it will do however, is allow people to let their guard down and assume the pandemic is ending. Which will increase the spread further.

As Gates has said, if we had focused our efforts on instant testing, most of the economy would be back open by now. However, denialists don't like testing because it "causes" the case load to skyrocket. Which looks bad for Trump. Denialism strikes again. 

Which gets us to the casino and the 2008 paradigm.

People forget that there were many false dawns in that fateful Autumn leading into winter. The largest rallies are always in bear markets, which caused a lot of people to assume the worst was over.

The last false dawn was a fake reflation rally that put a massive bid under cyclicals and in particular small cap value stocks which had been beaten down the most. Nevertheless, like all things Wall Street, it was an ephemeral end of cycle blow-off top. Bought and believed by the majority, solely due to the misallocation of capital and short-covering. 

Last week starting on election eve, Wall Street put on a massive Tech trade and shorted the Russell 2000 under the auspice of the Goldilocks gridlock trade. 

Now all we are seeing is that trade get monkey hammered due to one vaccine headline. In Disney markets consensus trades are lethal.

Zooming in to this year's view, Regional banks are leading this last rally amid a familiar spike in bond yields. June was the mid-point of the rally and this is the end:

Due to mass delusion, most people today are of the brainwashed belief that this economy is stronger than the one in 2008:

"Joe Biden is returning to the White House to lead the United States in the midst of an economic crisis after beating President Donald Trump in Tuesday’s election, a turn of events likely to conjure an eerie sense of deja vu for the Democratic former vice president."

Unlike in 2008, when the country elected Democrat Barack Obama and his running mate Biden as the global economy teetered from the sub-prime mortgage crisis and collapse of the Lehman Brothers investment bank, the worst of the current economic downturn may have passed already, economists and analysts say."

Got that? The worst is over. 

There is literally no basis to compare today's imploded economy to the one in 2008. Today, there are millions more unemployed than at the peak in 2009. Today, combined fiscal and monetary stimulus is DOUBLE what it was in 2008.

Here we see the employment/population ratio is at the lowest level in four decades. Large companies are crushing small business, and society is ignoring the consequences.

Oil demand is a good proxy for economic activity. This economy just lost three decades of oil demand. 

Emerging Markets peaked almost three years ago near the beginning of the MAGA fantasy. Now they are soaring back on the belief that the worst is over.

When in reality, the worst hasn't even started yet.

EMs are a good proxy for global social mood, which is three wave corrective:

In summary, we have a v-shaped recovery in delusion. Wall Street is like every other American Dream factory - Disneyland, Hollywood, Faux News - it's 100% fraudulent. And yet people accept the lies over and over again.

Right now, we are watching the final capitulation to fantasy. A movie some of us remember, and most want to forget.

 

Front-Running Collapse

Four years ago, the Trump MAGA bubble got tacked onto the "big, fat, ugly" Obama bubble, creating the longest bull market in history, compliments of record stimulus. There were only three crashes along the way (-10%, -20%, -35%). Now Wall Street would have us believe, the Biden rally will extend the party. In Disney markets, people will believe anything...

Writing on Sunday evening and gauging the early futures, the Biden rally has officially started. Last week's record no leadership rally finally has a geezer to call its own. The weekend Biden win was of course interpreted bullishly by the headline scanning algos. As I wrote last week, Wall Street is busy re-arranging all of their forecasts around the now "bullish" gridlock scenario. Historically, gridlock has been very good for markets, because it meant no major changes in policy. In this case a major sigh of relief that there will be no Marxist regime change. All good. There's only one problem, we've round tripped back to the February crack high of skyrocketing Tech stocks and skyrocketing COVID. This time with exhausted fiscal stimulus. 

Basically what we have is manic rotation to a Super Tech bubble while the economic sectors go dark again. How long until we start to see either lockdowns again, or hospitals turning away patients? Either scenario won't be bullish for sentiment. Meanwhile, the political atmosphere has turned from bad to hellacious. So extrapolating past scenarios into the future is a fool's errand. Which is why Wall Street is all over it.

The problem with the nascent "Biden rally" is that gamblers were already lubricated going into the election. Here we see via Rydex positioning, the difference between 2016 and now:

Meanwhile, the call/put ratio shows that speculators are back with a vengeance.

Barron's was out this weekend saying that Tech stocks are the new safe havens. Nowadays, after over a decade of non-stop stimulus people are questioning whether or not bubbles even exist. Especially the ones that are broadly owned. In my prior post I said that total stimulus had reached a ludicrous 30% of GDP. I was wrong. I went back and did an historical analysis and found that combined fiscal and monetary stimulus has now reached 47% of GDP in 2020. 32% of that is growth in the national debt year over year, and 15% is monetary expansion. All figures are from the Fred database. 

If every other generation had been as profligate as this one, there would have been no recessions and the Great Depression would have been a minor event. 

The dollar would have become worthless decades ago.

But there would have been one hell of a big party before it all exploded. Like the one taking place right now. 

Amid all this epic super bubble in profligacy and RISK ON party, Wall Street has decided that the most toxic political environment in U.S history, is good for stocks. The average household may well implode, small business will be decimated, but "stocks" will go higher.

It appears they have all settled upon the Goldilocks and The Three Bears bedtime story for euthanized gamblers. Meaning not too hot and not too cold. Everything is just right.

One of these storytellers is the famed "quant guru" Marko Kolanovic from JP Morgan. It was exactly one year ago, that he made the worst market call in world history, when he said that the value stock rotation was a "once in a decade" opportunity. Of course no one could foresee COVID, but he happened to pick the part of the market that performed the worst during the crisis. Then, leading into the election, he predicted Trump would win. Another bad prediction from the "quant guru" of bullshit.

Now, he's onboard with the standard Goldilocks delusion, that Trump refusing to leave the White House and Pelosi and McConnell at opposite ends of the stimulus spectrum, is "the best of both worlds". JP Morgan's equity team is now predicting a 54% rally post-election, based on what they call under-weight positioning by investors:

Got that? There is NEVER a reason to be anything but massively over-allocated to stocks. Note that they never mentioned record valuations and record risks, they only mentioned positioning and central bank dopium. Meaning ignore all of the risks that abided the last time these exact same morons were CRITICALLY wrong in February, add in Constitutional crisis, pre-imploded economy, and exhausted stimulus, and roll the dice again.

Notwithstanding Wall Street's usual bonus time Kool-Aid serving party, the question on the table is how long can the Biden rally now last? Months, weeks, days, or hours?

Given the epic con job underway now, I will go with hours to a few days at the outside. Followed by epic uncontrolled meltdown.

Skynet can no longer handle a global RISK OFF event, given the amount of leverage in a handful of overowned stocks. 

Back in February recall that despite the -35% decline, there was a net rotation into Tech stocks that prevented wholesale meltdown.

Don't expect that to happen again. Gamblers are well conditioned to front-run collapse. 

The MAGA Kingdom Is Rigged To Explode

Archaeologists will say the MAGA Kingdom was the largest bubble in human history. Inflated by record fiscal and monetary irresponsibility at 30% of GDP, and abetted by four years of incessant bullshit...

Now Trump's signature petulance will pop his epic bubble:

Coming at the very end of the American empire, the MAGA movement was a last ditch attempt to restore greatness by rolling back decades of self-inflicted implosion by doubling down on blind hubris. To this very day, the seeds of self-destruction remain fully evident in the libertarian movement which "won" the ideological economic war in 1980 with the free trade movement: 

1981: Ron Paul via Ludwig Von Mises Institute

"Today the policy of protectionism is again gaining favor in Congress, and in other countries. But it must be fought with all our strength"

Indeed it was. 

From that point forward, the U.S. went from being the largest creditor nation to becoming the world's largest debtor nation, within one Reaganite decade. Any attempt to roll back free trade and re-impose the protections that had created U.S. industry in the first place, would be deemed "socialist". For most of history, the U.S. had retained strong trade protections to fend off foreign dumping. Which used to be considered a major trade violation. All of America's Asian trading partners from Japan, to China, to the Asian Tigers, are mercantilist. Which means they don't believe in free trade.

Otherwise known as "Beggar thy neighbour" policy:

Mercantilism:

Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a possible current account deficit or reach a current account surplus, and it includes measures aimed at accumulating monetary reserves by a positive balance of trade, especially of finished goods

Along with the squandered U.S. advantage in manufacturing, and the concomitant loss of intellectual property, outsourcing by definition ballooned the trade deficit and hence the national debt. What a country does not create for itself, must be borrowed from its suppliers. U.S. economists have long turned a blind eye to these ever-growing liabilities that now have doomed the U.S. dollar. The economics profession will very soon lose all credibility. They will be written off as money printing imbeciles. Engineers created U.S. industry, then marketers and financiers gave it all away, because economists knew the cost of everything and the value of nothing. 

To this day, Ron Paul and the NeoCon founders of this entire downfall remain worshipped by libertarian ideologues. Never once questioned nor held accountable. 

Enter Trump, a serial casino bankrupter and reality TV game show host, who was called in to reverse almost four decades of failed trade policy. To close the barn door after the horses are out. After all, what the wise man does at the beginning the fool does at the end; so they decided to begin a trade war with their largest supplier. A country that was now embedded at the heart of the entire U.S. supply chain. 

What it all points to is a group of people who had no clue they were voting for their own self-destruction all along. And when it came time to right the wrongs of the past, they opposed any attempt to rebalance the equation, as "socialist". 

History will say they were the dumbest people in U.S. history.

Nevertheless, being a proud idiot is not a crime. Everyone has a right to their own opinion, but no nuclear superpower has the inherent right to hold the entire world hostage to the vagaries of a feckless dictator. All of the fascist dictators in history have come to an ignominious ending. Trump is no exception. It took every ounce of America's once great democracy to put a stop to his reign of criminality. He left the vaunted American system in shambles. A global laughingstock. The end result of a demagogue running roughshod over the rule of law, encouraged by a venal mob.

The factors and grievances that got Trump elected however are not going to go away. He gave voice to those disenfranchised by Globalization. Had Trump tweaked his schtick only slightly to wrench more stimulus from McConnell or showed a small amount of empathy for those stricken by the Corona plague, he surely would have been easily re-elected. If Trump showed even one hint of compassion or humility he could have had a landslide victory. 

Pollsters appear entirely incapable of locating Nixon's silent majority minority:

"The silent majority minority is an unspecified large group of people in a country or group who do not express their opinions publicly"

Nixon, along with many others, saw this group of Middle Americans as being overshadowed in the media by the more vocal minority"

Trump is now the voice of the silent minority. Which happens to be almost half the country. People who have tremendous grievances against the status quo and yet to this day constantly vote for policies that make their own economic lot in life worse. How sorry can you feel for these people, when in every way possible, they are their own worst enemy? Voting against public healthcare during a pandemic amid mass layoffs and companies dropping healthcare coverage by the millions. Trump supporters are the least healthy people in the country:

"Because most U.S. workers rely on their employer or a family member's employer for health insurance, the shock of the coronavirus has cost millions of Americans their jobs and their access to health care in the midst of a public health catastrophe,"

In the final analysis, Trump is going to get millions of his own true believers killed. Be that through direct COVID infection, or through economic decimation. He was an opportunistic con man dispensing Kool-Aid at a lethal time. Trump is the Jim Jones of presidents.

And what about China? What will they gain from this Trumptopian downfall? This past week, EVERYTHING China went parabolic, as fund managers reluctant to gain exposure to China finally went ALL IN.

However, China resembles Japan circa thirty years ago. Back then Japan had won the Pyrrhic victory of the mercantilist exports, but that was their pinnacle, after that peak their model imploded. It was not based upon sustainable growth.

Ironically, this week we were told that Japanese stocks reached a 29 year high. Below we see what happens to countries that cling to the past and never face reality:

 

Running With The Bullshit

Over the past 12 years stoned gamblers became addicted to monetary heroin. Over that time, the dumbest money enjoyed the biggest (unrealized) gains, until there was no smart money left to find. COVID ended that paradigm; unfortunately there's no one left to get the memo. Now there is universal belief that printed money is the secret to effortless wealth. Because everyone knows that 7 billion morons can't be wrong...

 

What was astonishing on election eve via the futures market was the MASSIVE rotation to the monetary heroin (QE) trade and the simultaneous dumping of the reflation trade, as the blue wave got priced out. The Nasdaq 100 and the Russell 2000 were polar opposites of green and red. It was the exact reverse of four years ago when Trump got elected and the reflation bid was put on in size. 

Below we see via the Nasdaq futures that the election rally came at the mid-point of the three wave rally:

This week, the Nasdaq 100 returned to the same level from two weeks ago at the blue wave high.

Year to date, the Nasdaq 100 has seen the largest inflows in two decades:

What happened that night of course was the story of the week, and the year:

"A strange thing happened on the way to the biggest post-election surge in modern stock-market history. On Wednesday, while the S&P 500 was tacking on $600 billion of fresh value, most of its members fell.

How the index still managed to gain so much altitude is the story of the week and of the year: a reigning oligarchy of market behemoths, soaring past everything else"

...it was the first time in at least six decades that the S&P 500 jumped more than 2% as more volume flowed into declining securities than advancing ones on the New York Stock Exchange"

Here on a weekly chart we see that the virtual economy was down for the two weeks prior to the election. And then enjoyed the largest up volume EVER this past week. And yet the index (ETF) never made a new high:

Rotation into an imploding Tech bubble is only part of the bull trap that took place this week.

Prior to the election, along with every other pundit, I posited the various election scenarios. Going in, the blue wave was priced in. However, I gave this current gridlock SNAFU a probability of "high". I said the outcome would be deflationary and rioting would be pending the end of stimulus. 

Nevertheless, Wall Street being what it is - an asset allocation machine with a bedtime story to follow, has rotated to the QE asset reflation narrative in size. Zerohedge does a great job of explaining the new narrative, while questioning absolutely none of it. How could something that worked so well for over a decade, fail now? Won't the stock market diverge from the economy forever? 

ZH: Gridlock Means Goldilocks

When the usual people go under the bus, that's "Goldilocks" in Wall Street parlance. Because the only people who get bailed out in this economy are the criminals who collapse the financial system. 

Gold exhibits everything that is wrong with the policy of monetary euthanasia - we have an imploding economy and ubiquitous belief in free money. Gold ETFs have seen record inflows during 2020. The abiding belief is that as long as the monetary spigots are open, gold can't go down. Here we see that from 2009 to August 2011 gold rose along with Treasury reflation expectations. However, when Treasury yields rolled over, gold followed. The QE in 2013 had no effect on reversing gold's downtrend. Fast forward to now and we see that gold gamblers have been front-running reflation for two years now, going back to October 2018.

It's a very crowded asset allocation rally aka. a greater fool's rally. 

It should come as no surprise that gold peaked when the stimulus ended in July. Since that time, amid record inflows it has trended lower, until this week:

Meanwhile we already got news that the stimulus impasse we've enjoyed since the end of July is already set to continue:

Those who are wed to their trades and to groupthink narratives will never make it through this impending gauntlet. First they will hide out in mega bubbles that are perceived safe havens, then when those implode they will rotate to cash just when the real money printing gets started. Applying the standard lessons of the past decade will be lethal.

This generation is way overdue a good hard lesson in basic economics. The cost of this deflationary oppression has been falling on the working class every day since 2008, while the Casino class has been enjoying non-stop asset reflation. There is only one way to fix the problem.

Return to the origin, sans bailout.

Base case scenario.