Fool Me All The Time, Shame On Me

Three decades worth of criminality got crammed into one pandemic asset super bubble, but today's casino gamblers only fear a long overdue wage increase. Today's con men are now boxed in by their own bullshit...

This coming week is setting up deja vu of September 2008. A Fed dicking around worrying about inflation while markets are imploding all around them in real-time. Either the market final implodes ahead of the FOMC causing them to pivot, or the Fed will final implode markets during their meeting. Either way, all signs point to collapse. 

Breadth has been imploding for a full year now. While Nasdaq lows to end the week, were the worst since 2008. 

The dawn of 2022 is revealing a lethal hangover from history's largest monetary heroin bubble:

This week, Tech earnings from Netflix and Peloton reminded us that the pandemic caused a one-time massive over-investment in stay-at-home technology reminiscent of the Y2K date change. Tech stocks were already weak due to Fed actions, but now gamblers must navigate an earnings season that will reveal declining growth. 

In addition, peak IPO/SPAC issuance on an order of magnitude 400% what it was pre-pandemic is now causing Wall Street banks and brokers to implode. Retail trading activity peaked a full year ago. Meanwhile, record IPO issuance has left a 2022 insider lockup expiration of lethal magnitude. And of course with peak valuation, we have now seen peak M&A activity. All of which is now imploding financials which is where investors have been rotating for months. 

Can't you tell?

Whereas the median return for IPOs since 1990 is +14%, in 2021 it was -14%. A mere 28% difference. 

Rivian Automotive cited in the above article is just one of many  unprofitable billion dollar IPOs that are now going bidless. Even Jim Cramer is warning investors to AVOID profitless stocks. The same ones he was endorsing during the rally.

Bulls will have to explain to me how everyone can own something on the way up and NOT own it on the way down. 

Next there's the now one year running Millennial margin call which is the locus of widely ignored collapse. It was one year ago that the Gamestop pump and dump scheme lured a generation into gamified markets where they could get bilked by known con men. What jackass pundits far and wide called the "democratization of markets" has now been revealed as the democratization of fraud. 

One growth sector after another is now imploding back to the pre-pandemic level on their way to the pandemic lows. The Global Nasdaq ended the week right at the pre-pandemic collapse level.

Also under the radar is this era's record global housing bubble. Which is already imploding in China. Recently we learned that U.S. housing construction is at the highest level in 50 years. And yet, home buyer sentiment remains mired at 40 year lows. This set-up is even WORSE than in 2007 which was the last time the Fed imploded a housing bubble they helped create. They don't get full credit however, because it's the housing industry that is once again telling us that high home prices are a "supply" problem. 

Fool me all the time, shame on me. 

Fittingly, heading into an FOMC meeting that is all about "inflation", the vaunted Crypto "inflation safe haven" trade is imploding in real-time.

Another MASSIVE lie bought and believed by today's ubiquitous army of useful idiots at the behest of today's quasi-criminal financial pundits. 

In other words, markets are already doing the Fed's job for them. They are collapsing the fake wealth effect that was behind this "inflation" blip this entire time. 

Of course CPI is a lagged indicator, so bulls need to now wonder how long it will take for the Fed to realize they are making a MASSIVE mistake. 

How "long" measured in percentage terms.

I'm guessing TOO long, because Nasdaq lows are ALREADY worse than they were in December 2018 when the Fed last reversed.

Doh!

In summary, the pandemic and the mega asset bubble it spawned was a con man's paradise. The past three decade's equivalent corruption was unleashed on Millennials at the end of the cycle. 

Nevertheless, there comes a point at which the con man fools himself. We have now reached that juncture. If these people now want to tighten liquidity in the midst of a collapsing global asset bubble all because they fear a long overdue working class wage increase, I say go for it.

FOMC: Fear Of Missing Crash

The two year Treasury bond just hit 1% and global stocks shit a brick. Who alive in 1980 would think that a 1% interest rate would be anything to worry about? The only thing consistent in this society is that the bar keeps going lower and lower, especially the IQ...

"Inflation is out of control"

Measuring percentages using a zero denominator and calling that "inflation" is at best dumbfuck math. At worst it's deceptively motivated to ensure that wages never re-capture their lost decades to corporate profit. What so many pundits are ignoring about "inflation" is that profits have grown 25% since pre-pandemic, whereas wages are up 8%. And yet I don't hear any pundits complaining that profits are too high. We are now a society ordered by and for the maximization of profit at the expense of everything else - the economy, the environment, and the workforce.

There are several reasons why persistent structural deflation is a problem for the economy. First off, it means that the economy is now stuck at the zero bound and any time there is an attempt to lift off from 0% interest rates, markets implode. So it is that the Fed now finds itself fully charged to tighten monetary policy while ignoring the $200 trillion global asset bubble in the room. It's a fool's errand of biblical magnitude, and hence no one questions it. Why the Fed allowed the asset bubble to grow to such a lethal magnitude will be THE question of all time. What were they thinking? It's as if they were too busy trading stocks to notice their bubble was out of control. This entire society is fully captured by asset bubbles now, having full faith and confidence in the virtual simulation of prosperity and its acolyte QE. Former hedge fund manager Hugh Hendry predicted it would end this way. A society fully addicted to Disney markets and questioning nothing to the bitter end. 

However, the REAL risk arising from the zero bound is the lack of economic stimulus buffer during recession. To inflate a record credit bubble AND keep interest rates at 0% for too long, is the worst case scenario in the event of economic dislocation. It means the Fed won't have the tools they need to revive the economy.

Consider this risk in the context of the record credit bubble. The pandemic allowed many companies that were already imploding in late 2019 to cheaply rollover their debt. This time around, they won't have the Fed "emergency powers" to tap during the downturn. 

Which means we now face record de-leveraging at the ZERO bound. 

Next week, the FOMC will update us on their interest rate plans for 2022. Over the past weeks since their last meeting, markets have been pricing in more and more rate hikes. Over the weekend, Bill Ackman suggested they should do an immediate half a point "shock and awe" to restore their credibility. 

What Ackman doesn't seem to understand is that if the Fed raised rates half a point next week, every risk market on the planet would be a smoking crater. Maybe he does understand, since he made "The greatest trade of all time" during the pandemic betting against credit markets. No conflict of interest there. 

Which gets us to the casino. 

First off, bulls should be worried that despite ever-rising bond yields, banks and financials are now imploding deja vu of Q3 earnings. In my last post I predicted that both Goldman and Schwab had reached peak profit and one day later both imploded. They are joined by JP Morgan, Citigroup, and Interactive Brokers.

The Momentum Factor strategy has been reconfigured to include a much larger weighting in Financials. Here we see it's very much deja vu of the last Fed "policy error" in 2018:

The IBD 50 consists of the fastest growing companies in the U.S. Companies with REAL earnings. Now these too are getting monkey hammered. Next support is the 2020 pre-pandemic high:

The NDX internals are indicative of Third wave down.

Oil realized volatility is almost as high as it was during the pandemic, and that is in a rally. Which portends badly for what happens when this rising broadening top implodes. 

We see via the volume momentum oscillator, the S&P is nowhere near a "buyable" dip. Which means far more dislocation is in order.

The Japanese have learned the hard way that EVERY central bank pump and dump ends badly for those who buy them with both hands. 

They too are heading back down to reality. 

The Party's Over

Imagine if today's pundits ran a headline like the one above. They would lose 80% of their subscribers in a minute. So they don't. But, we know the party is over, because the Fed is taking away the punch bowl. This entire rally from the COVID low was about NOTHING except printed money. The Idiocracy's secret to effortless wealth. The great "democratization" of markets was nothing more than the latest generation getting muppetized by global central banks and Wall Street...

"Fundamentals"

Gamblers don't want to be told the party is over. Which is why today's pundits never say it. Even though every seasoned market veteran knows full well that the S&P 500 is now 100% correlated to the Fed balance sheet. In this era, it's all that matters.

Over on Investing.com, one pundit asserts the Crypto bull market is not over. 

Yes it is over, because the Fed said it's over. Crypto is the ultimate useless asset that is solely dependent upon monetary expansion. 

Crypto fanatics inform us there is this reason or that reason to own one of several thousand shit coins proliferating like gerbils. There was only ONE reason to own these things. Monetary heroin. And now that that's going away, we can put away the false pretense that these are actual currencies. In the real world, no currency is 100% correlated to every other currency. The dollar is not 100% correlated to the Yen, however, every single Crypto currency is correlated to Bitcoin. When Bitcoin implodes, they ALL implode at the same time. There is no safe haven Crypto currency. On the other hand, try shorting the Yen in a global meltdown. You'll get your face ripped off.

It appears that a lot of people didn't get the memo. One of the dominant memes of 2021 was the Powell money printer meme. Remember that one? That was the number one reason to own Crypto. We don't hear to much about that one anymore. It appears that triple tightening put a damper on that hypothesis. 

Is it any wonder that Millennials are getting wiped out en masse? They have been told they can "Hodl" through global depression. And in this era there aren't three wise men and a virgin to tell them any different. 

Take a look at this chart of Schwab in the top pane and Interactive Brokers' daily average trades in the lower pane. Schwab's daily average trades peaked last February also, but I don't have their data going back several years, so I use IBKR data instead. It's the same idea. The key point is that Financials are getting bid up by this late cycle rotation due to Fed tightening, but the underlying fundamentals are growing weaker. 

This week, Goldman Sachs earnings are on tap. Does anyone honestly believe that Wall Street will have ANOTHER record IPO year with the IPO market imploding in real-time?

Global IPOs peaked a year ago and yet broker stocks are still at an all time high. 

Why? Fed tightening is driving a late cycle rotation into the worst stocks to own at the end of the cycle. But it's not the end of the cycle, so don't worry about it. 

That's another term you will NEVER hear anyone mention, the end of the cycle. It's strictly verboten, because it would mean that ALL rosy economic predictions are wrong. And, it means that deleveraging is about to occur, hence extreme economic dislocation. In a society run by and for salesmen, these are not ideas to be bandied about lightly. Almost every major corporation sees a profit decline in a recession. 

Nevertheless, I don't get paid to blow smoke up people's asses. And the 80% who don't want to hear what I have to say, left a long time ago. My user base is net of denialists.

If you want to see end of cycle in real-time, take a look at this chart of Emerging Market currencies. It exhibits a repeating pattern of three lower highs followed by a major deflationary crash. The last one being 2015, not including the pandemic. The 2018 debacle touched the line but Powell reversed just in time. Had he not, then 2018 would have been the explosion that this one will soon become. Because this time he is boxed in by "inflation". 

The Fed and China are now diametrically opposed on monetary policy. China led the world out of the pandemic and ironically, they are leading the world INTO recession. The Fed divergence is only making the probability of a major global financial "event" far more likely. 

The one thing that the Fed and Chinese leaders have in common, is that they are BOTH throwing gamblers under the bus. Something we haven't seen this past decade. China's policy of "common prosperity" could be more aptly called "common poverty". And the Fed is going down the exact same path. 2022 will see the largest combined fiscal and monetary stimulus reduction in U.S. history. 

So it is that gamblers find themselves BTFD a Fed-imploded Nasdaq at a time when they are the LEAST likely to get bailed out. 

Because who would tell them any different?

Whatever It Takes To Explode

“The arc of the moral universe is long, but it bends toward justice.” - MLK 

This era is the sum total of the idiocy of the past decade+ since Lehman. Never before have we seen so much mass stupidity parading around as smug and over-confident as now. Belief in the impossible is now mandatory. The Fed has convinced investors they can reduce economic inflation while keeping asset inflation at all time highs...

"Investors should favor U.S. equities this year even as valuations are historically high and the Federal Reserve moves toward tightening its monetary policy"

While many investors point to similarities between today’s U.S. stock market and the dot-com bubble of late 1999, Goldman sees significant differences, including the breadth of the rally...To be sure, the S&P 500 is concentrated in a small group of stocks"

With logic like that, who needs enemies?

This market's breadth is the worst since March 2020 and before that October 2008:

Nowhere in Powell's Senate confirmation hearing this week was there any mention of a "cost" associated with reigning in inflation. It was all upside. One GOP senator after another was pounding the table we have to do this. Subsequently, multiple Fed members have made public statements reiterating they will do whatever it takes to bring down inflation. Not one mention about asset prices. 

Why? Because if they did, the reception they received would be not nearly as gleeful. Picture this scenario:

Sen. Shelby: "The Fed has lost credibility. You need to do whatever it takes to bring down inflation"

Powell: "We will slash the balance sheet and raise rates. This will cut the Dow in half by April. 

Sen. Shelby: "You know a little inflation isn't the end of the world"

Shelby's ilk believe they can implode Millennials but their investments will remain fully intact. It's a fool's errand of the highest order. Nothing could be more lethally delusional.

Back in 2015 when the Fed attempted to raise rates off the zero bound for the first time in SIX YEARS the market imploded in August 2015 before they got the chance. So they backed off for a few months and then they raised rates in December and the market imploded AGAIN in January 2016. After that they stopped raising rates for A YEAR.

Back then of course markets were not nearly as leveraged as they are now and the Nasdaq was technically much stronger in terms of breadth and participation. Similarly, China's stock market was imploding as it is now, however this time their real estate market is also imploding and the pain is spreading to the top tier developers. As I've said, this is THEIR Lehman moment. Meanwhile, their ZERO COVID policy is a total disaster for the economy. Hong Kong is on the verge of total collapse, due to the combination of One China rule, COVID restrictions, and real estate collapse.

Here we see Chinese junk bonds are bidless:

Walking into the grocery store this week, every tabloid had the headline "Bidenflation at 40 Year High". The worshipping of markets has been going on for 40 years at the expense of the middle class. Each iteration has led to a new low in interest rates and total employment (capacity utilization). It appears that the people who believe that markets are more important than people have finally fooled themselves.

Where I truly part company with today's inflation pundits pounding the table for higher interest rates is what happens NEXT. 

I have been adamant that the FASTEST means to bring down inflation is via the asset markets, as we've ALREADY seen multiple times since 2008. And that's where the first order effect of Fed policies are taking dramatic effect on growth stocks. To date, Chinese Tech stocks and now Biotechs have given back ALL of their pandemic gains. Next will come Ark ETFs, Cryptos, Fintechs, Cloud internets, IPOs/SPACs, Social Media, EV/Clean Energy and then the mega cap Techs.

As we see above via Goldman Sachs, year over year the bullish market predictions have not changed one iota. Last year the reason to buy was a loose Fed. This year the reason to buy is a tight Fed.

All of which means that very soon Millennials will be fully imploded.

Why that's good is not for me to say. Only a morally void society throws its own children under the bus using the same means of  criminalized pump and dump schemes that we've already seen TWICE in the past twenty years. 

This week we learned that the Ameritrade investor movement (positioning) index came down slightly in December. But nowhere near the levels it was at in December 2018 when inflation was FAR lower and the Fed was NOT boxed in. 

These people actually believe that economic inflation AND a tight Fed are good for asset prices.

It's a lethal delusion. 

One year ago, the Gamestop pump and dump scheme lured a generation into the casino for the first time. Subsequently, they have been financially obliterated.

I'll leave it to today's bulls to explain why that's good. What it all comes down to is that this society EXCELS at ignoring other people's pain. 

Denial Is Transitory

Denial is the new religion. It now has the power to supersede basic math and 3rd grade logic. The wall of denial is complete. It's massive. And it's a beautiful thing, for those who worship that sort of artifice...

Today's pundits believe they are doing people a favour by telling them to keep calm and ride it out on maximum risk. They are the good guys, and the perma-bears are the bad guys. As if to warn people of risk is the real problem. And they do a great job at it. Telling people fairy tales to attend Disney Markets is now a full time job on Wall Street.

Unfortunately, the real world doesn't work that way. Just ask Cathie Wood. Last May she was saying she welcomed Tech stock meltdown. No surprise, she got both her capital and her investment strategy from Bill Hwang the famous hedge fund exploder. However, this week down -50%, she was out complaining that the same markets that bid her unprofitable stocks to record over-valuations have now become "irrational". 

Cathie Wood and her investors made an ALL IN bet that the cycle would never end and they lost big time. 

They lost that bet because the Fed sat on the sidelines too long and made the policy error of allowing asset inflation to get out of control just long enough to suck in a cohort of people who believed the cycle would never end. Now the Fed is making the opposite policy error of tightening far too fast. 

Double policy error. 

This week we learned that investors piled into bank stocks at the fastest rate since the election. There's only one problem, the yield curve is now signaling recession.

"I don't think a lot of Fed officials, economists and investors appreciate the fact the economy keeps buckling at lower and lower interest rates"

No, they don't appreciate that fact, because too many people such as Jeff Gundlach were telling everyone that inflation is out of control and would remain so indefinitely.

The Fed's policy panic has now raised MARKET rates in three months the equivalent of what took five years post-2008. 

Now you say, who could have seen all of this coming? Anyone. Anyone who has been watching this same movie over and over again during the past decade. 

The term "transitory" of course is definitional. However, most people who say inflation is no longer transitory have been fooled into believing that inflation is at a "40 year high". Here we see via commodities that nominal prices are at 1973 levels, which means real prices are much lower. However, the rate of change is at a multi-decade high. It's a huge difference that today's pundits are not capable of understanding. Relative versus absolute inflation. Even the Fed doesn't make the distinction.

What was interesting during Powell's Senate confirmation hearing today was when Sen. Richard Shelby (R-Ala.) said the Fed had lost credibility. He also said that the Fed was facing a Volcker Moment i.e. when Paul Volcker raised the Fed rate to 19%.

Put down the crack pipe and take off the boogie shoes Senator.

So put it all together:

A global pandemic comes along and central banks flood the system with excess liquidity. The supply chain is disrupted and inventories are cleared out. Small business and travel services are shut down so consumers plough all of their excess cash into durable goods, most of which are imported. The port system is gridlocked for months due to backlogs and double ordering. So what happens, "inflation" of almost entirely imported goods.

Then, over three million Boomers leave the labor force for early "retirement", due to mass layoffs caused by the pandemic, and due to the asset bubble:

"Many older workers faced layoffs, and others left the workforce to protect themselves from the risk of infection. It's much harder for workers in their 50s and 60s — or older — to re-enter the workforce after a period of unemployment, due to persistent ageism in corporate America. So it's likely that many of those who left jobs got discouraged and chose to retire instead"

Every HR department specializing in mass layoffs of older employees now says they can't find good young people anymore.

Too fucking bad.

Meanwhile, Tech unicorns flush with 0% funding, "blitzscale" totally unprofitable internet-based ecommerce ventures that all happen to draw upon the same pool of gig workers. Sixty million Americans now have gig side jobs that are in no way accounted for in the monthly jobs report. All of which caused the first wage increase in Jamie Dimon's entire lifetime, and set off rampant inflation hysteria at the first sign of wage inflation in decades:

So the Fed, who promised to keep rates low long enough to boost wages for the working class is now panic reversing that decision at a RECORD pace. And yet the same pundits who say the Fed has lost credibility i.e. the ones who no longer believe in the cycle, NOW believe the Fed is making the right decision the other way. They will now engineer a soft landing. 

This shows what happens to investors who are in cycle denial:

In summary what is my definition of "transitory?".

My definition of "transitory" is inflation that lasts just long enough to convince a cohort of denialists that the cycle will last forever. And then it explodes unexpectedly.

All over again.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion" - Ludwig Von Mises

Rotation To Obliteration

The Minsky Moment:

"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."

This society now specializes in ignoring risk. Empty talk and empty solutions are the order of the day. Today's denialists are certain they can keep this economic fraud running indefinitely.

Now everyone believes the Fed is invincible. What used to be "don't fight the Fed" has now been conveniently reversed to be whatever happens, the Fed has it covered. So, RISK ON all the time. Ironically, the Fed were the last ones to believe that inflation is no longer transitory. And they're right, it's not transitory, it's cyclical. The call/put ratio shows there has been excessive speculation and NO risk off since the pandemic started two years ago:

 

As we see below, Treasury inflation expectations peaked back in May of 2021. We also see that every Fed effort to taper QE and/or shrink their balance sheet has imploded inflation expectations. This society is now totally dependent upon dramatic and ongoing fiscal and monetary stimulus. 

The Fed's third accelerated tightening signal via the FOMC meeting minutes this week coincided with the largest hedge fund selling of Tech stocks in a decade. Which is why Technology stocks are now technically broken. Tech Momentum is dead. Therefore hedge funds are now making an ALL IN bet on reflation. Over the course of the past year, the U.S. "Momentum Factor" strategy was swapped out from Technology to Cyclicals. And yet we see it has the same rolling over appearance it had back in 2018. Unlike that era when the Fed reversed policy and momentum stocks bottomed, now if the Fed flinches, this implosion will ACCELERATE and cyclical-heavy hedge funds will implode en masse.

But don't worry, because the Fed itself is now boxed in and they are not going to reverse policy nearly as quickly as they did last time. In order to reverse policy, they would first have to believe that inflation is contained. They would also have to believe that the froth is out of the stock market. And, they would have to believe there is systemic risk. In other words something has to break.

Once something breaks and they finally reverse policy, cyclicals will go bidless, and then unlike every other time they came to the rescue, they will only make things worse.

At that point, panic will ensue.

We also got news this week that the China property crisis is spreading to China's top tier developers. Once again, human history's largest bubble is imploding in broad daylight amid mass complacency. By the time it hits its Lehman Moment it will be far too late to react.

Here we see relative to imploding Chinese stocks that U.S. investors are betting that accelerated tightening will work out BETTER than the last two times when the Fed was forced to reverse policy. They are essentially making an ALL IN bet on implosion:

Lastly, an update on imploding Millennials. The amount of pain in Millennial land is growing towards an extreme meltdown moment. Between the record IPO/SPAC pump and dump, the various Gamestop/AMC Reddit pump and dumps, Crypto Ponzi schemes, and the -50% Arkk ETFs, the amount of pain is enormous. 

And against ALL of that, these newbies are now letting it roll on a Fed hellbent on 3x tightening. It's financial suicide. And guess what NO ONE will tell them. This chart of the Bitcoin Trust shows that social mood aka. greed is running on glue fumes. 

This entire "system" of course is predicated upon the belief in caveat emptor, buyer beware. However, now this system both creates ignorance and preys upon ignorance at the same time. 

We have a financial service industry that actively encourages reckless speculation among the gullible and an SEC that is literally captured by the industry. 

The pandemic and attendant monetary super stimulus set off an end of cycle speculation bonanza. The Fed policy error was allowing this super asset bubble to get out of control. Now, today's newbie gamblers are convinced they are expert traders. When all they are is the latest generation of central bank muppets waiting to implode. And when they implode, everything will implode.

History will say that from a lockdown/travel restriction/work from home/job loss standpoint the pandemic was the most deflationary event in modern history. However, record central bank and fiscal stimulus set off a consumption boom primarily around commodities, homes, cars, and durable goods that fed back into CPI amid cycle high bottlenecks. Which forced the Fed to end the longest cycle in U.S. history at a time when the majority were making an ALL IN bet on sustained inflation.

The Efficient Explosion Hypothesis

There is now a lethal consensus of perma-bulls who are hellbent on mass financial implosion. There is nothing we can do to stop them except get OUT of their way. As we know, history is replete with examples of the madness of crowds, soon this one will take its rightful place at the top of the list. Where it will remain for centuries to come...

Those of us on the periphery of this mass delusion don't "exist" from a statistical standpoint. The mainstream of current thought is dominated by Wall Street hustlers, Ivy League academics, ad-sponsored pundits, and all of their blind followers desperate to believe that failure at the zero bound can always get bailed out when it implodes. 

On any given day the statistical probability of a "Black Swan event" is de minimis. Which is why pundits who wake up every day and have to infotain their audience, always give the same optimistic message - statistics are in their favour. In a world of statistical "independence" the odds of waking up to explosion are low. Which is why pundits never connect the dots or correlate risks. Because to do so would doom their cozy consensus. In their world all risks are independent of one another. 

In the real world however, financial risks compound over the course of the cycle. The longer the cycle the greater the accumulation of leverage. All financial risk assets reach a correlation of 100% during global meltdown. This is Minsky hypothesis 101. 

Add in the fact that 0% interest rate policy has institutions desperately hunting for yield at the end of the cycle and we now recall why AIG was selling insurance to Goldman Sachs on self-exploding CDOs back in mid-2008. Because they assumed they could at least make the quarter. Which after all is the only thing salesmen care about. Conflict of interest is rampant and it's clear that no one on Wall Street is willing to ever say "sell". Closet indexing is rampant and hedging is totally obsolete. There is no "upside" from going against consensus.

We have reached a juncture now wherein obligatory false optimism has merged with the pathology of denial. The best thing I can say about today's bullish financial pundits is that they are useless. 

We learned this week that the Fed is set to once again accelerate their liquidity reduction. Back in November they began single taper. In December they began double taper. Now according to Fed minutes they soon plan to start downsizing the Fed balance sheet at an accelerated rate. This "news" of course came as a total shock to the market. Why? Because the Fed had previously indicated that taper was a pre-cursor to interest rate increase. However, now they plan to raise rates AND REDUCE long-bond liquidity at the same time. Which proves they are now just as concerned about runaway Tech stock inflation as they are about the runaway price of eggs. An oversight that is at the core of their policy error, and yet not one pundit today discusses that part of the policy problem.  

BOTH Japan and China have already learned the hard way not to mess around with asset bubbles at the zero bound. Why? Because when they explode these bubbles have much greater economic impact and policy-makers have much less buffer to support the economy. This is a lesson that today's over-confident buffoons STILL have not learned.

Of course this current cycle of "inflation" should have been familiar by now, because it's literally the exact same sequence of events that followed Trump's election and tax cut in 2018. Back then, the Fed used fiscal expansion as a backstop to begin aggressively dialing back monetary heroin. However, then as now, gamblers were already as high as a kite and therefore they got monkey hammered in Q4 2018.

I call this cycle the stimulus Ponzi cycle, and it's as dumb as it sounds.

I make no predictions going into tomorrow's jobs report, only to say that the ADP report on Wednesday was 2x consensus at 800k jobs. An NFP that size on Friday would explode the Tech sector. 

And what could be more biblical than a jobs report exploding the casino and thereby revealing all of the criminality-as-usual lurking below the surface.

This chart exhibits the full extent of delusion at this juncture. 

There is now a widely held belief that no matter how large a dislocation the Fed causes they can always bailout the casino. Which is why now despite the Fed embarking on a campaign of accelerated tightening, speculators are still maximizing risk allocation. It was inevitable after serial bailouts that the day would come when investors would double down on meltdown. This is a hard lesson the Chinese and Japanese have already learned. 

This chart showing the divergence between oil stocks and airlines indicates we are on the cusp of a Lehman Moment. One in which the Fed is too preoccupied with inflation to realize the meltdown has already started. 

The divergence between the S&P 500 and consumer sentiment is the widest in four decades. The last time it was this wide was in December 2007 at the beginning of recession. It's the greatest example as to how today's pundits are totally clueless as to the true condition of the underlying economy.

Too many people now believe the stock market IS the economy.