The New Permanent Plateau Of Delusion

What's about to happen is totally unthinkable and therefore it's not even being contemplated - A liquidity collapse across all risk asset classes at the same time. The perfect recipe for a totally bidless market...

What we are witnessing is a commodity driven liquidity collapse. Higher oil and commodity prices are forcing the Fed to accelerate their tightening plans. Of course they are using the wrong tool for the wrong problem. Rate hikes are a demand side solution, whereas the sanctions-driven commodity shortage is a supply side problem. The end result of this failed gambit will be a demand collapse in conjunction with a global supply glut. This is total economic mismanagement driven by the ubiquitous assumption that markets won't rationally respond to inflated prices. The overwhelming consensus at this latent juncture is that prices of everything, especially risk assets will keep climbing while the Fed tightens liquidity at the fastest pace in decades. Where this is all headed is inevitable deflationary asset collapse as illustrated below:

"Whipsawing commodity prices and eye-watering margin calls are forcing traders to reduce their activity, driving liquidity out of markets and exacerbating price swings, according to some of the world's biggest trading houses."

 

Consumers are now getting squeezed from every direction: Durable goods, home prices, interest rates, food prices, car prices, commodity prices. Today's pundits should know better than to believe in this mass delusion. Sustained inflation is always and everywhere a monetary phenomenon and yet the Fed is now tightening as fast as possible. Supply side "inflation" in a rate hiking cycle is not sustainable.

Unfortunately, there is no one to warn the sheeple because the prospect of a global deflationary asset crash is not an option. It's not something that today's pundits could even mention since they would have an exodus of subscribers. What we have instead is mass groupthink on a record scale. 

Exhibit A of impending disaster is today's over-heated housing market. Home prices in my neighborhood have gone up 30% in just the past year alone. These sky-rocketing home prices are causing massive distortions in supply and demand. Buyers have been told that home prices and mortgage rates can only go higher, so they are panic buying homes. Demand has been further accelerated by so-called robo buyers. These are hedge funds that are buying up homes across the country and packaging them into collateralized debt obligations (CDOs) in a repeat of the 2008 housing crisis. Except instead of packaging the mortgages, they are packaging rental properties. 

For their part home builders are responding rationally by building as many homes as possible to meet "demand". All of which is creating the perfect conditions for a massive end-of-cycle supply/demand mismatch.

In summary, the conditions are now in place to create human history's biggest supply glut. Industry desperately wants us to keep buying and pretend it can't happen. The purpose of the stagflationary hypothesis is to convince as many people as possible that these prices will continue rising forever. Unfortunately, an inflationary consumption binge followed by a deflationary asset collapse is the worst case scenario for the economy. 

It should come as no surprise that the "stagflationary" 1970s was followed by the biggest recession in post-WWII history in 1980. When newly appointed Fed Chairman Paul Volcker pulled the plug on inflation, it was called the "Saturday Night Massacre". Ironically, today's amnesiacs who believe this is the 1970s all over again, are creating the same deep recessionary conditions - this time in a liquidity trapped environment where interest rates can't go lower. How do you incentivize people to buy homes and big ticket items if the cost of debt in real yield terms is sky-rocketing?

You don't. Which means last ones out, don't get out. 

Front-Running Collapse

History will say the Ukraine war hid the collapse of the global economy behind an end-of-cycle commodity shock. Wall Street now has their excuse to run the herd over the cliff with the Fed now tightening into depression. With their only question being...

"What stocks should I buy in a nuclear depression?"

"WASHINGTON — Senators reacted with alarm to a new report that suggested Russian President Vladimir Putin could deploy a small, targeted nuclear bomb as his troops get bogged down in a costly, drawn-out battle against defiant Ukrainian fighters"

Where to begin...

First off, I will discuss the "nuclear" economic option of a Russian oil embargo:

A commodity spike at the end of the cycle is ultimately deflationary, because it's yet another shock to an already tapped out consumer. First consumers endured all of the pandemic-related supply chain shocks for the past two years, next they endured interest rate shock for the past six months, now we're having commodity shock. There is only so much  pain consumers can take, which is why recession odds are sky-rocketing. When people see high prices they view it as inflationary, because they assume these prices will stay high forever. However, the definition of "inflation" is not prices that spike and collapse. When oil spikes, it means less purchasing power for other parts of the economy. 

The West's Russian oil embargo drove oil prices to a manic peak two weeks ago. However, that "embargo" turned out to be a soft embargo, because most of Russia's oil is still expected to reach the market whether through Europe, India, or China. Which is why many speculators got dumped when commodities crashed -27% into bear market. Now commodities are making a second lower high.

In addition, we can see that crude oil demand in the U.S. is beginning to roll over in line with collapsing consumer sentiment. The hyperinflationary depression fantasy propagated by Putin and Zerohedge, is running on glue fumes.

aka. "Pravda"

Nevertheless, all of today's pundits are ignoring the bond market and yield curve inversion. The stagflation hypothesis is consensus. Even the Fed believes it now.

Which is why a hard landing is becoming far more likely:

The Fed is collapsing the global bond market, but they are not concerned because investors are still in RISK ON mode and hence collapsing risk premiums. Which is why market duress is not showing up in any of the Fed's key indicators. That lack of market stress ironically makes further rate hikes and further market collapse likely. Investors are in what I call a "Moral Hazard" death spiral. They are front-running the Fed into collapsing markets on the basis that the Fed will bail them out. 

Meanwhile, the Fed is using their positioning as a rationale for tightening liquidity:

March 23rd, 2022:

If the Fed raises rates .5% in May this year, it would be the first  double rate hike since May 2000. Back then the Fed kept raising rates until the DotCom era Nasdaq was collapsed -80% and the economy was in recession. 

Looking at the chart above, it's hard to believe the Fed will get that opportunity, this time around. The market is way ahead of them on rate hikes as we see below with the two year now above the Lehman level of 2 year minus Fed rate:

Which gets us to the casino:

Three waves are now becoming visible on the S&P 500. Confirmation is provided by NYSE new lows and the breadth oscillator. 

This is a very weak retracement, but it's also a long retracement in terms of duration. When it started the S&P was two years oversold. And now it's two years overbought:

As one would expect, the Nasdaq is in far more dire condition. This wave count which is similar to the S&P's is extremely weak. And yet it's confirmed by the volume oscillator as a three wave correction. Normally wave 'b' above wave '1' and wave 'c' is above wave 'a'. 

In summary, this decline and correction has been more about time than price. However, the next leg down should be more about price than time.

Gamblers who wait too long, are going to find out it's their bailout that gets delayed this time around.

THE BIG LONG

In the age of scams, the burden of truth is on the truth. The bull case at this latent juncture is 100% fairy tale...

"We are living in the age of the scammer. If you weren’t aware of it, just turn on your TV: there’s a rash of real-life dramas about master con artists"

It’s no wonder that the New Yorker’s Rachel Syme has declared a “Scam Spring”

Indeed. What's consistent about the infotainment media is that they excel at capturing the pissant minor scams while totally ignoring the master con taking place in broad daylight. Back in the Fall of 2008, all eyes were on Bernie Madoff being arrested for his Ponzi Scheme, while at the exact same time Wall Street was getting bailed out 100 cents on the dollar for collapsing the Global Financial system.

The same thing is happening now. Last year was the biggest IPO/SPAC pump and dump scheme in market history. But the only thing on Netflix is some pissant German con artist who rips off a few New York dilettantes. All the while downtown Manhattan was pumping out SPACs like there was no tomorrow.

Cycle criminality has now reached a new all time lie:

We had dinner with some old friends tonight and I was reminded why I miss the pandemic already. For two years I was spared inundation from lamestream bullshit. Not tonight.

The only good news is that I can confirm for you that this lamestream Cirque Du Jerk is in no way prepared for what is coming.

What we witnessed this week will soon be known as the biggest policy error in human history. And who can we thank for that but all of today's bulltards who are convinced that inflation is as bad as 1979. For some reason these people can remember 40 years ago better than they can remember 14 years ago. Why? Because they've assiduously blocked that event from their minds. They forget that commodities were hyper bid in the early Fall of 2008 when Lehman was the last banking domino to implode. They forget that the Fed was preoccupied by inflation.

And they forget that by the time the Fed got around to a full and proper bailout it was too late.

This time last year featured a Tech stock melt-up coming out of the pandemic. It was the deflation trade driven to record extremes by the belief that work-from-home cloud technologies were in the early part of the growth cycle. Deja vu of Y2K when the millennial date change accelerated the expenditure on new technology, the same thing happened during the pandemic. Pull forward of Technology expenditure, featuring the biggest IPO/SPAC pump and dump in world history. By all rights Cathie Wood should have her own miniseries on fraud by now. But instead she is a regular feature on CNBC, the longest running documentary on excess greed in world history. 

It was a year ago that the Gamestop pump and dump scheme democratized fraud:

Fast forward one year and instead of the deflation trade scam, we now have the reflation trade scam. Deja vu of 2008, the Fed has now been convinced via commodity Ponzi reflation that inflation is the greatest threat to the economy. What I call the "Stimulus Ponzi cycle": The Fed is chasing their own tail. They inflate markets, they create inflation, and then they pop their own bubble and create deflation. Today's so-called "experts" trust the Fed's ability to create inflation, but they totally ignore the deflationary policy taking place RIGHT NOW.

Coincidence or conflict of interest? You be the judge.    

Of course today's investors are 100% complicit in this scam. Here we see monthly commodity ETF volumes exceed any other month in the ETF history.

And that is halfway through the month. 

Clearly we will see volumes that far exceed today's record level and I predict there will be a long red wick on that nascent reversal of fortune. 

This week Tech stocks had their best week since the March 2020 lows. What happened is that hedge funds were force delevered when their record long commodity position exploded into bear market. In the event they were forced to "degross" and therefore buy back their consensus Tech stock short position. Which was widely conflated as a new Tech bull market. 

Suffice to say, this is the most deflationary set of circumstances we've seen in two years. Last year was the best shot at inflation due to maximum stimulus combined with the vaccine rollout and global economic re-opening. And yet even then we see that the 30 year peaked in March and imploded lower. This current set-up by comparison will see a MUCH faster collapse in bond yields and return to uncontrolled deflation. 

In summary, the bond market is signaling recession.

However the scam-riddled stock market is getting bought with both hands under the ubiquitous belief that the pandemic strengthened the global economy. 

But really, who to believe? The bond market, or every dunce you know?

The SEC:

All Signs Point To Crash

Back in 2008 the Fed made the exact same mistake they are making right now - believing that inflation is a higher risk than incipient global meltdown. In that event, the bailout worked. This time will be the hardest landing...

Over on Zerohedge, they have successfully "pivoted" from hyper-inflation last Fall, to stagflation last week, to recession now. Ironically, these are the same people who were mocking the Fed last Fall for saying inflation is transitory. And now the Fed is more hawkish than they are. It's this cabal of Peter Schiff acolytes who have assured this gong show will end as painfully as possible. The ubiquitous delusion is that the Fed can easily pivot back to cutting rates again. 

There's only one problem with that fantasy: the Fed funds rate is at .25%, whereas in 2008 it was at 5.25%. There is nowhere to go on the downside. Therein lies the difference between this blog and all others - I don't assume there will be another happy ending when this end of cycle con job explodes. For that assumption you can go anywhere else where the sole objective is expanding the subscriber base and/or assets under management. 

 

In 2008, in addition to a U.S. 5.25% interest rate reduction (i.e. 21 serial rate cuts), China's economy was still booming. It was China that dragged the world out of recession. This time they are leading the world into recession.

What you notice about this chart is that commodities follow China GDP, not the other way around. There is a staggering difference between China GDP in 2008 versus now. That was their highest growth rate in modern history. 

All of which means that QE alone will not be enough to revive the global economy. What will be required is a combined fiscal + monetary super stimulus similar to what took place during the pandemic. Which will be challenging with a gridlocked Congress in a mid-term election year. When all else fails, I assume they will get it done, however, it won't be nearly as easy as during the pandemic. 

And then there will be the protests and rioting. Why? Because a generation of Millennials is about to get financially wiped off the map. When that happens, one can assume that a TARP style bank bailout will be off the table. Which means that financials will be bidless. All of which means that the "just in time" bailout hypothesis which is propagated by all of Wall Street and most financial pundits, is lethal bullshit. 

Go figure that Wall Street would not predict the wholesale collapse of their own industry.

Those who are not positioned ahead of time for what is coming will suffer TERMINAL losses. Why? Because there will be systemic meltdown of financial markets. Featuring extreme volatility. record volumes, and total lack of liquidity. Culminating in mass panic. 

Unfortunately, the ubiquitous "hyper-inflation" hysteria has caused most investors to be very badly positioned for this impending event. Instead of respecting cash balances, they've been told that "cash is trash". What happened to hedge funds  in commodities this past week is a warning for what's coming to the rest of the market. Going into last week, hedge funds were record LONG commodities. Then came the melt-up in crude oil last week followed by a straight line -30% crash into bear market. RECORD volatility, exceeding 2020. In addition, the nickel market has been shut down for over a week due to volatility. 

These commodity trades are MASSIVELY crowded death traps at this phase of the cycle. Anyone can easily see that the commodity cycle peaked in 2008 along with China GDP above, and is now three wave corrective to a lower high. The pandemic commodity rally was an echo bubble.

But really who knew that a global pandemic and two year lockdown wouldn't lead to stronger global growth?

Not this Idiocracy.

Which gets us to the casino.

Bulls have mistaken post-FOMC volatility unwind for a positive response to Powell's rate hike. When these weekly puts expire or move further out of the money, options market makers buy back stock to unwind their option hedge. For the true direction we must wait until post-OPEX next week.

This market is now eerily similar to the last Fed policy error back in December 2018. Coming off the all time high, the market imploded -12% and then bounced up into the 50 dma. Then it re-tested and bounced up into a death cross. Which is where we are now. As we see, the % bullish is identical: This is the % of stocks that are deemed to be in a technical bull market. When the wheels came off the bus in late 2018 however, it was Trump who commanded Powell to pivot on rate hikes. Whereas this time, there is no chance Biden will interfere in monetary policy on behalf of stock gamblers. And Powell has already shown via the Nasdaq that he doesn't care if stocks implode. The Nasdaq is ALREADY down as much as it was when he pivoted in 2018 (not shown).    

Here we see the extreme moral hazard that is now baked into this "market". In each of the past major market events, gamblers were reaching for hedges. However, in this event with global markets ALREADY in meltdown, there is no reach to hedge. In addition, this is the least likely time to get bailed out due to the Fed's hawkish stance.

This is beyond any level of risky risk-seeking we've ever seen:

In summary, I just nuked a bunch of trolls over on my Twitter feed. Bulls have command over the entire internet and yet they still feel the need to camp out on my site. My number of followers has increased dramatically recently, but I only care about quality not quantity. Today's bulls believe they have strength in numbers. Sadly, in an Idiocracy there is no such thing. Which is why the public is in no way prepared for this inevitable meltdown. 

Lastly, for all you bulls who keep telling me how much money you've made in this bull market, I can't help but thinking you must be related to Cathie Wood. 

LIQUIDITY TRAP

We are at the brink of the fastest demand collapse in history. It's already beginning in Asia and Europe and will soon spread to the rest of the world. The Fed just reduced liquidity in an already illiquid market. Which gets us to the phase of global dislocation that I call "the Gong show"...

No, they don't see it coming. Read any pundit today and all they talk about is "stagflation". However, stagflation was a very rare occurrence that happened only in the late 1970s when the middle class was at its peak. It meant slow growth and inflation, but not recession. The critical assumption is that this Fed will allow inflation to persist when they've already taken steps to ensure that it does not. This Fed is actively pushing the economy into recession in order to squash wage inflation. That's all this is about. Everything else is just background noise. Why? Because the Fed ASSUMES they can manage a soft landing into recession. And that is the lethal assumption. They are pushing the economy towards a liquidity trap. Both in terms of market liquidity which has already collapsed and in terms of economic liquidity:

"A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective"

From an economic standpoint, monetary policy is now officially ineffective. Yes the Fed can expand their balance sheet, but they won't be able to offset economic demand collapse. This is officially a larger policy error than what took place in September 2008, because back then the Fed had several percentage points of Fed rate to lower. 

Bear in mind that the bond market has been warning of THIS risk all along. There was not one moment even during maximum fiscal and monetary stimulus where the bond market believed that inflation was a long-term threat. Pundits claim that at this same level of CPI the Fed rate should be at 13% as it was in 1980. Imagine if even the 10 year yield was at 8% which is 4x the current level. If that happened global asset markets would be a smoking crater right now. Comparing this period to 1980 is asinine, yet almost everyone is doing it right now. 

As it is the bond market is already warning of recession after ONE rate hike:

This is the Five/Ten yield curve - most inverted since the 2007 recession began. But, the bond market is once again being ignored, by the Fed and all pundits.

The damage is done. The Fed is now ahead of the 2 year by the most since October 2008. What pundits and investors constantly ignore is the happy feedback loop between commodity speculation and inflation expectations. When both are rising they get locked in a death spiral higher. But when they are falling, they are in a death spiral lower. 

Under these asset collapse conditions, "stagflation" is nothing more than a speed bump on a vertical path lower:

But it's not just the bond market that's being ignored right now. 

China and Hong Kong are imploding in real-time. Not just their  stock markets, their economies are imploding under the weight of the zero COVID policy. 

The divergence in policy between the Fed and PBOC is now the widest since August 2015:

The elephant in the room is the impending default on Russian debt. The first default since 1998 and the first foreign denominated default in 100 years. As of this writing Russia hasn't made the payment due today. The last time Russia defaulted in 1998, the Fed cut rates .5%. Nasdaq lows reached this current level AFTER the default, whereas this is BEFORE:

Next, we learned yesterday that German economic sentiment just collapsed at the fastest pace on record. Faster than during the pandemic. You will note that European stocks are three wave corrective, having rallied for the past week. Given that record outflows from European stocks combined with record collapse in investor sentiment, then we can assume Europe is the next market to go fully bidless now that short-covering is ending:

Not to be left out, the Fed is also ignoring U.S. Tech collapse which this week was on par with December 2018 which is when Powell capitulated and reversed policy. As anyone can ascertain, not only has Powell not capitulated, but speculators haven't capitulated either. 

What today's investors don't realize is that the Fed isn't worried about stocks imploding, they are worried about wage inflation. Therefore, they will continue tightening UNTIL they are convinced that wages are no longer a problem.

And that is going to take a while. 

In summary, at the beginning this fraudulent market was running on maximum monetary stimulus - the virtual  simulation of prosperity. Then it transitioned to running on maximum greed and Wall Street criminality. Having exhausted both of those sources of funds, it's now running solely on rampant self-destructing buffoonery at the end of the weakest recovery in U.S. history.  

Prepare for Gong Show:

CRASH INTO DEFLATION

Rule #1 of Japanification: Stimulus is everything...

My biggest mistake after 2008 was being too slow to realize that the U.S. and indeed the World are well down the path of Japanification. Meaning structural deflation at the zero bound. What inflation abides right now is cyclical and almost entirely supply driven. Which means this is not your typical rate hiking cycle that so many pundits and investors believe it is. They are of the consensus belief that this is just the beginning of the rate hiking cycle, when in fact it is very likely the END of the rate hiking cycle.

It's highly biblical that Supply Siders would commit such an egregious and amateur policy error after four decades of middle class obliteration. It's as if someone in charge wants this to end the hardest way possible. 

The mistake I made after 2008 has now been corrected. I've seen the light. Ironically, now all of today's pundits are making the exact same mistake I made i.e. ignoring the rules of Japanification. Of course the consequences of being wrong at this late juncture will be far more dire. The first rule of Japanification is that economic "reflation" is entirely dependent upon continued dramatic fiscal and monetary policy. Which means there will never be another "normalization" of policy, under the current deflationary paradigm. Which is what today's errant policy-makers are now attempting. 

Their failure will be cataclysmic at the zero bound. 

The COVID pandemic was the most deflationary event in modern world history. The first ever TOTAL lockdown of the global economy. Zero international travel, and work from home on a scale never previously even technologically possible. It was the apex of ecommerce and Amazon. It was the full scale realization of cloud computing. It was a "virtual economy". 

The initial onset of the pandemic and its 20 million layoffs saw the mass automation of jobs which was only partially offset by massive fiscal pandemic unemployment stimulus. Without which there would have surely been 1930s level poverty. However, as the pandemic progressed and life returned back to normal, the massive monetary stimulus set-off a round of manic corporate re-hiring. In addition, hundreds of new start-ups were funded via the IPO market all competing for the exact same pool of "gig workers". These factors and the pandemic-related early retirements I've discussed many times, tightened the job market beyond anything we've seen in recent decades. Putting the balance of power in the hands of the employee over the employer for the first time since 1979.

And THAT is why there is currently so much hysteria over "inflation". It is almost entirely ideological in its root cause. The chamber of commerce has informed the Fed that they need to get "inflation" under control ASAP. And hence the Fed is ignoring ALL risk in order to do so.

Here we see that despite the intervening years of population increase and GDP increase, NOMINAL commodity prices are STILL below 1980 levels. In real terms adjusted for wage CPI, these commodity prices are near decade lows (see bottom pane, red).

What people are currently (over) reacting to is the rate of change (middle pane), which is the highest since the 1973 OPEC Oil embargo. This IS a shock, but the bottom pane shows it is NOTHING comparable to what took place in the 1970s on a real income basis.  

Here we see that EVERY CPI spike since WWII preceded recession. 

Given the precarious position of consumer sentiment, we need not assume this time will be different. 

It gets far worse however, because this blinder view of inflation is causing the Fed to ignore ALL other global risks. Including as I've said the collapse of Chinese stock and real estate markets, Russian default, and global growth stock meltdown.

The worst since Russian default, 1998:

Bear in mind that these other spikes took place AFTER the event. Whereas this time Nasdaq lows are near record levels BEFORE a Fed tightening and Russian default. 

In the U.S. we are essentially blacked out from the truth. 

We are behind the Iron Curtain of bullshit and denial.

All of which is where Wall Street criminality comes in handy. Because only true con artists can speak of commodity melt-up and economic meltdown at the same time. Which are both logically and historically mutually exclusive.

Got that? High prices predict recession. And recession predicts low prices. 

So get in and out quick because if you don't front-run everyone else, you will get obliterated.  

That is the type of "trade" only Bernie Madoff could love. And yet, it's essentially the standard advice given on Wall Street - "hide" in inflation trades:

"On Sunday, Tesla CEO Musk tweeted that in times of high inflation, it is “generally better to own physical things like a home or stock in companies you think make good products,” rather than keeping your money in cash"

Elon Musk just took off the table MORE cash than he was worth before the pandemic. He nailed the top. And Warren Buffett is sitting on RECORD cash right now.

Their advice is strictly for people who CAN'T afford massive losses. 

In summary, the entire pandemic bacchanale was a sucker's rally at the end of the cycle, sold to the usual bagholders by the usual psychopaths. 

Under the auspice of being a "new cycle":

Next stop will be hard landing at the zero bound.

And what I call "bailout risk". 

Globalized Collapse In Real-Time

What we are witnessing is the collapse of Globalization in real-time, attended by a level of epic hubris that prevents the majority from seeing it happen - just as those in the Soviet Union didn't know it was ending until it was over. It's amazing what amount of societal decay can be "normalized" by a decadent society...

The main lesson from BOTH World War I and World War II was that only military alliances can create world wars. Absent alliances, conflicts remain regional. In an age of nuclear warfare, never before has that lesson been more important. Per the terms of the Budapest Memorandum reached back in 1994, Ukraine relinquished its massive nuclear arsenal in exchange for security guarantees from the U.S., Britain, and Russia. Back then, NATO expansion was in its infancy and clearly no one predicted the circumstance that would lead to this inevitable crisis. It was epic hubris on the part of the West to believe that an isolated Russia would stand by passively while the former Soviet Union got absorbed into NATO.

Yet here we are. Not to say I condone this invasion of Ukraine, only to say that history predicted it would happen. For the record there have been NO successful invasions of another country since WWII where the smaller country was supported by a superpower. ZERO. Therefore, the expansion of NATO was at best totally pointless, at worst it has needlessly brought us to the brink of WWIII.

Now, these economic sanctions have taken hubris to an entirely new level of ludicrous. The West is in no condition to simultaneously marginalize China AND Russia into submission. Which is what they are attempting right now. 

Both of those countries have a past history of repudiating capitalism for its failure to bring broad based prosperity to the masses. Now history is repeating itself. Globalized capitalism has failed those countries, which is why they are repudiating it. Globalization has also failed the rest of the planet, but unfortunately we live behind an Iron Curtain of hubristic denial. We think they don't get accurate information, when we are as blacked out from the truth as they are. 

In this coming week, on the same day that Russia is widely expected to default on its debt, the Fed is widely expected to raise interest rates. The last time Russia defaulted on its debt, the Fed CUT interest rates .5% in the Fall of 1998 to stave off global meltdown. 

In addition, the last time Chinese markets were in free-fall - in 2015 and again in 2018, the Fed STOPPED raising interest rates.

Chinese stocks are now below the level of the last Fed pivot in 2018 and Chinese junk bonds are bidless:

In other words, U.S. policy-makers are now trapped by their own epic hubris. Which means that investors are trapped as well. There are literally no pundits right now warning of the insane amount of risk that is NOT priced into these Disneyfied markets. Why? Because the initial impacts of Fed tightening via their balance sheet has seen global markets ex-U.S. basically collapse. In addition, global Tech stocks have imploded with the U.S. Nasdaq closing this week in a bear market, at the very BEGINNING of a rate hike cycle. And the dollar is screaming higher demolishing global currencies. In other words, U.S. broad based indices have so far been spared. If like most pundits, you only look at the S&P and Dow, one would conclude things are not so bad. The rest of the world however is already below the pre-pandemic level. Meaning the entire pandemic rally was nothing more than an end of cycle bull trap.  

 

These three trends I mentioned above - global market collapse, Tech stock collapse, and dollar rally will accelerate in the coming weeks. And when that happens U.S. broad based indices will not be spared. Nor will the housing market, and every other market on this planet. 

The circumstances prevailing at this juncture are eerily similar to what abided in 2008:

A simultaneous interest rate shock, asset collapse shock, oil shock, and inflation shock. All attended by rampant denial. The major bonus this time around being epic hubris and sanctions. 

In summary, the masses believe they are witnessing the second collapse of the Soviet Union. However what they are really witnessing is the collapse of Globalization. 

In real-time. 

And soon, it won't only be Russian Oligarchs hiding their yachts.